Inflation warning: Investing is ‘the best chance you have’ to stop your money from eroding

Expert explains if we can invest our way out of inflation

We use your sign-up to provide content in ways you’ve consented to and to improve our understanding of you. This may include adverts from us and 3rd parties based on our understanding. You can unsubscribe at any time. More info

Rock bottom interest rates on savings accounts are well below inflation rates meaning that the spending power of money in them will erode over time. So, investing could be the way to protect any savings against rising inflation.

On the BBC Money Box podcast, Moira O’Neill, Head of Personal Finance at Interactive Investor discussed if Britons are able to invest their way out of inflation.

She said: “I’m afraid it’s the best chance you have.

“Of course, there are risks with everything you can do with your money and at the moment the regulator says that too many people are holding too much money in cash.

“It says that nearly nine million are holding more than £10,000 in cash and it thinks many of these could be benefitting from investing the money, or at least some of it instead.”

To keep up with returns, Ms O’Neil explained the use of tracker funds that track indexes such as the FTSE100 and others.

She said: “Investing in a tracker fund is a great way to get started with investing. It can keep your costs low which is important as it is something we can control as investors but most people when investing are trying to create a balanced portfolio.

“A balanced portfolio that has an exposure to shares and other assets such as bonds, maybe commercial property, and also gold as well.

“If you’ve had a balanced portfolio for more than 10 years you’re probably doing quite well, and you could have had around ten percent a year, but this could change.”

To build a balanced portfolio, Ms O’Neil explained that people can research multi asset funds.

This is a fund that invests for people in the stock market, bonds and other assets that will diversify people away from just shares.

There are many different multi asset funds available, and she suggested that it’s worth beginners investigating the different types and choosing something they are comfortable with.

When investing she highlighted that people should be aware of charges, and any capital growth from investment.

She said: “Charges are something we always advise investors to take a really good look at as money can drip out from pensions, and investments over time, totalling a huge amount at retirement, say thousands of pounds difference.

“So try and control your changes, and reduce the amount by choosing the right platform, choosing the right financial advisor, choosing the right level of fund charges as well is really important.”

With the Bank of England Deputy Governor Ben Broadbent warning that inflation in the UK will “comfortably exceed five percent” by the spring, investing could potentially stop one’s money from losing value.

The announcement comes after the latest rate of Consumer Price Index inflation, coming in at a near-decade-high of 4.2 percent for October, soaring from 3.1 percent the previous month.

The Office for National Statistics is set to reveal the latest inflation figure for November this week.

At 4.2 percent, the latest rate of inflation is more than double the Bank of England’s Monetary Policy Committee’s target rate of two percent and is set to soar further.

Mr Broadbent said that an anticipated jump in energy bills for millions of consumers would increase the cost of living even as other inflationary pressures moderate.

Source: Read Full Article