Many savers are finding it difficult to know what to do in these difficult times, inflation rates are high, bank interest rates are low, and government bonds no longer seem safe and the stock market is too volatile. So what should you do with your money? keep it under the mattress?
Keeping your money under the mattress is not the answer, if you don't want your money eroded by inflation. Every day you delay making a sound financial plan that is what is happening to your money.
The two main measures of consumer inflation are the Consumer Prices Index (CPI) and the Retail Prices Index (RPI). The Services Producer Price Index (SPPI) measures the price changes of services provided by businesses to other businesses and government. The Producer Price Index (PPI) measures the price changes of goods bought and sold by manufacturers.
Recent inflation rates?
From 2002 until 2010, the average inflation rate in Portugal was 2.25 percent reaching an historical high of 4.20 percent in February of 2003 and a record low of -1.60 percent in June of 2009. The inflation rate in Portugal was last reported at 2.9 percent in August of 2011. The Eurozone inflation has picked up recently to 2.5% above the target of 2%.
The United Kingdom also continues to feel the pressure and inflation in August was at 4.4%, well above the 2% target. This is keenly felt by the expatriate market here in Portugal as many of our home comforts like pork pies, tea and favourite meats, maybe imported from the UK or other countries with higher inflation rates or even a strong currency, both further impacting your wallet.
When can we expect Bank rates to rise again?
The ECB, which has raised its benchmark rate twice this year to 1.5 percent to tackle inflation, has recently been forced to start buying Italian and Spanish bonds to stop the region’s sovereign- debt crisis from spreading, so no further rise is expected in 2011. Whilst in the UK for the 30th month in a row the Bank of England has held the base rate at 0.5%, and economists predict the first interest rate rise won't be until at least 2013. So the UK seems as if it’s now heading into a Japanese-style era of ultra-low rates to combat a depressed economy.
How will this affect your savings and your future?
Our life expectancy has grown, on average Men aged 65 can expect to live for another 22 years and Women another 24 years. It’s nice to think that you have the potential for a long retirement but this does have to be paid for. Whilst you will no longer have the routine of going to work and every day can be taken at your leisure, if you don’t save enough or ensure your money is protected against inflation, your retirement may not be the one you wished for!
Below is an example of the effects of inflation on everyday goods!
What can you do?
A change in your attitude to risk maybe required in order to yield a higher return and protect your capital against inflation. Leaving your money in the bank hoping for a quick turnaround in interest rates may be just as big a risk than investing your money into an alternative equity based investment. If you are retired for example, you may not have any way of replacing the capital in future years. Once used and/or inflation has taken its toll, it’s gone forever, no-one can accurately predict how many years they will continue to live and therefore know how long their capital needs to last. So if you are not one of the fortunate minorities with significant capital, several income streams and no need to worry, then doing nothing is not an option for you, take action fast and seek the right solution for you.
There is no right answer for everyone, what’s right for some, is not for others. We all have different attitudes towards risk, timeframes to invest, amount of capital and so on. Investments are often made with our emotions and we all think differently.
There are hundreds if not thousands of financial instruments available so deciding which solution is best for you can be laborious, confusing & time consuming. It is so important to find someone you can trust, a qualified financial advisor who is independent and can provide you with unbiased advice. So why not act now and safeguard your future against inflation!
You can contact me Daniel McGonigle, Managing Partner at Affinity Global Wealth on (+351) 91 279 2998.
Affinity Global Wealth
Av. Vilamoura XXI, Edifício Portal,
Bloco B -1B, 8125-406,
T: +351 289 314 530
F: +351 289 314 520