18% Inflation - Decimation of savings

chelt_Robin

With the annual inflation rate seeming to be heading up and up, I am getting more and more worried about my savings disapearing. What is the best course of action to mitigate inflation as much as possible. 

At present I save around £600 a month after pension contributions (Civil Service Pension and a Private Pension I contribute to. Obviously this amount I save will fall as prices increase 

I am earn £52K a year and 40 years old.

I have around 35K in a Cash Isa currently paying 1.7%
I have a fixed rate isa with 10K rate of 1% expiring in October
I have cash in a savings acound rate 1.5% C£7K 


Then a stocks and shares Isa with around £12K this is split between a FTSE 100 index tracker currently up around 16% and Vanguard Life Straetgy 60. Currently up about 1.9%. 


I have a mortgage of 90K with a property worth about 300K. Mortgage rate is 1.4% but fix ends next July. - 20 years left on the term. I have no other debt. 


What should I do with my cash, I am tempted to move more cash from my cash ISA into Stocks and Shares and then pay or surplus income into Stocks and Shares, is this sensible I dont think I will need the money for around 5 years at least possibly more. 


I did think about overpaying on the mortgage but I am worried that once the money is paid in its harder to get it out again. 

Should I reduce my exposure to my cash savings I am loosing around 15% on it at the moment with inflation. Will stocks and shares give me a better return? Thoughts on a post card as to the best thing to do. 


My Dad said last time there was rapid inflation index link certificates saved his savings but obviously they are not a thing now. 

dunstonh

hat is the best course of action to mitigate inflation as much as possible. 

For long term money, you would invest.  For short term money you would keep in savings as you are effectively stuck with it.

Pension contributions are particularly effective if timescale matches.

Then a stocks and shares Isa with around £12K this is split between a FTSE 100 index tracker currently up around 16% and Vanguard Life Straetgy 60. Currently up about 1.9%. 

You may want to think about that split as its a strange one.  Plus, gilts/bonds are hit harder during inflation.

I did think about overpaying on the mortgage but I am worried that once the money is paid in its harder to get it out again. 

With over £50k in cash savings, does that really matter?

chelt_Robin

dunstonh said:

hat is the best course of action to mitigate inflation as much as possible. 

For long term money, you would invest.  For short term money you would keep in savings as you are effectively stuck with it.

Pension contributions are particularly effective if timescale matches.

Then a stocks and shares Isa with around £12K this is split between a FTSE 100 index tracker currently up around 16% and Vanguard Life Straetgy 60. Currently up about 1.9%. 

You may want to think about that split as its a strange one.  Plus, gilts/bonds are hit harder during inflation.

I did think about overpaying on the mortgage but I am worried that once the money is paid in its harder to get it out again. 

With over £50k in cash savings, does that really matter?

why would you say the investments are a strange mix the FTse 100 tracker  has way out performed Vanguard which is far more diversified, I wanted to increase my exposure and risk given longer term forcasts say ftse 100 is undervalued. 

jak22

People who know about S&S Isas can advise better but those giving income might give around 4% or so tax free - which isnt bad now and was great not so long ago when cash savings rates were under 0.5%. There may be growth as well but I doubt it will be anything like that inflation rate.

Working out whether the value of a deposit of cash is dropping in value by that inflation rate is also tricky - food inflation looks a lot more that that each week but you wouldnt spend all a cash lump sum on food - so the actual inflation figure for everything you would otherwise spend savings on is harder to work out

masonic

chelt_Robin said:

dunstonh said:

hat is the best course of action to mitigate inflation as much as possible. 

For long term money, you would invest.  For short term money you would keep in savings as you are effectively stuck with it.

Pension contributions are particularly effective if timescale matches.

Then a stocks and shares Isa with around £12K this is split between a FTSE 100 index tracker currently up around 16% and Vanguard Life Straetgy 60. Currently up about 1.9%. 

You may want to think about that split as its a strange one.  Plus, gilts/bonds are hit harder during inflation.

I did think about overpaying on the mortgage but I am worried that once the money is paid in its harder to get it out again. 

With over £50k in cash savings, does that really matter?

why would you say the investments are a strange mix the FTse 100 tracker  has way out performed Vanguard which is far more diversified, I wanted to increase my exposure and risk given longer term forcasts say ftse 100 is undervalued. 

I suppose it depends on how your money is split between the two. The long term performance of the FTSE 100 is woeful compared to a global tracker. You can't really make a fair comparisnon with VLS 60 as that contains 40% bonds. VLS is already overweight UK equities.

Nebulous2

Inflation isn't at 18% yet, and we only have one bank forecasting that it will be, based largely on utility costs. You're in a better position to weather it than many people with your income and resources. 

How are your utility costs? Anything you can do to improve efficiency there? Better insulation? More efficient appliances? 

Do you have any plans for major expenditure, renovations or vehicles etc, that you can bring forward and lock in at lower costs before the prices go up? 

MA260

In is better to have cash savings than not as in much better position to weather the storm. It also depends how you look at it. From a negative perspective the savings are devaluing with much higher inflation than interest rate.  Yet people with larger cash savings are probably earning 2% on interest now against 0.5%, so they will be making up some of the shortfall in increased expenditure. via increased interest income as well as possibly increased wages since last year.

Expotter

I wouldn't dismiss completely paying some of the mortgage off, your rate is quite good now, but even now the best two year fix is about 3.2% and by July next year, who knows how much higher that will be. It could quite easily be around 4.5% or more. In any case, it's always going to be higher than any easy access account. 

sevenhills

You need to think about how much cash you need. You seem to have £52K in short term savings. That could get your mortgage way down.
I like risk, I assume you don't, I have a few hundred in short term savings, my money is invested in individual shares.
If you think there could be a crash, it comes back to how much cash do you need.

penners324

More pension, more shares in it. 80 to 100% equities.

Put excess cash into it or the S&S ISA

bd10

@ OP:

Instead of looking at the headline RPI/CPI measure of inflation, I would estimate what my personal level of inflation is as our lifestyles are all different. Here's a nice little tool provided by the ONS:

https://www.ons.gov.uk/visualisations/dvc1833/calculator/index.html

I played around with it earlier today and that confirmed my back-of-the-envelope guess that mine is not double digits.

Next you need to consider how various asset classes (cash, bonds, equities, real estate/REITs, gold etc) have been performing historically in periods of inflation. But consider here the full inflation cycle: rising, peak, falling. Even within equities various sectors have historically performed better/worse than others. Granted, every inflationary episode is different. The early 70s would be a good analogue imho.