With the skyrocketing cost of living, are you wondering: “how do I inflation-proof my wealth?”. If you are, you might be interested in a recent report by the Independent, which reveals that keeping wealth in cash is still more popular than investing.
This is particularly true with women, the article adds, because they often don’t know where to start when it comes to investing, and are more concerned about scams.
Britons preference to keep wealth in cash is also backed up by government statistics, which reveal that 75% of all ISA accounts subscribed to during the 2019/20 tax year were in cash. Yet keeping your money in cash as inflation soars could significantly reduce its value in real terms.
As investing typically provides greater growth potential, if you are interested in the tax benefits offered by ISAs and want to inflation-proof your cash, you might want to consider a Stocks and Shares ISA instead.
Read on to discover more, and how you could give the growth potential of your Stocks and Shares ISA a boost with one simple step.
Investing could help inflation-proof your wealth
According to the Office for National Statistics, inflation reached 7% in March 2022, up from 6.2% the month before – the highest since 1992.
While the Bank of England has increased its rate to 0.75% to tackle soaring inflation, Moneyfacts reveals that the best easy access account in April 2022 offered an interest rate of just 1%.
It also shows that the best fixed-term rate, which would mean locking your money away for five years, offered 2.4%. When you consider these are significantly below the rate of inflation, you can see how your money could lose value in real terms.
Compare this to the average Stocks and Shares ISA, which, according to the above Independent article, returned 6.92% between February 2021 and February 2022.
Further evidence investing could provide greater growth potential can be found in the 2019 Barclays Equity Gilt Study, which tracked the nominal performance of £100 invested in cash, bonds or equities between 1899 and 2019.
It found that if you invested the money in cash, it would have been worth just over £20,000 in 2019. If you had put the money into the stock market, it would have been worth around £2.7 million.
Always remember, past performance is no guarantee of future performance, and you may not get back the full amount you invested.
While investing in a Stocks and Shares ISA might be an effective way to inflation-proof your money, you need to be aware of a useful tip that could increase its growth potential. Let’s consider this now.
Many invest in ISAs at the end of the tax year
In 2022/23, you can place up to £20,000 into an ISA, or up to £9,000 into a Junior ISA (JISA). This means you could build a significant amount of tax-efficient money relatively quickly.
That said, many people tend to invest in the weeks leading up to the end of a tax year, as they want to use their ISA allowance before losing it when the next tax year starts on 6 April.
Waiting until the end of the tax year, however, means that your money misses months of potential tax-efficient growth.
As such, the long-term value of your Stocks and Shares ISA could be significantly reduced.
Always aim to invest at the start of the tax year
To demonstrate how much more growth your money might enjoy if you invest at the start of the tax year, consider the following example. It was featured in Investor’s Chronicle and uses data from the MSCI World Index, which tracks the performance of a basket of companies in developed nations.
It reveals that if you had invested £20,000 at the beginning of the tax year for 10 years leading up to April 2021, your investment would have been worth £356,353.
If you had invested at the end of each tax year, it would have been worth just £329,316 – a drop of £27,037.
Please note, the calculations are for illustrative purposes only, and don’t consider the effects of charges on any investment. For ease, it also assumes £20,000 was put into the ISA every year despite the ISA allowance being below this amount in some years.
That said, the illustration highlights that investing at the start of the tax year could provide your money with a significant boost.
A Stocks and Shares ISA could also help the planet
Investing your money may not only help you inflation-proof your wealth, but it could also be better for the planet if you invest in “sustainable” funds.
According to Pensions Age, placing your money into sustainable investments, which are today known as “Environmental, Sustainable and Ethical” (ESG) funds, could be 40 times more powerful in tackling climate change than switching to a renewable energy provider.
Get in touch
If you would like to invest to help inflation-proof your money, but don’t know where to start, please get in touch. I would be happy to discuss your options and identify the best strategy for you.
You can contact me by emailing firstname.lastname@example.org or calling 01793 766 123.
Alternatively, call my mobile on 07525 177 046. Please note that while I offer high standards of service and ensure any plan is right for you, I’m also a busy mum, so work Mondays and Tuesdays only.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.