Inflation

lvader

CarlosTheJackal wrote: »

We have been talking about this since silver less than a third of todays price but mining shares have hardly moved. Are you kicking yourself for missing out on that 300% return since you said "silver bullion is a rubbish investment"

Where do you get the 300% from?, the first time I talked about silver the price was around $20, now it's around $34. I predicted both the $50 peak and the crash, so I'd say my thoughts on silver have been spot on. Have I made any money from silver? Yes, I've just about doubled the money I invested which is far better than if I'd bought bullion and kept it.

lvader

i didn't join this forum until March 2010 (easy to see from my profile) and even if I'd joined the silver discussion straight away (which I didn't) the price at that point was around $17. The price was around $20-21 when I started to post on the silver thread.

Silver bullion is a rubbish investment because you have to pay VAT and the margins on buying and selling are high. That is even more true today with VAT @ 20%. There are plenty of other ways to invest in silver that are far more efficient. I've used some of them and done quite well out of it.

I predicated early this year that silver would reach $50 in 2011, I mentioned this several times in the main silver thread, I can only think you were banned at the time because plenty of the other bugs saw me post about $50 and commented on it.

I also preditced in the later half of 2010 that the price of silver would crash in the next 6-12 months. Again plenty of other saw this and the likes of SMEGold commented on it.

Silver theads and posts are banned so it's pointless making further predictions because they will only get deleted.

Milarky

coxy17 wrote: »

I just read about inflation being higher than a savings rate causes you loose money. So, my question is; how are you supposed to save money in the current climate? Inflation is running at around 5% and most, if not all savings accounts are well under 4%. I know there are some regular savings accounts but if you don't qualify for those accounts then it seems a difficult situation.

It is always possible to 'save' IMO because when you begin the amount you can add to what you have already saved is much more significant than the 'drag' effect of negative real interest rates (although this effect then varies with amount saved, of course)

Example: Inflation is 10%, Interest rate 0%

Saving a fixed £100 a monthly from nothing gives

£1200 after year 1 (£1080 after inflation -10%)
£2400 after year 2 (£1944 after inflation -19%)
£3600 after year 3 (£2624 after inflation -27%)

Now have you increased your savings from year 2 to year 3? Yes

How much (after inflation) have your savings increased each year?

Year 1 £1080
Year 2 £864
Year 3 £680

At what point can't you any longer increase your savings if you only cover these with £100 a month (from salary)?

Answer: In year 10, when £1200pa saved = 10% of the amount built up - the amount of annual devaluation due to high inflation/low interest rate. But the 'real' value of this non-increasing amount is just '£4184' - that's the 'limit'

This is a subtle point

You can build up a lump of savings from nothing under almost any inflationary conditions. What you can't do is keep increasing that lump (in real terms) beyond SOME level - and the level you can't exceed is some multiple of the annual savings can make.

If we relax this a bit (Say 4% interest rates - 3.2% after BR tax against 5% inflation) to make it more realistic the answer comes out at '£22300' (or 22.3 x annual savings)

And once real interest rates go positive again (inflation is this kind is always 'temporary' in the long run) this limit will cease to exist

Ark_Welder

xrjtg wrote: »

Money market funds (which might differ from products offered by banks in ways of which I'm unaware) have the aim of never making a loss, and rarely make a gain. They're probably not going to help you keep pace with inflation.

Money market funds are exactly that - an OEIC or unit trust that invests in cash instruments, and is regulated accordingly

Money market accounts are bank deposit accounts. Therefore, cash held in these should be covered by the FSCS within the appropriate limits.

Xbigman

I completely agree with Milarky. Saving is actually all about not spending all your money and putting some aside.

If you save £100 a year for 10 years you will have £1000 + interest. Say £1200.
Even if inflation means that £1200 would only buy you £950 of goods you would still have £950 more than someone who saved nothing.

Once you do manage to save something then you need to maximise your savings, which is all about keeping your eye on the ball and being prepared to move your money to the best place to earn interest.





X

sabretoothtigger

Your example of 1200 declining to 950 represents less then 2% inflation scenario each year I think. At present we have 5% inflation which leads to far greater losses over those 10 years


If people save plain cash they will end up poor and unable to retire in any comfort, those who spend the cash now will at least control what benefit they receive.
Even if normally saving is best, right now its awful. People are being ripped off and its deliberate, the BOE have said directly this is their policy you must spend or lose it

The only alternative is investment and that does not include bonds so far as I know

Ark_Welder

Inflation has a similarity to investment performance: historic and current data are no guarantee to future performance.

Cash is also an investment, not an alternative to investment. The proportion of cash held in a portfolio might be open to debate. Similar with bonds, where there are many types, including inflation-linked offerings - some of which might be a bit pricey, e.g. I-L Gilts.

When the yields on corporate bonds do start to rise significantly, companies that bring new offerings to the market might need to direct more of their turnover to servicing those debts, which might leave less for shareholders, which might impact on their share price. So in a scenario of falling bond and equity prices, the relative performance of cash could be superior.

An important reason for holding easily-accessible cash - even now - is to cover unforseen circumstances, such as job loss, illness, car MOT failure, etc. How much to keep? Again, open to debate.

ses6jwg

Ark_Welder wrote: »

Inflation has a similarity to investment performance: historic and current data are no guarantee to future performance.

Cash is also an investment, not an alternative to investment. The proportion of cash held in a portfolio might be open to debate. Similar with bonds, where there are many types, including inflation-linked offerings - some of which might be a bit pricey, e.g. I-L Gilts.

When the yields on corporate bonds do start to rise significantly, companies that bring new offerings to the market might need to direct more of their turnover to servicing those debts, which might leave less for shareholders, which might impact on their share price. So in a scenario of falling bond and equity prices, the relative performance of cash could be superior.

An important reason for holding easily-accessible cash - even now - is to cover unforseen circumstances, such as job loss, illness, car MOT failure, etc. How much to keep? Again, open to debate.

The conservative among us would say 6 months salary should be kept as "easy access" funds.

lvader

ses6jwg wrote: »

The conservative among us would say 6 months salary should be kept as "easy access" funds.

I would say 6 months expenses, what you earn is irrelevant.

lisyloo

I thought it was going the other way and that inflation will decrease

Hi Matrix - sorry about the confusion. I meant interest rates not inflation rates.