When it comes to beating inflation, few assets can compete with shares over the long run. Certainly, stocks have struggled to post gains in recent times as restrictive monetary policy has weighed on economic growth and investor sentiment.
In tandem, rampant inflation that remains above the Bank of England’s 2pc target has meant that the stock market’s returns have generally lagged the rate of price rises over the past few years.
Over a longer period, however, shares have produced an exceptional return on an after-inflation basis. The FTSE 250 index, for instance, has posted an annualised capital gain of around 6pc over the past 20 years.
Inflation, meanwhile, has averaged just under 3pc a year over the same period. This means Britain’s medium-sized stocks have delivered a real return of roughly 3pc a year, even before we include the impact of reinvested dividends.
In Questor’s view, the stock market’s recent downbeat performance is almost certain to be a temporary phenomenon.
Normal service will ultimately resume, since inflation is widely expected to decline further and prompt looser monetary policy.
This is likely to boost the economy, strengthen operating conditions for domestically focused companies and, perhaps most importantly, boost investor sentiment towards Britain’s stock market.
Now is therefore the right time for this column to increase the stock market exposure of its Wealth Preserver portfolio.
Although company shares, excluding commodity stocks, accounted for 20pc of our initial investment, the portfolio does not hold any stock market-focused investment trusts or funds other than the Worldwide Healthcare Trust.
As shares outside the FTSE 100 are particularly cheap at present as a result of their relatively high exposure to the distinctly unpopular British economy, the Schroder UK Mid Cap trust is a sensible addition to our portfolio.
