Latest official data revealed that inflation jumped to 9%, in the 12 months up to April, up from 7% in March, meaning problems for many of us when coupled with the leap in the energy prices and further increases expected later this year.
Things could be difficult for people struggling to make ends meet. But what about those of us who have built up a reserve of cash over the lockdown and post-covid period? Will inflation eat it away?
At Continuum we are looking at the best places to put your money now.
Growing your wealth is always an important aim, but in the current financial climate with inflation running rampant, simply preserving the value of your capital is probably even more important.
There are three options for most people looking at safeguarding their cash. Use a savings account, buy property, or invest.
Saving accounts are simple to set up. Most banks and building societies will be happy to take your money and keep it safe in an account which will pay interest, particularly if you can lock your money away for a guaranteed period (known as a term deposit).
It could be a good first step for your financial security. Having sufficient funds set aside to cover essential monthly expenditure for 6-12 months in an emergency could be a very good idea.
Low interest rates and high inflation means that any savings over and above your emergency fund are having their purchasing power eaten away.
But although those funds are safe, protected by the government’s Financial Services Compensation schemeup to a limit of £85,000, you cannot expect them to grow. Despite the Bank of England’s decision to raise bank rate, it is unlikely that any account will be able to beat inflation of 9% or more. Money in a savings account will be safe, but it will certainly not grow in real terms. In fact, its value in terms of purchasing power will fall. The pound you save today would buy 92p worth of goods in a year’s time if inflation stayed at around 8% for 12 months.
The price of property has of course defied all expectations in recent years. According to mortgage lender Nationwide, the average sale price rose 14.3% year-on-year. In real terms homes in March cost £265,312, a jump of £33,178 compared to this time last year. In a single month, prices increased by £5,082.
It might be tempting to get the power of the property market working to beat inflation and grow your wealth. But there are several reasons to be wary about property investment, particularly now.
First, several observers have suggested that the property boom is reaching its natural end. It cannot continue to boom as it has done in recent years, or getting on the property ladder would become impossible rather than merely very difficult. What’s more, the rise in interest rates, coupled with the squeeze on most household budgets will make large mortgages less easy to afford.
It looks as though property is unlikely to be able to continue its rocket like rise, or to outpace inflation – and in some locations where markets have been most overheated, there could even be some corrections coming.
Secondly, investing in property is not for the faint hearted. Although there can be money to be made either as a landlord or as property developer it requires some specialist knowledge, and not just of managing tenants or the building trades. Tax can take a large slice of any profits of a property deal. Understanding the tax and regulations involved can prove a nightmare for the inexperienced.
Finally, buying property can be a protracted business and selling even more so. Whether or not your property goes up in value, it may not be easy getting your money out again when you want it.
A straightforward investment may be the simple solution. The stock market may have its ups and downs and unlike savings there are no guarantees, but with proper planning you may be able to meet the challenge of inflation, have the potential to grow your real wealth whilst possibly avoiding any potential problems with having your money tied up when you need it.
That is where our expert team can help. We will understand your financial ambitions and work towards creating a bespoke plan for your goals and aspirations.
Getting some help
Everyone has different needs, and there is no single best place to put your wealth. At Continuum we can help you put together a wealth management strategy that is designed around your needs, timescales and resources, and which could help you protect your wealth and – despite the challenging financial climate – aim to get it growing.
To get the expert help you need to secure your financial future, contact us today.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable mortgage products or investment strategy, 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.
As property is a specialist sector it can be volatile in adverse market conditions, there could be delays in realising the investment ,and its value is subject to the opinion of an independent valuer.
The Financial Conduct Authority does not regulate deposit accounts.