Inflation is the biggest concern for Family Offices this year according to 41% of Family Office Leaders.

The Agreus study surveyed a pool of Family Offices and asked them what their biggest concern was entering the new year and for the majority, the answer was Inflation followed by worldwide conflict (34%) and political instability (25%).

Inflation is an undeniable concern. Inflation has hit over 10% for the second time this year as the UK experiences the sharpest annual rise in food prices for more than 40 years.

The Office of National Statistics said that the Consumer Prices Index rose to 10.1% in September, last higher in 1982. The Annual rise of food is being blamed for the sharp increase and at a 15% growth rate, it is the fastest growing annual rate since 1980.

What does this mean for Family Offices?

It is an incredibly complex question that may just be impossible to answer but one thing to consider as a Family Office is your own position.

  • Are your assets vulnerable to declining value?
  • Have you enough liquidity to benefit from staggering inflation?
  • How are your assets currently held?

With cash and short-term investments losing value, the predictable and sometimes best response is to spend. While for consumers this means stocking up on things that won’t lose value, for investors, it means making capital investments that otherwise might have been put off until a later date.

Rising inflation means higher prices and higher prices means higher interest rates. Investors should find a way to hedge the risks of inflation and the best way to do so is to invest in asset classes, best equipped to deal with the shocks of rising interest rates from Treasury Inflation-Protected Securities to commodities and equities. While this has traditionally been gold or other precious metals, their recent volatility can cancel out their benefits and equities have been among the best hedges against inflation.

On December 12th, 1980, a share of Apple Inc. cost $29 in current dollars. According to Yahoo Finance, that share would be worth $7,035.01 on February 13th, 2018. According to Investopedia, if you had buried that $29 in 1980, the nominal value wouldn’t have changed when you dug it up but the purchasing power would have fallen to $10.10 in 1980 terms. That’s a depreciation of 65%. You would have however been much better off to bury that $29 than to than buying and holding a share of Houston Natural Gas, which would merge to become Enron.

Ultimately, the answer – like many in the Family Office world – is completely dependent upon your own situation, your risk appetite and your own predictions for the short and long-term but one thing is for sure however and that is that Inflation is on the minds of Family Offices this year and it will certainly impact every decision we make in the coming months.

Is Inflation your biggest concern and if so, how are you safe guarding your portfolio against it?