Investors will need to look at diverse strategies for wealth creation with inflation levels likely to rise, according to Nikko Asset Management (Nikko AM).
The asset manager said that with monetary policies around the globe likely to trigger inflation, investors will need to employ strategies to hedge against it that have not been seen in years.
"Classic inflation hedging strategies used to focus on gold, commodities and equity investing, but we believe that following this mindset in asset allocation strategies is outdated," Nikko AM chief investment officer Yu-Ming Wang said.
There are, however, tools available that may protect investors from the potential erosion of net assets in a future inflationary environment, he added.
With an increasing number of investors comprising a demographic closer to retirement phase, Mr Wang said many have a lower tolerance for risk and a greater need for reliable returns.
Bond strategies will often perform well in a rising inflationary environment, particularly if they are denominated in currencies with positive fundamentals, he said.
"Furthermore, investing in stocks that offer high dividends can provide another shield against inflation," Mr Wang said.
"After collecting the dividend payouts, an investor still retains the ownership of stock in a business that could grow.
"Further dividend payouts could therefore grow along with inflation, protecting purchasing power."
However, Mr Wang cautioned investors against taking a short-term view to wealth creation and stressed the importance of a diversified asset allocation.
"By taking a longer-term view, evaluating the risks and rewards of individual sectors and with careful consideration of fundamentals, investors with a multi asset-class inflation-hedged portfolio will very likely benefit from higher inflation expectations," Mr Wang said.
