Investing with the aim of inflation-proofing your finances

The lockdowns and deep recession of 2020 have mercifully been followed by a dramatic recovery.

But the speed of that recovery and the historically low interest rates designed to encourage it have led to a new problem – that of inflation, as demand exceeds supply for everything from raw materials to labour.

Inflation is a global problem, but in the UK it is already running at over 5%. The Bank of England has forecast that it will exceed 6% this year. That level of inflation could mean serious problems for your financial plans. 

Rapid inflation mean that savings fall in real value – and that your pension pot and other investments may no longer be adequate for your needs.

At Continuum we are looking at how you can protect your finances from the effects of inflation.

How will inflation affect you?

Left unchecked inflation will lead to a big increase in the cost of living, squeezing households across the UK in the short term and making financial targets look far too small in the long term. 

Virtually every aspect of financial planning could be affected. 

Families

Your monthly budget could suffer, with the cost of your weekly shop heading up, let alone the cost of things like clothes and energy and utility bills.

You may be able to push for a salary increase – but it might not be forthcoming, and you may have to tighten your belt. But there is another less obvious problem.  Have you considered the impact of inflation on your life insurance? If you have already made the prudent decision to protect your loved ones with insurance cover if anything happened to you, you need to remember that the buying power of the proceeds of the policy you have arranged will shrink. 

A call to us at Continuum could help you find the most cost-effective way to boost your life cover.

Home buyers

People buying their home with a mortgage might seem to be one of the few groups that could benefit from inflation. If the buying power of money falls, the real cost of your repayments fall too. As long as your income keeps pace with inflation, you will be paying a smaller proportion of it to your lender.

But beware. Further interest rate increases may be likely as the Bank of England tries to get inflation under control. That could mean the cost of your mortgage repayments would shoot up.

The solution may be to fix your mortgage for as long as possible. Call us at Continuum to discuss mortgage deals that can be fixed for ten years – or even more.

Savers

Savers suffer particularly from inflation, because the money you put away is worth much less when you come to draw it out. Most savings accounts cannot keep up with inflation.

The solution may be to become an investor, rather than a saver. With help from us at Continuum, investing can be as easy as savings – and potentially much more rewarding.

Investors

As an investor, you can hedge against inflation, because the value of the assets you buy can go up in real value, while the value, or buying power of money falls. Of course, it is essential to arrange the right kind of investments to try and beat inflation.

At Continuum we can help you develop an investment strategy which will factor in inflation – and use it to help build your wealth, not erode it.

Retirement savers

Saving for retirement is a long-term task needing careful planning – and those plans may need a fresh look when inflation has to be factored in. Inflation means that the pension pot you were aiming at may no longer be adequate to provide the retirement lifestyle you were aiming at.

You may need to take a fresh look at your pension strategy with an aim to build a much larger lump sum.

Fortunately, at Continuum we know the ways to make your pension savings work harder to potentially build the pension pot you need.

Pensioners

Once you are already drawing your pension, inflation presents a severe challenge. Annuities, which offer an income for life in exchange for your pension pot are one solution, but a straightforward annuity which seemed generous when you retired may feel much less so 25 years later. 

It may be worth considering an annuity with some inflation protection built in. This means you will start off on a lower income than someone who opts for a level annuity but over time your income will increase in line with inflation.

At Continuum we can discuss the ways to provide the income you need, through specialised annuities, or with drawdown, which could allow your pension pot to stay invested and growing while providing the income you need.

Inflation will affect everything we do and preparing now may be the best way to deal with the threat.

To discuss a detailed financial strategy that covers all your financial affairs and takes inflation into account, contact us at Continuum without delay.

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation you should seek independent financial advice before embarking on any course of action.

The value of investments can fall as well as rise and you may get back less than you invested Equity investments do not afford the same capital security as deposit accounts.

Your home maybe repossessed if you do not keep up repayments on your mortgage.

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