As banks worldwide increase interest rates to handle inflation, worries about a massive economic slump are rising. What can you do to protect your money from potential problems? In this article, we will look at investing as a way to keep your savings safe from the downsides of inflation.
Why invest?
While the ups and downs in the stock market might make you nervous, history suggests that investing in assets like stocks can be a reliable way to make your savings grow in the long run. For instance, over the past 30 years, the FTSE 100, which includes big UK companies, has seen an average yearly growth of about 7.3% (when accounting for the money earned from owning stocks). According to New World Financial Group, a company that manages wealth, this beats the average annual rise in prices, which has been around 2.1%. It’s important to know that investing is not only for wealthy individuals — anyone can start with a small amount of money. You do not necessarily require a financial expert to guide you, as several online platforms can help you choose where to invest. However, seeking advice from an independent expert is not bad. Another option is to choose from ready-made investment funds. This way, you can invest in low-risk to high-risk funds — whichever you feel comfortable with. The platform will combine a mix of investments that align with your risk preference.
Multiple Investments
Trading forex is an excellent place to start if you are new to investing. Otherwise, assets like gold, stocks and residential property have seemed to outpace inflation. However, predicting whether these assets will keep performing well can be challenging. That is why creating a diverse portfolio containing a mix of different assets, like stocks and property; safer options like bonds; and even alternative investments, such as gold, is recommended. This approach should help you avoid relying too much on the changing fortunes of specific assets, companies, or industries. Especially for new investors or those who prefer a more hands-off approach, a great way to diversify is by using investment funds. These funds hold shares in multiple companies, often focusing on a particular industry or country.
Pound-Cost Averaging
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When things are uncertain, you can try an intelligent way to avoid significant losses: pound-cost averaging. Instead of putting all your money in at once, you regularly invest a small amount. Sometimes you buy when the market is high, getting fewer shares for your money. Other times you buy when it is low, you get more shares. This helps balance out the market’s ups and downs. It is better than putting all your money in at once, which could drop a lot if the market crashes suddenly. You might think that if you invest less, you will not make as much money if the market goes up, but in the long run, the goal is to have steadier returns and eventually build better financial stability for yourself.
Advice From Expert Investors
Warren Buffett is a clever and skilled investor. He invested in Apple, among many other companies, and even though he saw how Apple’s stock price dropped 10% at some point, he continued buying more Apple shares as the price went down. Terry Smith, often seen as the UK’s counterpart to Buffett, expressed his lack of optimism about the possible risks of ongoing interest rate hikes. He suggests that investors should stick with companies that consistently make good profits. He also advises against investing in bonds in such conditions and points out that real estate and property can have problems due to being a local market with low liquidity and high trading costs —this is coming from two very experienced investors with their own vision.
High-Interest Savings Account
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Even though regular savings accounts do not offer much interest when prices rise, it is still wise to save for unexpected times like job losses. If you only engage in investments, you might have to sell them when their value drops, which would lead to losses — it is often advised to save enough saved for around six months of essential expenses. To prevent your saved money from losing value due to rising prices, finding a savings account with a higher interest rate is advised.
It is no secret that inflation is causing problems in the UK and worldwide. Investing leads to better outcomes in the long run since banks do not raise their interest rates as fast as inflation. However, investing requires patience and hopefulness. It can make your money go up and down a lot, but it is held that it is much better than losing the value of your money due to inflation. Nonetheless, keeping some money in a savings account for worst-case emergencies is definitely advised.
