Eight Ways to Protect Yourself From Inflation

Eight ways to protect yourself from inflation

Inflation is the silent tax on stagnant capital. The good news is there are practical steps you can take to keep ahead of it.

Here is what $1,000,000 will be worth in 30 years:

• $552,000 at 2 percent inflation
• $412,000 at 3 percent inflation
• $308,000 at 4 percent inflation
• $231,000 at 5 percent inflation

Don’t like how this looks? Then you need to invest.

While $1,000,000 remains a common financial milestone, what it actually buys depends entirely on the cost of goods decades from now. Most people focus on market volatility as the primary risk to their wealth. In practice, the guaranteed erosion of cash is often a much greater threat over long periods.

Staying in cash is a decision to accept a loss in real value. The rest of this article covers eight practical steps to avoid that outcome, drawing on what we see working across our client base.

The table above is from a post I shared on LinkedIn recently which prompted a lot of conversation. The numbers assume a static $1 million and four different rates of annual price increase. The Reserve Bank of New Zealand (RBNZ) targets one to three percent, so the 2 and 3 percent scenarios are closer to policy than to worst case. — Joseph Darby, CEO, Become Wealth

Between 2020 and 2025, New Zealand’s purchasing power fell by roughly 19 percent. In practical terms, $100 held in cash at the start of 2020 bought only about $81 worth of goods by 2025. At the cycle’s peak, annual inflation hit 9.1 percent in the United States and above 11 percent in the United Kingdom. Australia entered 2026 with inflation still above 3.5 percent. Inflation is cyclical. It can appear dormant for years, then resurface quickly. The time to prepare is before it arrives.

For a full explanation of how inflation works and how New Zealand measures it, see what inflation is and how it works. For a closer look at how the RBNZ manages it, see our central bank explainer.

How does inflation affect savings?

Inflation is sometimes called a “hidden tax” because it erodes purchasing power without visibly taking dollars from your pocket. When inflation exceeds the after-tax return on your savings, you are going backwards in real terms.

Consider a term deposit paying 4.0 percent. A saver on the 33 percent marginal tax rate earns roughly 2.7 percent after tax. If inflation is running at 3.1 percent, the real return is negative. You locked your money away for a year and ended up poorer. This is exactly the situation many New Zealanders face today. For a deeper look at the maths, read why cash is often a losing proposition.

On the other side, inflation can work in a borrower’s favour. If you owe money at a fixed rate and inflation rises, the real value of your debt declines over the life of the loan. The dollars you repay in future are worth less than the ones you borrowed. This is one reason well-structured borrowing can be a genuine wealth-building tool, not just a liability.

How does inflation affect investments?

While inflation punishes savers, it can help the value of certain investments. Real assets such as property and shares tend to keep pace with or outperform inflation over the long term, because the underlying businesses and properties can raise prices as costs increase.

Not every investment fares well. Bonds can lose value when interest rates rise to combat inflation. And during the tightening phase of an inflation cycle, rising rates can slow property markets and consumer spending. The key point: when inflation is elevated, being invested in a well-diversified portfolio is almost always better than holding large sums in cash.

Eight practical ways to protect your finances

1. Don’t let savings sit idle

Holding large amounts of cash beyond your emergency fund is a near-guaranteed loss of purchasing power during inflationary periods. Keep three to six months of living costs in cash, plus anything earmarked for spending within the next 12 to 24 months. Everything beyond this should be working harder inside a diversified portfolio designed to deliver positive real returns after tax. For a closer look at why savings accounts fall short, see cash is trash.

2. Invest in shares

Shares are small ownership stakes in businesses, and most well-run companies can raise their prices to offset rising costs. This is why equities have historically outperformed cash and bonds over the long term. Over multiple decades, global equities have delivered average annual returns of roughly seven to ten percent, well above the long-run inflation rate.

You might hold shares directly, or through managed investments such as managed funds or a KiwiSaver Scheme. For most New Zealanders, a diversified managed fund or KiwiSaver growth fund is the most practical route.

3. Consider property

Property values tend to rise alongside building costs and general price levels, making real estate one of the more reliable long-term inflation hedges. Rental income typically adjusts upward over time. When financed with debt, property can deliver a compounding benefit: the asset appreciates while the mortgage is simultaneously devalued in real terms.

There are caveats. Property is illiquid compared to shares, transaction costs are high, and interest rate increases during inflationary periods can put short-term pressure on property markets. The 2022 to 2024 period illustrated this clearly in New Zealand. For those with a long time horizon and the ability to service debt through a rate cycle, property investment remains a sound inflation hedge.

4. Review your mortgage structure

If you own property, reviewing your mortgage structure regularly is one of the most practical things you can do. New Zealand has been through a full interest rate cycle in recent years. The OCR was cut from 5.50 percent to 2.25 percent between late 2023 and early 2026, and the RBNZ has signalled rates are likely to remain around current levels for some time, though future increases have not been ruled out.

When the direction of rates is uncertain, splitting your loan across multiple fixed terms can provide a balance of certainty and flexibility. If inflation proves more persistent than expected and rates rise again, those on floating rates will feel the impact immediately. A proactive review with a qualified mortgage adviser can help you position your lending for a range of scenarios.

5. Consider borrowing to invest

For the right person, borrowing to invest can be a powerful wealth accelerator. It makes sense when the expected after-tax return on the investment exceeds the after-tax cost of the debt. In New Zealand, interest on money borrowed to buy income-producing investments (such as shares paying dividends or certain managed funds) is generally tax-deductible, which reduces the effective borrowing cost.

Inflation itself acts as a tailwind: if you borrow at a fixed rate and inflation runs above expectations, the real value of your debt shrinks over time. There are real risks involved. Leveraged investing requires stable cashflow, a long time horizon, and genuine tolerance for volatility. It is not suitable for most people, but if the maths works in your situation, it is worth exploring with professional guidance. Read our full guide on borrowing to invest.

6. Think carefully about precious metals

Over very long periods, gold has broadly kept pace with inflation. Over shorter periods, it can be wildly volatile. Gold has delivered stretches of poor real returns followed by sharp surges driven more by fear and sentiment than by economic fundamentals.

A small allocation (typically five percent or less of a portfolio) can provide diversification and a psychological cushion during turbulent periods. It should not be the engine of your wealth. Gold does not generate income, does not grow, and relies entirely on someone else being willing to pay more for it in the future. For most people, time and capital are better spent on productive assets.

7. Bring forward major purchases you were going to make anyway

If you know prices are rising, deferring a planned purchase simply means paying more for the same thing later. This applies to vehicles, home renovations, appliances, and other significant spending you were going to undertake regardless.

This is not a licence for reckless spending. It is a practical acknowledgement: if you need to replace a car or renovate a kitchen, doing it sooner rather than later is often the better financial decision when inflation is elevated.

8. Get professional advice

Inflation affects every aspect of your financial life, and the interaction between savings, investments, tax, and debt is where the real value of advice sits. A qualified financial adviser can stress-test your current position against different inflation and interest rate scenarios, identify blind spots, and build a plan designed to deliver positive real returns after tax over your specific time horizon.

The bottom line: practical ways to protect your finances from inflation

Inflation is not a crisis. It is a permanent feature of modern economies. The 2022 to 2024 surge was a sharp reminder of how quickly purchasing power can erode, but the core principles remain the same regardless of where we sit in the cycle: minimise idle cash, own assets with pricing power, keep your debt structure efficient, and review your position regularly with a professional who understands the full picture.

And remember the table at the top. At 3 percent inflation, the average RBNZ target, $1,000,000 today buys roughly $412,000 of goods in 30 years. Doing nothing is a choice, and a costly one.

Most people we sit down with discover at least one blind spot they weren’t aware of. If you’d like to discuss what inflation means for your personal financial situation, book a complimentary initial consultation and let’s look at your position together.