Equities 'could help fight inflation'

Tue, 02 Sep 2008

Investors who are worried about the effects inflation may have on their money should consider putting it into equities, which have traditionally been regarded as resilient to inflation, columnist Steve Johnson has said.

He commented in the Financial Times that such a belief comes from the idea that their basis on real assets means that in theory the goods they represent will rise in value alongside inflation.

Although this is the received wisdom, Mr Johnson commented, from a long-term perspective the stock market has consistently exceeded inflation, delivering average returns of seven per cent compared with inflation of between one and four per cent.

Fund manager Jeremy Lang told the Financial Times columnist that based on history, inflation affects stock market returns when it is either accelerating or above four per cent.

Mr Johnson added that equities remain a potentially good investment in a downturn, having delivered positive real returns in the long term.

Laurence Fletcher from Reuters has advised British investors to consider turning to equities as by avoiding putting their money in them they may miss out on potential upturns.
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