When inflation climbs, households often make the mistake of doing nothing. Leaving money idle in a savings account may feel safe, but it slowly erodes purchasing power. “The main mistake many people make during inflation is to let their money sit in savings accounts because inflation slowly decreases purchasing power,” said George Khoury, Global Head of Research and Education at CFI Financial Group.
Khoury sees two other behavioural traps: overspending out of fear that prices will keep rising, and rushing into speculative investments without understanding the risks. Both, he argues, compound the problem. “Some people try to invest in risky assets to gain fast profits, but they do not grasp the potential risks these investments have,” he noted.
How to invest during inflation?
The more effective approach, Khoury said, is to move into assets that historically rise with inflation. Equities remain one of the strongest buffers, as companies often raise prices in line with higher costs. Global indices have shown resilience in past inflationary cycles. During the 1970s, for instance, US stocks delivered average annual nominal returns of around 5%, even as inflation peaked above 10%.
Real estate is another traditional hedge. Rents and property values typically increase during inflationary periods, although rising interest rates can dull the attraction. “Property values, together with rents, typically rise during periods of inflation,” Khoury said. Yet some investors, including Bridgewater founder Ray Dalio, have recently warned that real estate is under pressure from high borrowing costs and tax burdens, making it less reliable than in past cycles.
Gold, long regarded as a store of value, remains a go-to hedge. Spot gold has gained more than 13% year-to-date, trading above $2,500 an ounce, as investors brace for prolonged price pressures. “The price of gold acts as a hedge because it tends to rise when the value of money decreases,” Khoury added.
The case for inflation-linked bonds
Fixed-income investors are also revisiting inflation-linked bonds. In the US, Treasury Inflation-Protected Securities (TIPS) now yield over 2% in real terms, their highest in more than a decade. Similar instruments exist in Europe and Asia, offering capital protection and inflation-adjusted returns. Market analysts expect demand for such securities to climb if inflation proves persistent.
Living paycheque to paycheque
For those with tighter budgets, Khoury advises a phased approach. “Daily essentials such as food, rent, and bills should be your main financial priority. You should focus on creating a small emergency savings fund after establishing stability, you can start investing small amounts into basic inflation-resistant savings plans,” he said. This laddered strategy ensures that those living paycheque to paycheque can gradually participate in inflation-hedging assets without compromising immediate needs.
Avoiding ‘inflation-proof’ traps
The search for protection often leaves households vulnerable to marketing pitches promising “inflation-proof” returns. Khoury warns that red flags include guaranteed high returns with no risk, urgency tactics, or lack of regulatory oversight. “Be extremely cautious about any investment that promises high returns with no risk,” he said. “The warning sign of unrealistic or rushed promises indicates that an investment is not genuinely protected against inflation.”
Debt versus investment
For households with debt, the priority is clear. “The best course of action in inflationary periods should be to eliminate high-interest debts, starting with credit cards and personal loans,” Khoury said. Credit card rates in the UAE can exceed 35% annually, dwarfing potential investment gains. Once expensive debt is cleared, investors can begin directing funds into equities, real estate, or inflation-linked bonds.
Building habits for the long term
For first-time investors, Khoury emphasises simplicity and consistency. “Avoid making high-risk investment decisions that try to defeat inflation rapidly. Select diversified portfolios that build value steadily throughout time,” he advised. Regular contributions, even small ones, help preserve purchasing power and build discipline over time.
The principle echoes a broader truth about navigating inflation: while short-term price spikes can unsettle markets, diversified long-term strategies remain the most effective way to protect savings. As central banks in the US, Europe, and the Middle East signal interest rates may stay higher for longer, households that adapt now are more likely to preserve wealth.
“Revenue solves all problems, but cash flow is paramount,” Khoury added, citing advice that resonates as inflation persists. For individuals, that means building reserves, managing debt, and investing in assets that do more than just sit in the bank.
