How to protect your money from inflation
A journalist at the Mail Online has asked Newspage to seek views from experts on how consumers and investors/savers/businesses can protect their money from inflation. Tips ASAP please.
Copy article
10 responses from the Newspage communityCopy all
Copy all
Star Quote
Copy
Be deliberate with your cash. We all need an emergency fund for when the heating packs up or your car breaks down. But holding too much cash leaves you exposed to inflation. While you might be gaining interest in cash, if inflation is higher, the real value of your money may fall. For genuine longer term savings, investments may be the answer.
Star Quote
Copy
In times of rising inflation, keeping a tight grip on your costs is essential, whether you're a household or a business. Review spending, cut unnecessary expenses and don’t let rising prices creep into your lifestyle unchecked. For savers and investors, the average savings account alone rarely keeps up with inflation over the long term. So ensure that you shop around for the best savings rates. Equally, this is why staying invested — particularly in diversified portfolios with exposure to shares — remains one of the best ways to preserve and grow your wealth in real terms.
Copy
Some mortgage lenders allow you to reserve a mortgage deal before you have found your ideal property, avoiding rate increases that may happen with little to no notice, but if rates fall borrowers can jump on that saving too.
Copy
To beat inflation, your savings must work harder than rising prices. Don’t treat your money as one lump sum, split it by timeframes and invest accordingly. While many are taking advantage of higher cash rates, other options may offer more benefits, especially for higher-income taxpayers. If in doubt, an independent financial adviser can help you find the right mix.
Copy
Despite the recent rate cut from the Bank of England, we are still in a high-yield environment whereby savers and investors are able to lock-in inflation-beating annual returns via government bonds. Furthermore, the wider credit market is currently a favourable source of returns that exceed inflation, while remaining risk-adjusted. Diversified investment grade credit funds allow investors to spread their risk among hundreds of the largest companies, receiving a quarterly interest payment, with a far lower risk exposure given the number of companies within the fund. Currently many of these funds are beating inflation, and can form a great portfolio constituent for the long-term. These can be used alongside other savings products, such as money market funds and traditional savings accounts, to ensure your money is not eroded by inflation, while avoiding the risk that may come from equity markets.
Copy
For consumers the best tip is to try and pay down high interest debts, such as credit cards. Inflation usually increases the interest rates charged on these debts. Reviewing outgoings to utilities, and luxuries such as subscriptions, on a regular basis is also good practice. Locking in utility costs can often help save costs and subscriptions that aren't being used regularly are a waste of money.
Copy
Our view is that investing in company shares gives a tried and tested path to fighting inflation.
This is not without compromise though, and any investment strategy needs to be implemented within the context of a wider financial plan.
This is not without compromise though, and any investment strategy needs to be implemented within the context of a wider financial plan.
Copy
With inflation still stubbornly high at 3.5%, your hard-earned savings are being silently eroded. A £10,000 nest egg will lose over £1,400 in purchasing power within just 5Ys, yet 68% of Britons still keep their money in accounts paying below-inflation rates. Cash ISAs at 4.2% seem tempting but deliver negative real returns after tax, while regular savings accounts (averaging 3.1%) are even worse. Arguably the smarter move for consumers are the NS&I index-linked bonds guaranteed to match inflation plus interest and are backed by HM Treasury. FTSE 100 dividend stocks currently yield 3.9% with growth potential, and for cautious savers, inflation-linked gilts provide sovereign protection without stock market volatility. Don't overlook practical defences either. Home EPC improvements typically deliver 15-20% annual returns as utility bills soar (the average household now pays £1,849 annually), while clearing high-interest debt (credit cards@22.9% APR) delivers guaranteed returns too.
Copy
It all depends on your risk profile. You might buy treasury inflation protected securities, a product that directly protects you from inflation (they are called linkers in the UK). But the best bet against inflation is the bet that has been made over the last few years, which is to buy large market capitalisation US stocks Yes, financial advisors will not like me for saying that, but just look at the market. You've beaten inflation by being long US tech stocks like Meta, Nvidia, Apple and Google. And even being long bitcoin has beaten inflation in an even more dramatic way. Volatility is a GOOD thing. Volatility provides opportunity, and in Britain we somehow are so averse to anything volatile we forego the opportunity of large gains (see the amount of people who have money in a cash ISA, which has consistently LOST to inflation).
Copy
For private investors with long term savings, if you want to beat inflation, get out of cash and into equities. It's as simple as that.