Retirement portfolios are getting eaten up by inflation. Here are some assets to consider

[SINGAPORE] Investors do not have enough inflation-beating assets in their long-term portfolios meant for retirement, experts say.

One reason is excessive cash in portfolios, especially among investors in Asia-Pacific.

“In retirement portfolios today, we don’t have enough inflation-linked assets... to protect your real purchasing power,” John O’Toole, chief investment officer of solutions at Amundi said.

“When you’re in retirement, you need sustainable real income – and that’s where the inflation risk really kicks in,” he added.

This is especially important, given the macro environment in recent years.

“Inflation is becoming an increasingly important consideration in portfolio construction amid the confluence of geopolitical risks, fiscal expansion across major economies, sustained AI (artificial intelligence)-related capital expenditure, and signs that China could be emerging from its deflationary phase,” said Nathan Wang, multi-asset associate portfolio manager at T Rowe Price.

Singapore’s core and headline inflation rose in July, with electricity prices rising sharply. That was the fastest pace since October 2024, indicated Singstat data – still below the median estimate of 2.2 per cent in a Bloomberg poll.

In Singapore, retirement portfolios tend to be concentrated in cash, fixed deposits and insurance products, noted James Ooi, market analyst at Tiger Brokers. 

“(They) offer stability and income but may struggle to outpace inflation,” he said.

Investors in Singapore and the broader Apac region tend to hold a higher amount of cash than other regions, added Ooi. Citing Fidelity data, he said average cash holdings as a percentage of portfolios was at 48 per cent in Singapore and 52 per cent in Apac. That compares to 36 per cent in Europe and 15 per cent in the US.

Long-term investors seeking to manage inflation risk or preserve real growth could consider a combination of growth-oriented and inflation-sensitive assets, said Wang.

Here is how investors can consider including inflation-beating assets in their portfolios, said the experts.

CPF

Singapore investors can consider the Central Provident Fund as their first line of defence. With both core and headline inflation remaining below 2 per cent since 2025, CPF is a “useful first layer of inflation protection, supported by the Ordinary Account’s 2.5 per cent minimum rate and the Special Account’s 4 per cent floor”, said Ooi.

“However, should inflation spike and remain elevated due to factors such as geopolitical tensions or supply shocks, CPF returns may not always keep pace,” he added.

Singapore stocks, income-generating assets

In that environment where CPF returns cannot keep pace, consider Singapore stocks which have proven to be a long-term inflation-beating asset class, said Ooi, citing dividend-paying blue chips including Straits Times Index constituents.

Other income-generating investments include selected real estate investment trusts and defensive consumer staple stocks, which offer a mix of recurring income and relatively resilient long-term returns.  

He added: “Income-generating equities such as local banks can remain attractive over longer horizons, but their earnings and dividend outlook still fluctuate with interest-rate and credit cycles, making it important to reassess allocations as market conditions evolve.”

Inflation-linked bonds or bond ETFs

The principal and income of these securities are explicitly linked to inflation, noted Wang. 

However, research suggests short-duration inflation-linked bonds have greater inflation sensitivity than their longer-duration counterparts, partly because they are less exposed to fluctuations in real interest rates, he added.

“However, given their positive but relatively modest inflation beta, a meaningful allocation may be required to provide sufficient inflation protection to the portfolio,” he said.

Singapore-based investors can access inflation-protected bond exchange-traded funds (ETFs) on platforms such as FSMOne. The ETFs, however, are largely invested in US Treasury inflation-protected securities, which subject Singapore-based investors to currency risks.

Gold and real-asset equities

Commodities such as gold are traditional popular inflation-hedge assets as, historically, they have been particularly sensitive to unexpected inflation shocks, Wang noted.

“However, as they do not generate earnings or cash flows and are highly volatile, they may be better suited as a modest satellite allocation for short-term tactical positioning,” he said.

Wang added that a diversified mix of natural resources – such as mining, energy and utilities – as well as real estate and precious metal equities, has “high sensitivities” to both expected and unexpected inflation.

“Compared with inflation-linked bonds, real-asset equities may provide a similar degree of inflation protection with a smaller capital allocation, while also offering the potential to generate earnings and compound returns over time,” said Wang.

Gold should also play a role, said Ooi. However, he said: “After its outsized gains in recent years, its value may lie more in diversifying portfolios and cushioning portfolio drawdowns than in consistently outpacing inflation.”

Private assets

In the Americas, pension funds, for instance, are steadily increasing their allocations to alternative and private assets, indicated Amundi, which believes this asset class is a “very good diversification engine”.

“Private assets give you access to a much broader part of the economy, particularly in areas that are less well represented by public markets,” said Benoit Durteste, CEO and chief investment officer of private equity (PE) investment firm ICG.

“Second, there’s strong structural alignment if you think pension capital by design is long duration – and the key factor of performance for private assets is time. It’s the ability to generate an illiquidity premium – and this structural alignment translates into better outcomes for investors, for savers, as well as more productive long-term investment for the real economy.”

Private-asset funds are currently not accessible to retail investors. But there are PE backed bonds in Singapore that retail investors can buy, such as the Astrea PE bonds. The bonds are structured with a fixed coupon whose ability to beat inflation will depend on the inflation rate.

The price of Astrea’s PE bonds, which are listed on the stock exchange, may also be influenced by inflation expectations – that is, higher inflation rates may cause Astrea bond prices to fall as the coupons lose purchasing power.