Want to start every financial conversation with confidence?
Here’s the key ideas you need to know.
Inflation is a measure of how fast prices increase over a given period of time.
It has many economic consequences, but we’re chiefly concerned here with its impact on the value of your wealth
Data released by the Office for National Statistics (ONS) showed that the cost of living, as measured by the Consumer Prices Index (CPI), rose by an annualised rate of 2% in May 2019.*
For savers, this is a real blow, as this means any funds in savings accounts paying less than 2% interest are losing value once inflation is factored in.
Anyone who follows the financial news knows that fluctuations in markets are a fact of life.
This can be challenging experience, but there are seldom rewards without some degree of risk.
The most important thing is to really understand how much risk you’re comfortable with and you can afford to take, and to use that as the starting point.
This means spreading your money (and risk) across different types of investments to reduce volatility – ie. how much your portfolio ebbs and flows in value.
It does this by lessening the impact of any one share or asset class performing badly; some can lose value without having a major impact on your overall performance.
Compound interest is simply interest on interest, but its impact is incredibly powerful.
A simple example is a £100 investment paying 10% interest per annum.
After one year you would have £110. Then in year two, you would get 10% of £110, which is £11, totalling £121.
In year three, you would get 10% of £121 which is £12.1, totalling £133.1. And so it goes on on.
When you increase the sums and timespans, the power of compounding becomes clear:
Emotions and investing
One of the most common mistakes made by new investors is to check the performance of their portfolio too regularly.
This is stressful, because investments are volatile across short periods of time and this frequent monitoring can lead to “emotive” reactions, which can lead to less desirable outcomes.
However, a regular review by a professional is essential. This is because, over time, macroeconomic, geo-political events and legislative changes can impact investments within your portfolio.
To find out more about how Brewin Dolphin can help you, request a callback today.
The value of investments 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 document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.