Most people know a bit about tax. They know it’s the enemy of saving and growing wealth, hence the popularity of ISAs. But few people are aware that they have another less obvious enemy to contend with when it comes to growing their wealth.
That enemy is inflation.
A false sense of security
Over the past decade, savers have had to contend with low interest rates on cash savings as central bankers around the globe sought to stimulate the post-crisis economy by keeping policy rates at historic lows. Inflation wasn’t an issue.
The upshot of the past decade is that a generation of people aren’t aware of the dangers of inflation and how it can destroy wealth. But in 2016, inflation started to rear its head, thanks to rising commodity prices and a fall in Sterling. Since then, it has trended upwards, before moderating in recent months.
Why inflation is bad news for savers
In short, inflation erodes the purchasing power of your money.
Think back ten or twenty years and consider the price of everyday staples — bread, milk, organic sourdough, good quality wine, flights to Ibiza and other essentials. They cost less than they do now. That’s inflation in action. Here in the UK, inflation is measured by the Consumer Price Index (CPI) and the Retail Price Index (RPI), which track baskets of goods and services.
As with all investments your capital is at risk. WiseAlpha members purchase Notes which are fractions of individual corporate bonds.