Manage inflation risk by investing
Manage inflation risk by investing
- Saving alone may not always keep pace with inflation. Investing may help to grow your wealth over the longer term.
- Start small, invest regularly, and stay disciplined
- Know your risk tolerance and stay invested long-term
- Consider Unit Trusts for diversified, professionally managed exposure and steadier returns
When it comes to securing your financial future, just saving alone may not be enough.
Depending on your view of what a “comfortable life” constitutes, chances are it could cost a hefty sum. And this may only get more expensive over the years with inflation. Inflation affects the purchasing power of your existing funds – meaning that a dollar today may afford you less in the future.
One way to mitigate the effects of inflation is by investing. By allocating some of your spare cash or monthly savings into longer-term investments such as stocks, bonds and unit trusts, you may potentially grow your funds at a faster rate over time. However, this also involves taking on investment risk, and depending on market conditions you may incur losses, including the potential loss of part or all of your capital.
Investing in a diversified portfolio may provide the potential for higher returns over the long term. Diversification can also help reduce volatility compared to investing in a single asset class.
Source: Bloomberg, OCBC Wealth Management. Data as of 30 April 2026. Global Equities are represented by the MSCI All Country World Index. Global Bonds are represented by the Bloomberg Global Aggregate Total Return Index. 60-40 Portfolio assumes a constant 60-40 allocation between Global Equities and Global Bonds. All dividends and coupons are assumed to be reinvested. “Compounded at 1.50% interest per annum” assumes monthly compounding.
It doesn’t take much to get started
The good news is you don’t need much to start investing.
Strategies like dollar cost averaging, where you invest a small amount monthly in an investment of your choice, can be a useful way to seek gradual market exposure (starting from as little as $100 per month).
Automating the process also ensures some degree of discipline and keeps you invested in the market regardless of the direction of prices.
This helps guard against emotional reactions to market movements. For long-term investors, this is crucial as it is time in the market that matters – not timing the market.
Understand your tolerance for risk
Before starting on your investment journey, it is also important to understand your risk tolerance. This is typically determined by your financial needs as well as ability and willingness to take risks.
- Need (Why take risk): You may need to take on some level of risk to potentially grow your money over time, as factors such as income constraints and inflation may limit the ability of savings alone to achieve your long-term financial goals.
- Ability (Can you take risk): Your ability to take risks depends on your financial situation, as your income, expenses, and existing obligations determine how much losses you can realistically afford to bear.
- Willingness (Comfort with risk): Your willingness to take risks is driven by your personal comfort level, preferences, and understanding of investments, which influence how much uncertainty and potential loss you are prepared to accept.
Once you get started, staying invested over the long term can be crucial in working towards better outcomes. This is more achievable when your need, ability and willingness to take risks are aligned. You do not want to place yourself in a situation where you become acutely affected by sudden drops in market prices and thus bail out of your investments at the most inopportune time.
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