BlackRock - Make your money work for the future

If you’ve been hoarding cash at home, inflation will do its best to devalue it, so it could be time to rethink your saving strategy.

We live in uncertain times – the COVID-19 pandemic and Russia-Ukraine conflict in Eastern Europe have affected supply chains, prices and, crucially, inflation – and this tends to make everyone tighten their belts and migrate to the safety of cash. However, simply keeping it under your mattress or in a savings account leaves it vulnerable to inflation.

Inflation measures how quickly the prices of everyday goods and services change, it was running at more than 10% in the UK at the end of 2022 with a further 4% inflation in February in 2024. [1] This means that, on average, the cost of food, fuel and even a simple haircut is considerably higher than it was this time last year. If prices rise quickly and wages don’t keep up, you can’t afford to buy as much.

To combat inflation, central banks tend to raise interest rates because this discourages borrowing and spending. If people aren’t spending as much and demand for goods and services falls, suppliers drop their prices, which helps curb inflation. The Bank of England raised its base rate to 5.25% in February 2024. But even the most generous high street bank will only offer you a savings rate of around 5% on an instant-access account [2]. Accounting for rising prices (4% inflation) the returns would be modest so it could be worth investing instead.

It’s never too early to start investing because it’s time in the market that counts (rather than market timing). If you can afford to save a little each month, you could invest in your future by making a regular contribution via direct debit to a Stocks and Shares ISA.

People are often wary of investing when the markets are volatile, but the low prices can make this a great time to buy for investors seeking higher returns.

There is strong evidence that investments deliver higher returns than cash, but investors must be prepared to lose money in the short term because markets can react to global events, recessions and conflicts. To get the most from your investments, it’s better to have a long-term strategy.

As investors gain knowledge and confidence in the markets, they might branch out from holding a diversified portfolio of UK and US companies to include more volatile sectors like emerging markets. There is still risk attached to any investment but, as investors become more experienced, they might be more comfortable taking a little more risk in the knowledge that they could see higher returns.

[1] Source: Bank of England, 22 December 2022 & Bloomberg, 28 February 2024.
[2] Source: Money Savings expert, 28 February 2024.

Important Information:

Capital at Risk

All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed.

Past performance is not a reliable indicator of current or future results. It is not possible to invest directly in an index. Sources: Blackrock Investment Institute, November 2022. Notes: The boxes in this stylized matrix  show how our tactical views on broad assets classes would switch if we were to change our assessment of market risk sentiment or assessment of how much economic damage is priced in. The potential view changes are from a U.S. dollar perspective. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast or guarantee of future results. This information should not be relied upon as investment advice regarding any particular fund, strategy or security.

October 2024
Please note that these are the views of Sarasin and Partners and should not be interpreted as the views of RL360.