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I know I can keep cash in an interest-based bank account, but that type of investment will not keep up with inflation, it seems.

Would I be right to assume that government/corporate bonds can keep up with inflation? More importantly: does a safe investment exist which can at least keep up with inflation?

UK based.

  • @Chad I voted to close this one, but if it's closed, should I copy my answer to the other one, since none of the current answers talk about indexes that track inflation-indexed bonds, only the bonds themselves. – John Bensin Apr 9 '13 at 14:25
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    I would say that your answer is equally valid on the other question as well. – user4127 Apr 9 '13 at 14:58
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    @JohnBensin - absolutely - that's the one issue with closing dups, sometime excellent answers were already posted. – JTP - Apologise to Monica Apr 9 '13 at 15:49
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    @JohnBensin We can merge the answers from this question into the other if this question is an exact duplicate. – Chris W. Rea Apr 9 '13 at 15:53
  • @ChrisW.Rea That's fine with me. From what I can tell of the last question (the minimum investment question), that's a much smoother process than my copying my answer. – John Bensin Apr 9 '13 at 15:54
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In the UK, you could use an index fund or ETF that invests in instruments indexed to the Consumer Price Index. One option is the iShares Barclays £ Index-Linked Gilts (INXG), which

is an exchange traded fund (ETF) that aims to track the performance of the Barclays World Government Inflation-Linked Bond Index as closely as possible.

You still need to take into account commissions, among other factors, and understand that any investment comes with risk. Note that this ETF aims to track the performance of an inflation-linked bond index. It may not succeed all the time. This isn't a fool-proof strategy, unfortunately, because investing is always a trade-off between risk and return. By excepting a higher return, i.e., one that can keep up with inflation, you do bear a higher level of risk.

Vanguard.co.uk has good general information about inflation-indexed instruments and funds too.

  • These are not really fool proof though they are probably as close as you can get. Just like any investment fund there are risks. Also while the CPI is a key metric for gauging inflation it is not the only metric and at least theoretically the CPI could lag significantly behind real inflation – user4127 Apr 9 '13 at 13:25
  • @Chad I stated in my answer that "any investment comes with risk" but I'll make it a bit clearer. – John Bensin Apr 9 '13 at 13:27
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The Government (through National Savings and Investments) issues index-linked savings certificates periodically. At the moment there are none for sale to new customers, but if you had held some previously, you can re-invest them in more index-linked bonds when they mature. You can also sign up here to get notified when a new issue comes on sale.

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