Investing to beat inflation
18.05.12
Mon 19 December 2011
During volatile markets, you might question why you are investing. One answer is that over the long term, stock market investments can help provide shelter from the effects of inflation.
Cash is guaranteed not to fall in value, and it is always recommended that you keep enough (some say three to six months' income) as an emergency fund. Once this is in place, you need to consider your time scales, if you're investing for the long term, the stock market can deliver inflation-beating returns. However, you must accept fluctuations in the value of your capital, stocks and shares fall as well as rise in value and you could eventually get back less than you invest.
If you had saved £25,000 in the average instant access account ten years ago, you would have received interest of £6,513. However, inflation would have reduced the spending power of your £31,513 to just £23,100 - a loss in real terms. If you were to spend rather than save the interest, the picture looks even worse - your £25,000 would now only buy goods to the value of £18,348. You can use our inflation calculator to see how your savings and investments might be affected.
Source: Hargreaves Lansdown