Rehobotics: My Cash Dilemma (Inflation)

Cash is a key component of any financial plan. Against the backdrop of poor market returns for many cash is a safe haven.

The real issue is when supposed safety of cash becomes a nightmare because we take our eye of the ball.

The invisible enemy of any cash investment is inflation. Inflation is the general price of good and services increases in an economy. We should expect a low level of inflation in a healthy economy. According to the office of national statistics as of Jan 2024. UK inflation is sat at 5.1%* which can have a devasting effect on long term cash investment.

What does this mean for £10,000 worth of savings?

The maths is simple, in other for your savings to keep pace with inflation. You will need to secure interest higher than inflation. Please bear in mind the impact of taxation on interest.

The graph below assumes you are saving for retirement over the long term (20 years). The effect assuming no interest or investment return unveils the truth about this invisible enemy.

What action can you take

Investing over the medium to long term can reduce the impact of inflation. A financial planner can provide education based on your risk appetite and capacity to make some recommendation on investment that may be best suited to you. History tell us the best way to beat inflation is to remain invested over the long term.