How to protect your savings from the horror of inflation?

Dubai: Hisham Mukhanh

Rising consumer prices make it increasingly difficult to manage the cost of living, and knowing how to protect savings has never been more important over the years than it is today.

The latest incoming data showed that prices in the United States rose to their highest level in March since 1981. The Consumer Price Index, which tracks a broad range of goods and services, rose 8.5% year-on-year last month, just above the 8.4% expected. Real profits, despite rising 5.6 percent since March 2021, have failed to keep pace with price increases. The data from the Ministry of Labor also showed a seasonally adjusted decrease of 0.8% in average hourly earnings for the same period.

Meanwhile, the UK’s Office for National Statistics reported on Tuesday that pay, excluding bonuses, rose by 4% in the three months to February. But based on the inflation rate, this means that wages actually fell by 1%.

Other UK data indicated that the country’s cost of living crisis had led to a slowdown in retail sales, with the British Retail Consortium finding that sales rose 3.1% in March, compared with a rise of 6.7 % in February.

In addition, a survey by British investment platform Hargreaves Lansdown found that with the cost of living rising in recent months, 27% of Britons paid less than their savings, while 25% spent their savings completely.

So how do you protect your savings in these tough times?

Do not freeze money for a long time

“It’s important to understand that because interest rates are still well below inflation, money will lose some of its purchasing power if it is held,” Laith Khalaf, head of investment analysis at UK investment platform AJ Bell, told CNBC . “

One way to minimize losses, if you need to keep some cash, is to put it in a savings account at the best rate. However, Khalaf cautioned against going into long-term cash savings accounts that credit money for long periods of time, given the potential for higher rates. He added that it would be more profitable to consider fixed savings account products with a duration of only 6 to 12 months.

Money for shares

Similarly, Simon Goldthorpe, chief executive of financial services firm Beaufort Financial, said: “It is true that it is a good idea to keep a certain amount of wealth in cash for emergencies on difficult days, especially given the rising cost of living, but anything further must take a serious path. More so, investing in the stock market is one of the most important ways.

Goldthorpe added that investors should ensure they diversify their portfolios, focus on long-term goals and invest in sectors that do well in an inflationary environment.

As for Myron Jobson, senior personal finance analyst at British investment platform Interactive Investor, he considered investing in the stock market, a good option for savers who hold their money for five years or more.

AJ Bell’s Khalaf recommended also investing across funds to ensure diversification, even those that track a market index. If the saver is keen to pick some stocks himself, it is good to put three-quarters of the money to be invested in funds, and the remaining quarter in some individual companies. Even if there are two companies that conflict with what you’ve chosen, there won’t be a significant adverse effect on your overall wealth, says Khalaf.

Stock investors worried

And for equity investors, who are thinking about how to weather the worst bout of inflation in four decades, they needn’t worry, and they should continue on their investment path for a long time to preserve and grow wealth rather than their change strategy based on changing images, according to Nick Maguyle, COO of «Rithholtz Wealth Management.

According to Maguylie, for example, if you had invested $1 in long-term US Treasuries in 1926, it would have grown to $200 (13 times inflation) by the end of 2020. If you $1 in a broad portfolio of stocks In 1926 it also grew to $10,937 (729 times greater than inflation) during the same period.

In the opinion of the head of operations at “Ritholtz”, that in periods of high inflation or inversion of the yield curve, it is necessary to move away from “market timing”, that is, try to predict future market price movements. Such an attempt is usually a fool’s errand.

However, increasing price pressures have become a major concern for many prominent Wall Street investors; Seth Klarman of the Baupost Group said earlier that inflation is a real risk for the markets. Billionaire hedge fund manager Paul Tudor Jones has described inflation as the “No. 1 issue” facing Main Street investors, and the single biggest threat to financial markets and the macro economy.

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