Straight from the expert: Investment strategies amidst inflation

The Philippine economy has been trending upward since experiencing a pandemic-induced decline in 2020. Growing by 5.7% in 2021, 7.6% in 2022, and 5.6% in 2023, the country’s gross domestic product is expected to continue its expansion by 5.02% to 6.17% this year.

Despite this strong economic showing, the robust performance was accompanied by inflation rates. Since peaking at 8.7% in January 2023, inflation in the country has eased considerably with headline inflation in August 2024 decreasing to 3.3%. This brings the national average inflation from January to August 2024 to 3.6% which keeps it within the government’s goal of 2% to 4% this year.

While inflation has eased, its ripple effects continue to influence not only consumer spending but investment decisions as well. Fluctuating prices can create uncertainty as businesses face increased production costs, which may affect their profit margins and stock performance.

Inflation-Proofing Investments

To help Filipino investors sustain investments in the face of inflation, Sun Life Investment Management and Trust Corp. (Sun Life Investment Management) economist Patrick Ella provides expert advice on strategies to navigate the challenges posed by rising prices. Building on the strong foundation of its well-established parent company, Sun Life of Canada (Philippines), Inc., Sun Life Investment Management is a stand-alone trust corporation duly authorized to conduct business as such by the Bangko Sentral ng Pilipinas.

Serving as the Filipino’s “Partner for Life,” Sun Life Investment Management can customize inflation-proof fund management solutions according to a client’s specific objectives and requirements. Having access to a wide range of investment outlets, the trust corporation provides its clients with well-diversified portfolios suited to their preferences.

With investors aiming to protect their investments from inflation, Mr. Ella shares that one of the primary strategies is to invest in assets that provide a steady stream of returns which helps offset the eroding purchasing power caused by inflation.

“To guard against inflationary effects on investments, it’s recommended to invest in yield or income-producing assets like high-dividend stocks or income payout funds,” Mr. Ella said.

Income-producing assets are investments that generate passive income including dividends paid on shares, rental income from investment properties and real estate, bonds, and interest produced from bank accounts.

Pro Tips against Inflation Pitfalls

Additionally, Mr. Ella warned about several potential pitfalls in investing too conservatively to hedge against inflation. He added that investments that fail to outperform inflation rates can ultimately result in the diminished value of one’s savings.

“If the conservative outlet chosen does not give a meaningful return above inflation, then the net impact on the income-purchasing power of these investments is not compensating investors. So, holding cash in an inflationary environment might not be a good idea unless the cash outlet has a high yield over inflation,’ Mr. Ella said.

Furthermore, he advises investors to diversify their portfolios to minimize the impact of inflation on their overall investment returns. Mr. Ella explains that spreading investments across various high-dividend stocks can help mitigate risks associated with inflation and turn in profit despite rising prices.

“It is best to diversify the risky assets to high-dividend stocks, REITs (Real Estate Investment Trusts), government bonds and corporate bonds, and global funds that offer high dividend strategies and income payout,” he said.

Empowering Filipino Investors

One of Sun Life Investment Management’s core principles is risk management, which they apply through asset diversification, fundamental research and analysis of cash flows, proactive and continuous portfolio monitoring, and active fund management to ensure that their client’s wealth is protected against external shocks and provide Filipinos with confidence and peace of mind.

Hampered by inflation, the Philippine economy is still expected to remain robust due to strong consumer demand, a vibrant labor market, and high remittances. In today’s economic climate, Mr. Ella suggests several promising investment opportunities that can serve particularly as inflation protection for a brighter life.

“For now, given the backdrop of lowering interest rates, government bonds, corporate bonds, and high-quality dividend stock still offer the best outlets for the inflation-fighting investor,” he said.

In addition to these investment insights, Mr. Ella is also passionate about empowering Filipinos to make informed financial decisions. True to the missions of Sun Life Investment Management, he is dedicated to helping Filipinos effectively deploy their funds to achieve financial growth by enlightening them with sound advice, empowering them with innovative investment solutions,

“I’m passionate about investing because it gives me a constant puzzle to be solved, either a client-specific solution or a general market issue. At the moment, the Philippines is breaking to the $4,000 per capita income towards a goal of $5,000 to $7,000 level, which should put us in the camp of fast-growing middle class among global peers. Hence, helping Filipino households and savers deploy funds is even more important than ever,” he said.

With inflation easing, the Philippine economy is once again poised for continued growth in 2024. Through the help of experts like Mr. Ella and trusted brands like Sun Life Investment Management, Filipino investors can gain valuable insights and strategies to effectively ensure that their investments not only withstand inflationary pressures but also capitalize on opportunities that yield revenue.

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