100 and Not Out

We have been producing these newsletters now for 17 years and this is the 100th edition — thank you if you have managed to stick with us. In this edition I consider inflation and its effect on your money.

Markets Commentary

War, no war… and repeat. In these straightened times it is good to remember that we humans are resilient and tend to survive and even thrive in the end. Paradoxically, while the news has been doing its best to alarm us, we have just delivered one of the best years’ returns for a while.

Inflation — On the Up

Debt and the fear of inflation are amongst the main concerns driving market returns.

Inflation is a tendency for prices to rise, and we all know and feel this. The problem with holding money on deposit is that historically it has lost value in real terms — inflation has beaten interest rates, leading to negative real rates of return.

Negative real rates tend to follow crises: wars, financial crashes, pandemics. This is partly because politicians like staying in power, and partly because heavily indebted governments quite enjoy a bit of inflation — it quietly shrinks their debts. The casualties tend to be cash and gilts, with money migrating towards real, asset-backed investments.

One solution: give us all of your money, nothing could possibly go wrong… that is unless there is a war, a vital waterway gets blocked or a cowboy loses the mid-terms — or indeed any of the four horsemen fancy a ride.

Better solution: Make a plan and review it regularly. Decide what money you don’t need for a few years and invest in real asset backed stuff. Yes, values will almost certainly fall during some years — markets do enjoy a wobble — but unless you are very unlucky, holding funds in the right assets over several years should see you out-perform inflation.

SUMMARY

Look to the medium to long term when investing — inflation has the most effect over the longer term, but good investment choices can beat it.

And finally… the difference between gamblers and investors:

The gambler: Short term ‘investor’. Checks portfolio “I’m up £500!” Checks again 10 minutes later “I’m down £600!” Has a panic attack.

Long-term investor: Checks portfolio annually “Oh, that’s nice” Goes to the pub.

p.s. Our compliance department dictates that this newsletter is for information purposes only and should not be considered as financial advice — especially the ‘give us all of your money’ bit.