A quick guide to safeguarding your wealth from inflation

The current financial landscape presents a conundrum for those looking to safeguard and grow their personal wealth.

Despite interest rates reaching their highest levels since 2007, the value of cash savings in the UK has been eroded by inflation.

As of July 2023, the nation’s cash savings have dipped to £1.95 trillion, a £5 billion decrease since the start of the year.

This decline is indicative of the strain on household budgets amid the ongoing cost-of-living crisis.

The double-edged sword of inflation

While it’s true that savers have earned a record £45 billion in interest this year – three times more than in 2022 – the impact of inflation cannot be ignored.

In fact, the value of savings has depreciated by £69 billion between January and late September 2023, effectively negating the £32 billion earned in interest during the same period, according to global asset management group Janus Henderson.

Equity investments: The unsung hero

So, what does this mean for your personal wealth? Simply put, keeping your money in cash accounts is not providing the financial security you might think it is.

The data shows that investors willing to take calculated risks in global equities have seen returns six times larger than those from cash savings, comfortably outpacing inflation.

Over the long-term, the disparity is even more pronounced – £1,000 invested in global equities 25 years ago would be worth £5,936 today, compared to just £1,631 if kept in cash.

The power of informed choices

Despite these figures, a sizeable portion of the population still believes that cash is the best hedge against inflation.

This misconception underscores the need for more informed financial decision-making. If you’re among the one-third of respondents who are uncertain about which investments offer good long-term protection against inflation, it’s crucial to reassess your investment strategy.

The final takeaway

In summary, while interest rates may be at a 15-year high, they are insufficient to counteract the erosive effects of inflation on your savings.

Diversifying your investment portfolio to include assets that historically offer better returns than cash is a prudent approach to preserving and potentially increasing your wealth in these challenging times.

Speaking to a financial adviser is the quickest way to protect your financial well-being from rising inflation.

Speak to one of our team to start the process of protecting your wealth.

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Posted in IFA News.