The Times - UK (2022-06-11)

‘Shares are my

path to owning

a property’

M

arianna Hunt, 26, is

investing any money she

sets aside each month with

the goal of buying a property in the

future.

“The main reason I invest my

savings, rather than putting them in

a cash savings account, is because I

know the banks will never increase

their interest rates as fast as

inflation. Even when I shop around

for the best rate, the difference is

pennies for me. In the long term I’m

confident investing will provide

better returns,” she said.

Hunt, who works in

communications, started investing

three years ago. She contributes a

regular sum each month to a stocks

and shares Isa and a Lifetime Isa.

About 90 per cent of her money is

invested in a mixture of funds, with

the remaining 10 per cent in

individual companies. Her funds

include Baillie Gifford Positive

Change, Baillie Gifford China,

Liontrust Sustainable Future Global

Growth and Vanguard Global

Small-Cap Index. Her individual

holdings are the technology firm

Microsoft and OneSavings Bank.

Hunt said: “My investments were

all doing really well until this year

when the Ukraine conflict, rising

inflation and higher interest rates hit

the stock market. My investments

are currently up 5 per cent from

when I started three years ago, but

last year they were up 45 per cent at

their peak.

“I’m holding my nerve and plan to

invest my way through it. I have

some cash savings equivalent to six

months of outgoings to cover me for

any emergencies, but I see no

reason to have other cash savings.

With investing your money can

fluctuate a lot — but it’s better than

losing value to inflation.”

In association with Navigating the cost of

living crisis

7

enough cash to cover at least six months

of essential outgoings. Find the highest-

paying savings account to protect this

against inflation as much as possible.

The top paying easy-access account is

1.56 per cent from Virgin Money.

Make use of tax wrappers

Investing in a stocks and shares Isa

means that any returns you make will be

tax-free. You can pay in £20,000 each

tax year across any Isa product —

whether that’s stocks and shares, Help to

Buy, cash or a Lifetime Isa — but you

can only open one of each type in a year.

If you are saving for retirement, a

pension may be a better option. Any

income you save into your pension is

free of income tax. This will happen

automatically if you have a workplace

pension, but if you instead pay into a

private pension after tax, your

contributions will be topped up by the

government so you don’t lose out. For

example, if you contribute £80 then £100

goes into your pension pot. This is

limited to the basic tax rate of 20 per

cent, but if you are a higher-rate or top-

rate taxpayer paying into a private

pension you can claim a further 20 per

cent or 25 per cent respectively via a

self-assessment tax return.

Inflation might be at a 40-year high

but you can still shield your money.

with investing a lump sum in one go,

which could suddenly plummet in value

if you bought just before a crash.

The counter argument is that the

smaller your investment the smaller

your gain if markets soar, but in the long

run the aim is to reduce volatility and

end up with higher returns overall.

Keep some cash savings

While the interest rates on cash savings

accounts are low compared with

inflation, it is important set money aside

for emergencies, such as losing your job.

If you kept this money in investments

such as shares you might be forced to

cash them in when the markets are

down meaning you could lose money. It

is often recommended that you have

HSBC Global Strategy and BlackRock’s

MyMap portfolios.

Think long term

Financial advisers typically recommend

investing in shares for long-term

financial goals of at least five years.

“Stocks tend to be volatile over shorter

periods, which makes them a riskier

investment than some other asset

classes,” said Lisa Tipton from New

World Financial Group.

If you need the money in the short

term, the risk is that the market crashes

just before you cash in your investment.

Stock markets have had mixed fortunes

in 2022. The FTSE 100 is up 0.4 per cent

since the start of the year, but the S&P

500 index of the biggest US companies

has dropped 14 per cent. But over the

long term investments have tended to

outperform inflation (see table, right).

Drip-feed your money in

A way to minimise losses in uncertain

times is to drip-feed your money in —

known as pound-cost averaging.

By investing small amounts at regular

intervals you will sometimes invest when

the market is high, getting fewer shares

for your money, but you will sometimes

invest when it is low, meaning you will

get more. This is likely to smooth out the

ups and downs of the market compared

As costs

climb, seek

shelter in

the markets

You give your savings the

best chance of staying

in line with inflation by

investing in equity, says

Elizabeth Anderson

W

ith inflation at 9 per

cent but the best-

paying easy-access

account offering

interest of 1.56 per

cent, any money

you hold in cash

savings is losing value. That disparity is

set to get more pronounced, with the

Bank of England warning that inflation

could hit 10 per cent this year.

So if you want your nest egg to grow

faster than the soaring cost of living, you

may want to invest your money.

Despite the recent stock market

turbulence, history suggests that

investing in markets such as shares is the

most reliable way to grow your savings

over the long term. The average annual

return for the FTSE 100, for example,

was 7.3 per cent over the past 30 years

(assuming dividends are reinvested) —

outstripping the 2.1 per cent average

annual growth in inflation for the same

period, according to the wealth manager

New World Financial Group.

Investing is something anyone can do,

even if you start with only a few pounds.

You do not need a financial adviser —

you can choose your own investments

through an online investment platform

(although if you are investing a big sum,

consider getting advice).

Here are our investment tips to help

you stay on top of inflation.

Diversify

Becky O’Connor from the investment

platform Interactive Investor said gold,

UK equities and residential property

were assets that beat inflation in the year

to the end of March.

But she said that it is impossible to

predict whether all or any of them will

continue to do well. She recommended

having a diverse portfolio with a mix of

assets, including equities, property, less

risky bets such as bonds, and alternative

investments such as gold, which is often

seen as a “safe haven” that can maintain

value in times of stock market turmoil.

This way you will not be overexposed to

the fluctuating fortunes of particular

assets, firms or sectors.

For new investors or those who favour

a hands-off approach, the best way to

diversify is with an investment fund.

These hold shares in many firms,

perhaps focusing on a certain sector or

country. Popular examples include

Fundsmith Equity, Legal & General’s

Global Technology Index and the

Vanguard US Equity Index.

If you want even more diversification,

there are funds that invest in a wide

range of assets, countries and sectors,

including Vanguard’s LifeStrategy range,

“

Investing is

something

anyone can

do, even if you

start with only

a few pounds

While you are not going to find a

certain range of investments to beat

the current rising prices, there are ways

you can protect your portfolio. Emma

Wall from the investment platform

Hargreaves Lansdown recommends

the following funds.

1

BlackRock Gold & General invests in

companies that mine gold around

the world, as well as some other

commodities such as diamonds. Gold is

seen as a “safe haven” asset that will

hold its value, so tends to do well when

inflation is high.

2

HICL Infrastructure Company

invests in high-quality infrastructure

that plays a significant role in

communities, such as schools and

hospitals, to create sustainable income

for investors over time.

3

Troy Trojan holds a mix of stocks,

bonds, gold and cash, with the aim

of beating the retail prices index (RPI)

measure of inflation. It favours large,

established companies that can grow

sustainably and get through tough

economic conditions.

4

Artemis Income focuses on firms

that can maintain or increase

dividend payments. Investors who

don’t require the income can reinvest

the dividends to boost longer-term

growth.

5

JO Hambro UK Equity Income has

a third of its portfolio in finance

companies, which generally do well

when interest rates are going up — a

trend predicted to continue this year.

INVESTMENTS V INFLATION OVER 30 YEARS

Annualised

growth Total growth

Consumer prices index measure

of inflation 2.1% 86.8%

Retail prices index measure

of inflation

2.9% 133.1%

Mixed investments sector average

(40%-85% shares) 6.6% 569.9%

UK all-companies sector average 7% 673.1%

FIVE INFLATION-BUSTING FUNDS

01/05/1992 TO 30/04/2022. SOURCE: NEW WORLD FINANCIAL GROUP, ASSUMES DIVIDENDS ARE REINVESTED

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