How does inflation affect my index fund investments?

While the market has been more volatile than normal lately, we see that the measures we have taken in the index fund portfolio have a very good effect. The overarching theme for the financial markets today is inflation and interest rates. This has become so prevalent that the focus on the war in Ukraine has virtually disappeared from the financial news. That said, of course, the war in Ukraine is still relevant. There is still a risk that the war may escalate, but it is more likely that the war may affect commodity prices and global inflation for a longer period than first assumed. So what should one do then, if we get persistently higher inflation? Although inflation is definitely creating a more challenging investment climate, the alternative is probably worse. While bank deposits are effectively "eaten up" by inflation, companies will have the opportunity to adjust their prices to still be able to make money. So financially, the stock market will probably be the best place to have savings in an inflation regime. However, it is all the more important to own the "right" shares. Popular growth companies, which do not make money until sometime in the future, are likely to fall somewhat in price as interest rates have a strong impact on the valuation of these companies. At the opposite end of the scale are the "boring" companies that make a lot of money today, and are happy to pay dividends. The latter companies tend to do well even if interest rates rise - unless you have too much debt, of course. So the moves that the Petroleum Fund had made, ahead of this market turmoil, we are proud to say are the same as we have done. By weighting the interest rate exposure against short-term interest rates and equity exposure more towards Norway, Europe and indices that are not all market-weighted, we have managed significantly better through this turmoil than the rest of the market. Our strategy of not hedging FX has also proved to be a very good "shock absorber" for the largest falls in international equities. Listen to the attached recordings of the webinar (in Norwegian):