Inflation may have fallen over recent months, but savers continue to face a battle if they want to beat its corrosive effects.
Here we consider how taking some risks with your capital may enable its value to stay ahead of inflation.
Shift longer term savings into equities
You may have some cash set aside in a savings account. After all, it is generally considered wise to have around six months’ worth of salary set aside as an emergency fund. However, you may find you have more than is necessary. If so, consider whether you could move a portion of this into investments with better potential for long-term growth.
Historically, by far the most effective investments at beating inflation over the long term have been equities – but you need to be comfortable that your investments will rise and fall in value.
Choose your investments wisely
There are other investments that offer the potential for above-inflation returns, provided you know where to look. You could, for example, consider bond funds among a portfolio of investments, which invest in debt issued by governments and/or companies seeking to raise cash. Bonds pay a fixed rate of interest, known as the coupon, during their life and should return the original capital on maturity. Bond funds invest in many different debt securities to spread risk.
A financial adviser can devise a portfolio that maximises any investment opportunities.
Maximise tax efficiency
Once you have considered how to get an inflation-beating return, consider your investments’ tax efficiency. Both ISAs and pensions are tax-efficient vehicles to encourage you to save and invest over the long term.
ISAs enable you to save up to £20,000 each year, with growth and income on investments free from tax, and any withdrawals also tax free. Meanwhile, pension contributions are eligible for income tax relief at up to 45%, depending on your taxable income.
It is wise to take advantage of generous tax breaks over the years when you can afford to do so, and while they are available. This way, you also benefit from the powerful impact of compound growth – or earning returns on your returns – to help outpace inflation.
Seek expert advice
A sensible investment strategy should involve holding a wide variety of assets, and utilising tax-efficient investment vehicles.
We can structure a diversified portfolio tailored to meet your long-term financial goals, attitude to risk, and that protects against the impact of inflation. To find out more, get in touch today.
The value of investments and any income from them can fall and you may get back less than you invested.
Please note that this document was prepared as a general guide only and does not constitute tax or legal advice. While we believe it to be correct at the time of writing, Brewin Dolphin is not a tax adviser and tax law is subject to frequent change. Tax treatment depends on your individual circumstances; therefore you should not rely on this information without seeking professional advice from a qualified tax adviser.
Past performance is not a guide to future performance.
No investment is suitable in all cases and if you have any doubts as to an investment's suitability then you should contact us.
The information contained in this publication is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.
The opinions expressed in this publication are not necessarily the views held throughout Brewin Dolphin Ltd