Can you suggest lower-risk funds that keep pace with inflation?

Q: I am retired and would like to move my pension and ISA into lower-risk / less-volatile funds that keep pace with inflation. What would you recommend?

A: Most retired investors do not want to take too much risk with their money — but given that many will need their pension and ISA to support them for 20-plus years, they also don’t want to see the value of savings eaten away by inflation.

Finding an investment strategy that delivers on both aims is not easy. There isn’t one single product or fund out there that can guarantee inflation-beating returns without taking some risk with your money.

The key is to find a balance across your portfolio between capital preservation, income generation, and inflation protection — which is likely to involve investing in a range of funds which invest in different assets, with varying risk and return profiles.

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Fidelity has a number of tools on its website that can help you find appropriate options, including its Navigator tool and its Select 50. This is a list of funds chosen by the team’s independent experts. This list features active and passive funds, investment trusts and exchange-traded funds (ETFs), which include lower-risk bond and cash funds, as well as multi-asset funds and total return funds — which aim to deliver positive returns regardless of the underlying investment climate, with often a target to deliver a set return relative to inflation. However, it should be noted that these targets are ‘goals’ not guarantees.

Multi-asset funds can be specifically designed for cautious investors. Here only a portion of the fund is in higher-risk equities, with the view that these will deliver higher returns over the longer-term, while the rest of your money is in lower-risk assets, such as government and corporate bonds and cash, which are less likely to fluctuate in value in the short-term and should preserve capital.

But not all multi-asset funds are the same. Some will invest up to 80% of assets in equities, so are unlikely to meet the needs of more cautious investors. Others though will limit the maximum equity weight to between 20% and 60%, and are typically labelled ‘cautious’ or ‘defensive’ — so check before investing.

The Select 50 contains a number of funds that meet these criteria. The Pyrford Global Total Return explicitly targets low volatility — good for those who value sleeping easily at night without worrying about significant losses.

Over the past 10 years this has delivered steady returns for investors, with only one annual fall (of 0.8% in the year to end of June 2018). However this more cautious approach means that returns have not been as high as others, with it delivering an initial investment of £1,000 into £1,417 since its launch in December 2015: a positive return, but one that has not kept pace with the higher inflation we’ve seen in recent years. 

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Also in the Select 50 is the Fidelity Global Dividend Fund, another fund that has also delivered steady gains over an extended period, without large falls, while also managing to turn £1,000 into £2,799 over the last ten years.

The Select 50 has a number of multi-asset funds, including the Ninety One Diversified Income Fund. This has less than 35% of its assets in equities, meaning relatively low volatility. It has turned £1,000 into £1,364 over the last ten years.

The Select 50 also includes a number of closed-end investment companies that seek to deliver positive returns, regardless of what markets are doing. These typically invest in a broad range of assets to achieve these ends. But as with total return funds, it’s worth pointing out this is an explicit aim of these investment vehicles, not a cast-iron guarantee.

Past performance is not a reliable indicator of future returns

Source: Refinitiv, total returns from 31.7.20 to 31.7.25. Excludes initial charge.

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Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Before investing, please read the relevant key information document which contains important information about each investment trust. Shares in investment trusts are listed on the London Stock Exchange and their price is affected by supply and demand. Investment trusts can gain additional exposure to the market, known as gearing, potentially increasing volatility. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. Select 50 is not a personal recommendation to buy or sell a fund. Eligibility to invest in an ISA and tax treatment depends on personal circumstances and all tax rules may change in the future. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.