I just spotted that this blog post didn’t have it’s own topic in the community so I figured I’d share it here & also, pick out the key points in this post for new investors.
Higher inflation is certainly not great news for stocks in the short-term.
But the truth is that the biggest long-term risk from inflation isn’t how you invest, it’s not investing at all.
If the inflation rate is 2% in the country that you live in, then every 5 years your cash savings lose slightly more than 10% of their value. And sometimes inflation can be higher than that, you can check the current level of inflation in the UK here.
According to Nationwide (PDF), the average UK 20-something holds around £2,500 in cash savings. If that was true of you 2 years ago, what you had then is really more like £2,400 now.
That’s OK if it’s a growing deposit or a rainy-day fund, but if it’s just kind of there through inertia or lack of planning, that’s a hefty loss. And if it’s risk keeping you out of stocks, well, there’s your risk in staying out.
On the flipside compound interest, is the ultimate wealth-builder for investors and the younger you are, the more years you have to magnify its effects.