Cash and term deposits offer two clear advantages: Liquidity and predictability. Funds are readily accessible and it is transparent how many euros will be available at maturity. This clarity is important for many investors.

For inflation protection, however, the nominal amount alone is not decisive, but the purchasing power. One simple concept helps frame the issue: Real return. It describes the return after inflation. If interest rates are below the inflation rate, the real return is negative. The portfolio may grow little or not at all in nominal terms, yet lose value in real terms.

Very short-dated, interest-bearing investments are therefore often well suited for keeping liquidity available. For long-term inflation protection, however, they are usually not sufficient, because preserving purchasing power typically requires return sources that go beyond short-term interest income.

Inflation protection rarely comes from a single product. It generally emerges from the interaction of three factors: Investment horizon, risk profile and risk management.

• Investment horizon means: How long can capital remain invested without being needed at a fixed point in time?
• Risk profile describes: How large can fluctuations be without prompting emotionally driven decisions in periods of market stress?
• Risk management means: How is risk managed in practice so that interim losses (drawdowns) are consistent with objectives, time horizon and personal risk tolerance, for example through broad diversification, clear risk limits and regular rebalancing?

Time is an important stabilising factor. Investors who remain invested longer can usually endure temporary weakness and wait for recoveries. Those with shorter horizons need a portfolio design that limits interim losses.

A pragmatic rule of thumb applies: The longer the horizon, the more risk-bearing building blocks a portfolio can tolerate. The shorter the horizon, the more important a balanced or conservative structure becomes.

Equities are often cited as an inflation hedge, because companies can, over time, pass at least part of higher costs on through prices, revenues and earnings. Over long horizons, this can help preserve purchasing power.

The limitation lies in the associated risk. Equities can be highly volatile and can post negative returns over extended periods. For investors, the key issue is less day-to-day volatility and more the potential drawdown. Drawdown describes the temporary decline from a previous high to a subsequent low. Investors who are forced to sell during a weak equity market lock in losses while inflation continues to erode purchasing power.

Equities can therefore be an important building block in an inflation-aware portfolio, but they are not a "safe" solution. Whether they are appropriate depends on how much time is available and to what extent fluctuations can be tolerated financially and psychologically.

Here, a differentiated view is essential. Several mechanisms often interact in practice when it comes to inflation protection.

• Inflation-linked bonds (often referred to as "linkers") link coupons or principal repayments directly to an inflation index. This sounds like straightforward protection, but there is an important constraint: The interest rate effect. One key term is duration. Duration describes in simplified form how strongly the price of a bond reacts to changes in interest rates. When interest rates rise, bond prices can fall. In inflationary phases, central banks often raise key rates. In such an environment, the positive inflation linkage can be offset, at least in part, by price losses. Linkers are therefore not an automatic solution, but a building block with specific trade-offs.
• Gold is also frequently discussed as an inflation hedge. In practice, it is more of a diversifying component that may behave differently to equities or conventional bonds in certain market environments. It is important not to treat gold as a universal remedy, but as a potential portfolio satellite with a clearly defined role.
• Commodities can likewise contribute to diversification. The broader commodity market is usually more relevant than isolated exposure to a single commodity or metal. Here, too, impact and risk depend on the specific design, weighting and overall portfolio concept.

A common misconception is the reduction of portfolio construction to just two asset classes. In reality, inflation protection is often more robust when a portfolio draws on several return drivers and spreads risk across multiple dimensions.

A Multi Asset approach typically combines building blocks such as equities, bonds, commodities, precious metals and, where appropriate, alternative strategies. The objective is not to eliminate risk, but to distribute it intelligently and make the overall risk/return profile more resilient.

This can be particularly relevant for shorter horizons, because the portfolio is then less dependent on the short-term behaviour of a single market segment. At the same time, it is important to remain realistic: Diversification does not prevent losses. It can, however, help reduce concentration risks and increase stability.

Another practical concept is asset allocation. Asset allocation means: The distribution of capital across different asset classes. Through systematic rebalancing, this target structure is restored after market movements. This is not market timing, but a discipline designed to prevent risk exposures from drifting unnoticed.

For shorter horizons in particular, a degree of active management can help cushion risk. An ETF does not guarantee higher returns, but in essence mirrors market performance minus costs: If the market falls, the ETF falls as well, with no active manager to adjust positioning. An actively managed approach, by contrast, has more flexibility to respond to changing market conditions, for example by adjusting risk exposures in turbulent phases, avoiding overvalued segments or reducing concentration risks that can build up in capitalisation-weighted indices. In fixed income markets, passive benchmarks can also have structural weaknesses, for example when highly indebted issuers receive higher weights purely for index reasons. Active management offers more scope to address such issues and balance risks more precisely.

The focus here is not on short-term timing, but on disciplined risk management and net performance across different market regimes.

In the drawdown phase, priorities shift. The focus is no longer solely on growth, but on the balance between stability, withdrawals and purchasing power. Inflation is particularly tangible at this stage, because rising prices influence the level of sustainable withdrawals. Preserving purchasing power becomes a central element of planning.

Many investors concentrate on regular income, such as interest or distributions. A realistic expectation is important, however: Distributions are not guaranteed, can fluctuate and depend on market and risk factors. It is crucial that the withdrawal plan, risk profile and portfolio structure are aligned so that unfavourable sales are not forced in weak market phases.

A broadly diversified approach can help combine different sources of return while steering risk. The objective is not to avoid any fluctuation, but to shape stability such that the strategy remains viable even in challenging market periods.

Realistic inflation protection does not mean eliminating inflation. It means protecting purchasing power with an investment strategy that harnesses return opportunities while managing risk consciously.

The most compelling answer to the core question is therefore: Purchasing power is best protected when investment horizon, risk profile and broad diversification are considered together in a consistent way. Short-term instruments can secure liquidity, but are often insufficient on their own. Equities can contribute, but have clear limits. Linkers, gold and commodities are building blocks with their own dynamics and specific risks. A Multi Asset approach can be particularly attractive when the horizon is shorter or stability is a primary objective, because it allows different return drivers to be combined and risks to be managed in a more holistic framework.