Combating Inflation

RG2015

fun4everyone wrote: »

This is the best reply to this thread for you OP.

I agree. DairyQueen's reply is particularly concise, insightful and encouraging.

Indeed, thank you to everyone for your replies which are all very helpful, including the first two as everyone needs a good kick up the pants now and then!

I have already spent some time on this since late 2016 and with my wife have 14 current, regular, fixed and ISA accounts. I have probably just had an attack of account opening fatigue.

I object to the banks' loss leading products but still use them because basic rates are so low. Perhaps I really do want to have my cake and eat it as well.

Stubod

..we are in a similar position to you. (Cash rich and pension poor).
I am risk averse and historically we have always used savings accounts. In the good old days there were plenty of accounts that matched inflation, but these have long gone.
We also discovered NSI "Index Linked Bonds a little late but we still have some of these and roll them over each time. (If they were still available I would max out every year as we only need to match inflation to maintain a reasonable lifestyle). However over the last few years we have put about 50% of our money into "low risk" SS ISA's. (Mainly as I do recognise the "fact" that is inflation).

Glen_Clark

Stubod wrote: »

..
We also discovered NSI "Index Linked Bonds a little late but we still have some of these and roll them over each time. (If they were still available I would max out every year as we only need to match inflation to maintain a reasonable lifestyle).

Can't even rely on them to match inflation now (as if you ever could when they ignored house prices in favour of stuff like Blu-Ray disc players)
Carney is talking about doing away with RPI and using a lower figure instead.

Malthusian

RG2015 wrote: »

I object to the banks' loss leading products but still use them because basic rates are so low. Perhaps I really do want to have my cake and eat it as well.

Contrary to popular belief you can have your cake and eat it, all you have to do is eat the cake and then take someone else's. That means that one person neither ate their cake nor had it, but that's their problem.

With loss leader current accounts you transfer cake from people who can't be bothered to shop around and switch bank to those that can. If you stay in the loss-leader accounts when the interest rate drops, or say yes to the salesman who encourages you to take out a "premium" current account or crap structured product, you become a net cake loser, but as long as you ignore the calls and keep on switching accounts you are a net cake gainer.

There is nothing immoral about this, people who stay in savings accounts paying 0.1% know what they are getting, and in effect they are paying a fee to those who take out the loss-leader accounts to save them the bother of moving their money around.

NS&I Index-Linked Savings Certificates (and the 2015 Pensioner Bonds and any other NS&I account paying higher than market rate) are similar, only the transfer of cake is from general taxation to people well-off enough to take out savings certificates, to buy their votes. The morality here is more dubious, but refusing to take out an Index-Linked certificate won't result in anyone getting a penny of tax back, and on the rare occasions the state throws coins out of the carriage there is nothing wrong with picking them up.

DairyQueen

kidmugsy wrote: »

But debt still looks a problem to me .... It's not even clear to me that the long shallow depression has yet guaranteed the absence of a deep depression - it may only have delayed it.

The low interest rate policies have also driven up asset values so that, in the US and some other countries, they look poor value and vulnerable to a crash. I don't know what's for the best: we have some SIPP money invested in gold ETCs. Is that mad? Lord alone knows. If I had a safe way to store them I'd have some gold sovereigns too.

My view too. One look at the stats on personal and government debt is sufficient to signal loud-and-clear that debt remains a major problem across the developed world. Debt caused the 2008 crash and it hasn't gone away. Addressing this structural economic weakness has just been kicked down the line.

A pillar of current economic strategy is consumer spending. Governments must keep us spending now at whatever cost to future national and personal wealth. Spending money that we have yet to earn is better than not spending from the government's perspective. Saving (other than for pensions) is a major risk to the strategy and must be discouraged to the same extent that spending must be encouraged. Enter QE and very low interest rates on savings and debt, low bond yields and the high cost of any guaranteed, inflation-protected income.

For those of us in or approaching retirement this creates particular problems. We have little/no time to accumulate more savings and what we have is being ravaged by government policy unless we put it at risk.

Many of us have opted for the uncertainty of market investing rather than the certainty of inflation eroding capital. What will happen when/if QE unwinds is anyone's guess. When/if returns on cash improve older people, in particular, are likely to unwind their market exposure to a lesser/greater extent. I don't know how much the shift from cash/gilts into S&S has added to the high market valuations in recent years but I suspect it's had a significant effect. A reverse of that trend must surely have the opposite effect.

There is much media chatter about the percentage of personal wealth owned by older age groups. We have been saving our whole lives so, of course, we have more than younger people. Where's the injustice in that? There seems to be less appreciation that much/all of our assets will be needed to provide income/care for the rest of our lives, but there is now nowhere to safely invest and inflation-protect it. Instead we must put large chunks at risk in investment vehicles that are better exploited by those that have several decades to weather market volatility. Time is not on our side.

So, yes OP, I understand your need to vent and I've followed your lead and had a bit of a vent too. Bottom line is that life ain't fair and each generation faces different challenges. Younger age groups are much more likely than older people to be damaged by current economic strategy over the long-term. Guaranteed, inflation-proof company pensions were still commonplace when we were younger. Now, other than within the public sector, they have all but disappeared. The younger demographics will need to save far more than we did. Instead they are being encouraged to borrow and spend as sticking-plaster to cover the wounds inflicted by the legacy of bad government decisions (my finger is pointed particularly in the direction of Gordon Brown). I think this qualifies as adding insult to injury.

Those in their late 60s and older appear to be a very lucky generation: DB pensions, high property inflation, decent annuity rates, earlier retirement ages, SP growth above inflation. If you are in this age group then you should count your blessings. Those of us in our 50s through late 60s have also been a lucky demographic as we have shared some of those benefits throughout the accumulation phase of our lives.

Our luck has run-out in the de-accumulation phase but we've had a good run. Our retirement may not be as trouble-free as we would have expected and hoped but that's nothing compared to the difficulty of accumulating capital now facing those under 50.

I will have to spend rather more than a few hours each week managing my investments throughout retirement but at least I have investments to manage. It's a small price to pay.

Glen_Clark

DairyQueen wrote: »

There is much media chatter about the percentage of personal wealth owned by older age groups. We have been saving our whole lives so, of course, we have more than younger people. Where's the injustice in that?

Most of the wealth is in property value appreciation which hasn't been earned. Its led to young professionals spending 75% of their net income on rent, so having no chance to save. (unless they are the Duke of Westminser inheriting £10 billion tax free)
Don't think its fair to single out Gordon Brown either, because it diverts attention from others equally guilty..
But agree with the rest of it.

Alexland

DairyQueen wrote: »

Our luck has run-out in the de-accumulation phase but we've had a good run. Our retirement may not be as trouble-free as we would have expected and hoped but that's nothing compared to the difficulty of accumulating capital now facing those under 50.

Agreed looking at the forecasts for future medium-term returns of any asset class those of us in the accumulation phase are likely to suffer a lack of compounding so we need to put a much higher proportion of our income aside. There are many still putting single digit percentages of their income into their pensions, etc and are likely to suffer a nasty shock when they first see a realistic retirement income projection and try and compare it to their current lifestyle expenditure.

Alex

DairyQueen

Glen_Clark wrote: »

Don't think its fair to single out Gordon Brown either, because it diverts attention from others equally guilty..
But agree with the rest of it.

Fair enough that the problem pre-dated Brown but facts are facts. The Tories left a substantial war-chest. Mr Brown (after the first couple of years of the 'prudence' mantra) blew the lot and then borrowed, and borrowed, and borrowed, to fund all that extra spending on the public sector (creating jobs) and NHS spending. Spending dosh that has yet to be earned is a mug's game whether applied to a family or to a nation. Brown spent the cash buffer left by the Tories, and then accumulated a load of debt. We would have been much less vulnerable in 2008 without his legacy of spending and borrowing.

I particularly recall his pledge to spend 50+ million on the NHS and that much of that spending was directed to the ill-fated medical records integration IT project.

Total waste of money.

Thrugelmir

RG2015 wrote: »

I object to the banks' loss leading products but still use them because basic rates are so low.

Blame the Central Banks. There's plenty of money sloshing around the global financial system looking for a safe return. Many UK banks have (currently) no need to attract depositors money.

kidmugsy

msallen wrote: »

It seems your only option is to spend all your savings now on non-perishable goods that you can use for the rest of your life in the knowledge that a pound today will have bought you a current pounds worth of Heinz beans when you eat them in 25 years time.

Tinned food doesn't seem to survive as long as it used to (unless you live in Antarctica). We've even had to pour some beans on the compost heap. I wept.