The UK economy is in a state of low growth and high inflation, in other words stagflation. This is why I decided to buy an inflation linked bond. So in this video, I’ll share my experience of how and why I did that and what I hope the reward will be.

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Timestamps
00:00 Introduction
00:31 Stagflation
03:42 Stagflation Investing
04:18 UK Inflation Linked Gilts “Linkers”
10:09 My Return Guess
12:04 Buying A Linker Isn’t Easy!

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DISCLAIMER
All information is given for educational purposes and is not financial advice. Ramin does not provide recommendations and is not responsible for investment actions taken by viewers. Figures that are quoted refer to the past and past performance is not a reliable indicator of future results….(read more)

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Why I Bought Inflation Linked Bonds

Inflation is a constant concern for any investor. The possibility of eroding purchasing power underscores the need for solutions that can offset the effects of rising prices. One such solution I recently turned to is inflation-linked bonds.

Inflation-linked bonds, also known as inflation-indexed bonds or simply TIPS (Treasury Inflation-Protected Securities), are a type of fixed-income investment specifically designed to protect against inflation. They provide a reliable means for investors to preserve their purchasing power over time, making them an attractive addition to any well-diversified portfolio.

The main reason I decided to buy inflation-linked bonds is their unique ability to provide protection against inflationary pressures. Unlike traditional bonds, where the interest payment is fixed throughout the life of the bond, inflation-linked bonds adjust their principal value and interest payments according to changes in inflation. This means that as inflation rises, the value of the bond increases, and so do the interest payments. This adjustment maintains the real purchasing power of the investment, ensuring that the bondholder’s return keeps up with inflation.

Another advantage of inflation-linked bonds is their low correlation with other asset classes. While stocks and traditional bonds tend to be negatively impacted by inflation, inflation-linked bonds provide a hedge against rising prices. By including these bonds in a portfolio, investors can reduce the overall volatility and enhance diversification, ultimately creating a more robust investment strategy.

Furthermore, inflation-linked bonds offer a predictable income stream that keeps pace with inflation. This feature makes them particularly suitable for investors seeking reliable cash flows to cover their living expenses in retirement or individuals with a long-term investment horizon. The reassurance of a regular income stream tied to inflation can provide peace of mind and help maintain a stable financial situation.

Investing in inflation-linked bonds also enables participation in potential deflationary scenarios. As the principal amount of these bonds is adjusted downwards in the event of deflation, the investor is protected from losses that typically affect other fixed-income investments. This dynamic ensures that the value of the investment remains stable even in a deflationary environment, offering an added layer of security.

Moreover, inflation-linked bonds come with the backing of the government, making them a relatively safe investment option. The principal and interest payments on these bonds are backed by the full faith and credit of the respective governments, which reduces the risk of default. This support from the government, coupled with the inflation-adjusted returns, enhances the attractiveness of these bonds to risk-averse investors.

In summary, purchasing inflation-linked bonds offers several advantages for investors. These bonds provide protection against inflation, diversification benefits, a predictable income stream, the ability to withstand deflation, and security through government backing. By incorporating inflation-linked bonds into my investment portfolio, I have taken significant steps to safeguard my purchasing power against the erosive effects of inflation.

Reasons Why I Purchased Inflation-Linked Bonds appeared first on Inflation Protection.