This article first appeared in the Telegraph.

Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

ANOTHER day, another alarming inflation number. Prices are not rising quite as fast here as they are over the pond, but they soon will be when the energy price cap is lifted in April. The fact is that inflation is increasing pretty much everywhere, and higher interest rates aren’t going to make much difference because prices are in the main being driven by supply issues, not excess demand.

It’s also worth remembering that rising inflation is politically expedient. We can’t cut or tax our way out of today’s gargantuan debts, so governments will almost certainly succumb to the temptation to do it by stealth. As investors we just have to accept that inflation is likely to stick around for a while. This does not mean that we are doomed to repeat the 1970s. Inflation may well peak this summer and settle at 3-4%. But even that would halve your purchasing power in 20 years.

So, the time has come to lift the lid on our investments and ask ourselves a few key questions. They are deceptively simple but measuring your portfolio against them could be time very well spent.

Question number one: are the returns from my investments fixed or variable? If the income you receive from an investment is fixed at the outset (as it is with the coupon on most bonds but not with the rent from a property or the dividend on a share), it will become progressively less valuable to you over time in even a modestly inflationary environment. The same is true of the capital return at maturity of a fixed-term investment like a bond which only ever promises to pay you back your initial investment.

Question two: do my investments enjoy pricing power or significant barriers to entry? There is no such thing as a truly inflation-proof investment, but a company selling a good or service that is genuinely essential will be able to raise their prices at least as fast as their costs are increasing. They will, therefore, be able to sustain their profits through the inflationary wave, however long that lasts. The definition of essential is quite fluid here. It might include things that technically we don’t need but which many people would be very loath to give up. Drinks spring to mind. This moreover is a sector that is well protected by the intangible strength of brands. If Hendricks is your thing, you probably won’t settle for Gordon’s.

It’s worth considering that what we consider essential has changed over time, and this process has accelerated during the pandemic. I am thinking, in particular, about the technological hardware that we as individuals, and the companies we work for, could not function without. I don’t live on my phone in quite the same way as my kids, and Mrs S thinks my message checking is sub-optimal, but even I could not contemplate life without my iPhone or Mac. There’s a reason why Apple is valued at $3 trillion.

Number three: how exposed is my portfolio to things that might reasonably be considered inevitable over the next few years? Whether or not we hit the net zero targets laid out in Glasgow, the next two or three decades are going to be heavily influenced by the attempt to do so. That means that many gazillions of dollars, euros and renminbi are going to be spent on building a lower carbon future: more electric vehicles, more renewable energy, more efficient buildings. And the most obvious beneficiary of all that infrastructure spending will ironically be some of the dirtiest of industries. Demand for copper, iron ore, rare metals, you name it, will exceed supply for the foreseeable future.

The fourth question: do they still make it anymore? Mark Twain famously recommended buying land for this reason. Finite supply and rising demand equal higher prices. Economics 101. There just isn’t enough claret in the world to quench the thirst of the Chinese and Indian middle classes that are likely to get a taste for it. There won’t ever be any more 1960s Ferraris.

Question number five: do the people buying this good or service themselves enjoy an inflation-proof income? Governments do, so the things that they spend their money on - like hospitals, schools, roads and tanks - are likely to remain in demand. This is particularly true when voters are generally unimpressed by the people that govern them and require more and more encouragement to keep their leaders in power. Some of the funds and investment trusts that specialise in this area, such as the Foresight UK Infrastructure Income Fund, also offer investors a decent yield - 5% in this case.

Penultimate question: how do my investments like the prospect of rising interest rates? The first few weeks of this year have shown that investors have a growing preference for shares that are valued on the basis of today’s actual earnings rather than the hope for profits at some point in the future. Unprofitable tech stocks, which have flourished in the low rate world, have borne the brunt of this rotation and the Nasdaq index is 5% lower than it started the year. Banks by contrast like rising interest rates because they allow them to widen the gap between the lower rate of interest they pay on deposits and the higher rate they charge on loans.

And lastly: what has worked before? Gold has been a disappointment as inflation has reappeared on investors’ radars, but it tends to do well when interest rates remain below the rate of inflation, as seems entirely likely for as far as the eye can see.

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. 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.

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