Many families are feeling the pinch as the price of living is going up.
Rarely out of the headlines, this increase in the cost of living – called inflation – can cause real problems for the value of your money, even for those with significant savings.
The Cause
Historically, over the long term, inflation has averaged at around 2.5%*.
Due to disruption in the world’s supply chains caused by the global pandemic and the war in Ukraine, inflation has soared to 9% in the previous 12 months (to April 2022), and the Bank of England has forecast that it’s likely to top 10% later this year.
Should inflation rise to and remain at 10%, this would mean that the value of £100,000 after three years – in terms of what you can buy – would reduce to £75,131.
What Can You Do
Rather than keeping money in cash, investing your money over the medium to long term can help to mitigate the effects of inflation.
For example, after adjusting for inflation, £100,000 invested in shares would have more than doubled in value since the mid-1990s, compared to the same amount having almost halved in value had it been kept as cash.
Taking Action
If you have a cash ISA or other cash savings that are above and beyond the amount that you might need to immediately access, it’s important to get a professional review to consider whether investing some of the money may help to protect you against inflation or better reach your long-term savings goals.
A financial adviser can help you develop a financial plan to help you achieve your financial goals, including a suitable approach to help reduce the impact of inflation. Ensuring you hold the right balance of cash and stocks and shares for your needs and investing at a level of risk that you’re comfortable with is an important part of that conversation.
It’s important to remember that the value of your investment can go down as well as up and you may get back less than what you originally invested.
To ensure you are managing your investments efficiently, talk to one of our FCA authorised wealth managers by arranging a Discovery Call [Here]
This article is for informational purpose only. It does not constitute finacial, tax or legal advice, nor is it a recommendation to buy, sell or hold any investment. Past performance is not a guide to the future, investments rise and fall so investors could make a loss. No view is given on the present, future value or price of any investment and investors should form their own view on any proposed investment.