How does inflation impact investing?

Written by
Tom Lamb
Time to read
2 minutes, 35 seconds

What is inflation? 

With inflation and the cost of living going up, it is important to question what is this doing to your money.

Inflation is the increase in the price of goods over time. For example, if something costs £1 one year and £1.09 the next year, then that’s an annual inflation rate of 9%. In the UK prices are currently rising by 9% a year (2022) which is the highest rate for 40 years.

How inflation affects money

Inflation doesn’t just impact what you can afford now but it also affects what you can afford in the future. If the inflation rate is 2% (which is the Bank of England’s target), then the purchasing power of money will be 2% less a year later.

 

Can I protect my money from inflation? 

There are ways to potentially protect your money from being eroded which could be beneficial when it comes to investing:

Stocks & Shares ISA

A Stocks and Shares ISA is available to UK residents over the age of 18 and they can be a great way to start investing. With a Stocks & Shares ISA, your money is invested and has the opportunity for growth above inflation. Unlike a Cash ISA, the returns you get from a Stocks & Shares ISA aren’t limited by the provider’s interest rate. Cash ISA interest rates are often below the inflation rate, meaning money saved in them is losing buying power. With investing, your capital is at risk and the value of Stocks and Shares ISAs can go down as well as up, unlike cash ISAs. Therefore it’s important to understand the pros and cons when it comes to these types of products.

Utilise investment technology 

It’s important to understand and know exactly how your investments are performing in real-time and what can be done to get back on track if you fall behind. At True Potential, we believe in being fully transparent, so as part of our service, you’ll have 24/7 access to your financial plan with our mobile app and desktop site. This investment technology puts you in control and empowers you to do more with your money.

Ensure your investments are diversified

A diversified portfolio is a collection of different investments which essentially spreads out your risks so that the performance of one investment doesn’t necessarily impact the performance of your whole portfolio – which can also protect against the impact of inflation. By using a pioneering approach known as Advanced Diversifications we are able to find opportunities for growth that others can’t replicate. This is done by expertly blending tried-and-tested multi-asset investment strategies from a range of fund managers.

Get expert advice

Our highly qualified financial advisers take a holistic approach when creating, supporting and reviewing your plan. At True Potential, we can review your plans to make sure they’re aligned with your goals.

Your capital is at risk, investments can fluctuate in value and investors may not get the amount back they initially invest. Past performance is not a guide to future performance.

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