I just spotted that this blog post didnāt have itās own topic in the community so I figured Iād 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 isnāt how you invest, itās 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 Ā£2,500 in cash savings. If that was true of you 2 years ago, what you had then is really more like Ā£2,400 now.
Thatās OK if itās a growing deposit or a rainy-day fund, but if itās just kind of there through inertia or lack of planning, thatās a hefty loss. And if itās risk keeping you out of stocks, well, thereās 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.
As much as I agree with investing overall (otherwise I wouldnāt be here) those with small cash savings need to consider the risks of losing their money in the markets just as much as the depreciation of cash due to inflation. Most markets do stay ahead of inflation over long periods of time so in the long term should be a safe bet but many individual companies donāt.
Also to note that if we suffer another period of deflation the effects would be reversed.
For sure but Iām just a bit concerned that all the info on the site so far is pro investing and does not warn about the risks. Iām not trying to preach or anything and Iām a noob invester anyway so am ill placed to give advice but surely some negatives will eliminate any potential hate coming from inexperienced people like me losing some or maybe all of their money due to the information given to them.
I doubt anyone comes to investing unaware that there is an element of risk. If you overstate that by having great big warnings it will put a lot of people off.
I understand your point but as with anything financial you expect people to research. Risk is another of those personal and emotive issues, my idea of what is an unacceptable risk might be completely different to yours. How do you define what is a risk without over or understating it?
All opinions mentioned on the community forum belong to the posters and should any user not receive investment experience they expected based on the forum posts, they are liable themselves and should have no one to blame.
After all, you cannot generate capital with no risk, otherwise everyone would have been doing it.
That was the point I was trying to make, nothing more and certainly not trying to put anyone off. This will appeal massively to the young and they will be uninformed so a warning has to be given imo
I agree Lee. The general approach Iāve taken, is to drip feed money into the market rather than in big one-off amounts to try and address the risk of investing just before a price fall, and encountering a corresponding large loss.
Freetrade could be really helpful with this, due to the very low / zero fees being charged for each trade.
Never thought of that before, certainly sounds like a good way of averaging the market.
I tend to jump on something with my enormous amount of market wisdom (none) and then hold when it falls as I know it will definitely make me a profit (usually wrong) Iām hoping to learn from others on here and maybe make a nice portfolio by the end of it. Thanks for the advice much appreciated.
but we are planning to add a warning to the bottom of each page on this site next week.
I think the safe term is guidance