Investing for the future isn’t just about making money. It’s about saving for things you will want in your later years.

There are many sites that tell us how to make money. Usually this will mean buying funds that have above average returns. Or it will mean buying a diversified portfolio of assets to reduce risk. But these all have one thing in common. Base currency.

Here are five things to keep in mind when investing for the future.

1. It’s not about the money

This might sound bizarre. But why do we measure investment returns in a base currency, euros, dollars, sterling or whatever? There’s an assumption that the amount of said currency that we want to have some time later should be markedly higher than it is today. Well, that’s fine but what happens if the currency itself becomes less valuable?
Top make the point, if we value something not in currency but in, say, iPhone 6s then it’s clear that even the money in our current account is worth more of these today than it was last year. And it will be worth more still next year. Our investment portfolio return would look great if we measured it in terms of how many iPhone 6s it buys.

It’s the same for our currency. We simply don’t know what our pounds or whatever will buy in 5, 10 or 20 years’ time. So why use it to value our investments?

2. It’s about the goods and services

If not money, then what? I used to (only partly) joke that we should all be buying oil wells, farms and care homes to sustain us through retirement. Only partly joking, because although none of these are especially easy to invest in, unless you are a billionaire in which case this blog won’t matter much to you anyway, these are going to define your costs as you get older. Fuel, food and care. Always keep an eye on these sectors, because buying shares in (say) advertising agencies might or might not be a good “punt”, but it does nothing to help you sleep at nights.

3. Don’t get distracted by falling exchange rates

In the UK we have seen our currency depreciate sharply against both euro and US dollar in recent months. Since the Brexit referendum, in fact. Meantime, our stock market is hitting its all time high. This might mean investors are getting smug about the value of their portfolios. But the reason stock markets look so good is because the pound really has been so bad. Many large companies have foreign earnings and assets. When investing into UK companies, you are, in fact, investing into the global economy. This is a good thing, not because the falling pound has benefited the investor, but because the investor has hedged against the falling pound and the likely inflation which follows. In fact the investor is likely to come out neutral-ish because the investment gains are offset by higher prices.

4. Your home is not an investment

Home owners like to see the value of their homes increase. But does it matter? Based on what I’ve already said about valuing assets in your local currency, you will always need somewhere to live. Hence you should always value your home in terms of how many homes it buys. The maths is mindbogglingly simple. One home is always worth exactly one home.

I know exceptions apply here. People downsize to raise capital. People move between areas of varying expensiveness. And people might buy additional properties as investments. But the status quo is that it really doesn’t matter to the home owner whether house prices rise or fall.

Those who cannot afford to buy a home but can afford to save should consider a large allocation to equity in property. These tend to be via REITs and tend not to be residential but that’s still better than an unrelated stock.

5. Future-proofing your investment portfolio

Energy and other natural resources

The simplest way into energy and natural resources is to buy shares of companies in the sector. Or ETFs or managed funds which buy those shares. The futures market is another way in. Both have advantages and disadvantages. This article explains the pros and cons of different ways to invest.

Food

More and more is the world’s food and water supply being commercialised. This will pose ethical questions for some, especially where we might find it distasteful to be party to securing food supply for ourselves while the world’s poor starve.

Investing in food is, in some way, like investing in natural resources. Access is via shares, ETFs, funds or commodity futures. Some foods are investments themselves, at the luxury end, especially wines. The growing equity crowdfunding marketplace such as Seedrs provides a riskier but potentially more interesting way into food investments.

Care

Investing in care is harder. Yes, care home operators are quoted on stock exchanges. But having shares in these guarantees little by way of future care costs, given that the share prices are driven by profitability. And that profitability has dropped because minimum wage rules have meant their many low-paid staff are now costing more. Unlike the two previous categories, care is not an asset.

A sneaky way to invest into care for UK residents is to shift money into investment bonds provided under life assurance, which aren’t included in the means-testing calculations for whether the person qualifies for local authority assistance or not.

If we take commercial care out of the equation, and instead assume that the cost of care equals somewhere to live and someone to employ, then the problem becomes simpler. We know from (4) that we already have somewhere to live. Or if we don’t, we will have to make sure our pension pays the rent. That leaves us requiring a hedge against rising costs of paying for a carer. Traditionally, the equity market was seen as a reasonable hedge against wage inflation, but not really any more. The safest investment is probably the most expensive and the least interesting – an annuity whose payment increases each year. While this doesn’t directly hedge against the rising cost of employing a carer, it does provide a hedge to price inflation, which will be the best proxy available.

Other investments

The three items above are just examples of why we might want to invest, and those of us with anything less than modest investments would be wise not to gamble their savings in an unpredictable stock market or keep it in cash with a potentially falling value. If the portfolio allows, by all means invest into businesses that look like they will do well. These should include emerging markets and private equity and/or venture capital to provide some potential returns outside of that normally available in the local market. In fact just today, Mohammed El-Erian stated that stock and bond markets were over-valued.

In summary

Treat investment returns with caution, as these take into account falls in your local currency as well as rises in asset prices. In fact if your local currency has been tumbling against other currencies, asset prices might not look so good in these other currencies, and as import costs rise, so will inflation, cancelling out investment returns.

This is why we should consider how we spend our money now and in the future. To avoid nasty surprises, investing for the future means hedging against inflation in what will ultimately determine your cost of living.