Investments: How to Restructure Your Wealth to Face Inflation?

the big return of inflation has negative effects on investments whose reward is supported by interest rates, and positive effects on others. In this context, asset managers are recommending some adjustments to the asset allocation that was still in effect at the beginning of 2022. of shares and one third of real assets. But this is a purely theoretical assignment. It is not easy to change everything, so it is necessary to make gradual changes to the heritage and in small steps ”, says Delphine Di Pizio-Tiger, CEO of Indosuez Gestion (Crédit Agricole group).

Difficult so far whether inflation will continue or not. “However, the bottlenecks in the supply of products, the Covid-19 epidemic slowing the Chinese economy, plus the war in Ukraine that the world economy is destabilizing these are all factors that perpetuate this phenomenon”, explains Jean-Maximilien Vancaayezeele, Managing Director of the Crystal group.

A number of investments make it possible to delegate economic management by being part of a long-term strategy, such as: retirement savings plans (PER) with management on the horizon, life insurance with option for delegated management of units of account or the tontine. But this new environment may lead savers to question the merits of their wealth strategy and adapt their decisions to better weather this turbulent period.

Invest Excess Cash

First reflex: don’t let more cash sleep than is needed in a bank account, passbooks, cash investments or even in the euro fund of a life insurance contract. This applies to both the private and professional assets of an entrepreneur. “By leaving too much money uninvested, savers allow themselves to watch their money erode gently and painlessly,” said Didier Bujon, CEO of Equance.

Another recommended trade-off: Reduce the weight of bonds (an investment that suffers from inflation and rising interest rates) in asset allocation by gradually replacing them with stocks with little or no impact. Again, this shift should not be radical, but gradual, warns Didier Bujon.

However, not all actions are in the same boat. It is better to focus on those who benefit from the rise in interest rates (banking stocks, insurance stocks) and who are not too much affected by this inflation phase. This should be the case for companies that can raise their selling price (securities with “pricing power”) to pass on the increase in production costs and for companies with little or no debt (no passing on of the rise in interest rates). interest on their debt).

The trail of real assets

Finally the last groove to dig in a period of inflation: invest in a real asset “In this environment where there is a risk of more inflation than economic growth, commodities are preferred. It is particularly interesting to position yourself on certain industrial and precious metals used for the energy transition,” says Stéphane Monier, investment director of Lombard Odier.

Another area to explore: property, which holds up well to inflation, although it has traditionally been affected by interest rate hikes weighing on household purchasing power. But if they honestly go back three months, loan rates are still cheap (1.34% over 15 years, 1.49% over 20 years and 1.59% over 25 years on average at the beginning of May, according to broker Pretto) and well below current inflation. “Now is the ideal time to get into debt at a fixed rate and invest in real estate. But care must be taken to invest in a quality stock,” said Didier Bujon.

In the context of a rental investment, two parameters must be taken into account: the growth of rent controls introduced in many cities and a tenant’s ability to pay his rent. “The rents that are revised on the anniversary date of the lease are based on the IRL, itself in line with inflation, the increase that is already there and the risk of some tenants getting into financial difficulties. Will they be able to absorb and pay for these costs? asks Jean-Maximilien Vancaayezeele.

Residential real estate is therefore not a panacea. As for commercial real estate, very popular with private individuals who invest a lot through real estate investment companies (SCPI), it should also be approached with caution. The downward revision to the growth outlook and reorganizations that give telework a prominent place could ultimately weigh on the profitability of this asset.