After more than two years of high inflation, price growth has started to cool in 2024, though in the UK it remains above 2%. Reflecting on this challenging economic period, Jatin Ondhia, CEO of property investment platform Shojin, shares his thoughts on what lessons investors have learnt from sticky inflation.
The UK’s battle with inflation has been a slog. While prices may have cooled earlier this year, the time it has taken to get back toward the Bank of England’s target levels and the recent uptick to 2.2% reminds us that inflationary pressures remain persistent.
After years of low inflation and near-zero interest rates, the sharp rise in inflation to a 40-year high of 11.1% at the end of 2022 and its subsequent lagging descent has been a wake-up call for both investors. The economic landscape has changed, and with it, so too have the strategies investors must employ to protect their portfolios.
In the past, a decade of ultra-low interest rates allowed investors to benefit from easy, predictable gains across major stocks and index funds. Low borrowing costs, combined with quantitative easing, created an environment where steady growth was the norm. But in today’s climate, where inflation remains stubborn and interest rates, despite the central bank’s first cut in August, are still significantly higher than they were pre-2022, investors must adapt to a new reality.
Indeed, according to a recent growth update from the OEDC, while the UK economy is expected to experience relatively strong growth, it will also face the highest inflation rate among G7 countries in both this year and next.
With high prices still a present threat, the importance of diversification and a more financially astute mindset will be the key lessons learned from this period going forward.
The growing need for alternatives
The volatility of the last few years has seen the rise of alternative investments, and for good reason. These assets, which fall outside of the conventional categories of stocks, bonds, and cash, have proven themselves to be resilient in times of economic turbulence.
Historically, alternatives have been seen as niche investments, reserved for those with deep pockets or specialist knowledge. But times have changed.
Today, alternative investments – ranging from real estate and private equity to commodities – are growing rapidly in popularity. In fact, they are projected to reach a value of $26.21 trillion by 2026, a reflection of how investors see their role not only as an income generator but also as a safety net.
The rising popularity of alternatives can also be attributed to the way technology has democratised access. Platforms have emerged that allow investors to participate in real estate, private debt, and other asset classes with lower minimum investments.
Security in real estate
Among the alternative asset classes, real estate stands out as a tried-and-tested shield against inflation. Historically, property values tend to appreciate over time, often keeping pace with or exceeding inflation.
The UK property market, in particular, has demonstrated remarkable resilience in recent years. Despite rising costs and economic uncertainty, house prices have remained high – in the year up to August, houses became 2.4% more valuable with the average property costing £265,375, according to Nationwide. While lower than the historic highs recorded in the summer of 2022, the UK real estate market has performed exceptionally well.
Additionally, the government’s pledge to construct 1.5 million new homes over the next parliamentary term signals a potential boom in investment opportunities, particularly for those interested in new developments and urban renewal projects.
Accordingly, real estate remains a strong foundation for this strategy, offering both stability and growth potential. Combined with a broader mix of alternative assets, investors who adapt to these lessons are likely to emerge from this period more resilient and prepared for the future.
A new mindset
The high-inflation environment of recent years outlines that diversification is no longer just an option – it’s a necessity. Investors who have historically relied on a narrow range of assets should expand their horizons and consider a broader mix of investments. Alternative assets such as real estate, private equity, and even emerging markets offer valuable opportunities to spread risk and capture growth in an uncertain economy.
Further, advancements in tech, particularly in proptech, have made this diversification easier than ever before. These tools are breaking down traditional barriers to entry, offering investors more accessible ways to invest in property and other alternative assets.
Certainly, sticky inflation has been a learning experience for investors. We can see this reflected in how financial habits have shifted. For example, research on consumers’ financial management from Chetwood Financial found 51% UK adults believe they’ve become more competent at managing their finances over the past year, and 51% now feel confident about how they will save and invest in the coming 12 months.
It’s to be expected that inflationary pressures have encouraged people to adjust the way they handle their money, leading to greater financial awareness and more strategic approaches to managing their investments.
Prices may still be high, but those who adopt a modern, diversified approach can position themselves to balance these challenges and capitalise on future opportunities.
Jatin Ondhia is Co-Founder and CEO of Shojin, an FCA-regulated online real estate investment platform that lowers the barriers to entry for individuals across the globe looking to access institutional-grade, UK-based real estate investment opportunities. He served as Director for UBS for nine years, using his wealth of knowledge and experience to provide strategic fixed-income solutions to the bank’s top clients and expand the UBS Delta businesses in the intermediary space. Jatin also has over 20 years of property investment experience.
