UK inflation soared to a 41-year high of 11.1% in the year to October 2022, according to figures from the Office for National Statistics. In the two months since it has fallen, first to 10.7% in November and then to 10.5% in December. But it remains more than five times the official target of 2%, set by the government.
The increase in consumer prices last year was higher than economists’ forecasts and piles extra pressure onto household finances already being stretched by a severe cost-of-living crisis.
For savers, making money has rarely been so much of a challenge. Double-digit inflation has a devastating impact on the real value of your money at a time when the best easy-access cash savings rates stand at around 2% – 3%.
Faced with such a mis-match between savings rates and inflation, there are relatively few ways to safely preserve your wealth, let alone to help it to grow. Investing is one option for savers looking to keep their money in line with – or beat – inflation. But remember that this is far from a risk-free option, with the potential for loss of capital along the way.
What’s more, the stock markets have experienced their own problems during 2022. Wherever investors look, fear is in the driving seat thanks to a powerful combination of post-pandemic global inflation, rising interest rates and the war in Ukraine.
We often worry about whether we’re taking too much risk with our investments, but we should also worry about whether we’re taking enough. Low-risk investments such as cash and government bonds will generate a return similar to the base interest rate.
Over a multi-decade time period, the stock market has generated an average annual return in excess of the rate of inflation. However, in our current high-inflation environment, some individuals and companies will fare better than others.
Amid a rising inflation environment and constantly changing investment conditions, investors may want to consider inflation-mitigating assets, as well as to keep in mind the core tenets of investing—maintaining a well-diversified portfolio, regular rebalancing, and ensuring investments remain aligned with long-term goals.
The value of investments, and any income from them, can fall and you may get back less than you invested. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. Neither simulated nor actual past performance are reliable indicators of future performance. Information is provided only as an example and is not a recommendation to pursue a particular strategy.