Holly's Blog: A Boring riddle......
19 Nov, 2021
Flipping heck what a week. Am I the only person who HATES November with a passion!? It’s all doom and gloom with finger pointing, sleaze, blocked gutters, Covid, still Covid and euuuugghhhhhhh….. no wonder everyone watches Strictly! I am going to tune in for the first time this weekend, in desperate pursuit of a world of sequins and silicone for 2 escapist hours!
Riddle-me-re…...
Keeping on with my jolly theme…… What is the answer to Gollum’s riddle in The Hobbit??
“It cannot be seen, cannot be felt, cannot be heard, cannot be smelt,
It lies behind stars and under hills, and empty holes it fills,
It comes first and follows after, ends life, kills laughter.”
It is of course inflation which has hit a gloomy and spooky 10 year high of 4.2%.
As boring as the word ‘inflation’ may sound, what lies under the bonnet of this dry little number is actually a fascinating mirror of modern society, and what we all get up to. Yes – the ‘Consumer Price Index’ is to 2021 what Jane Austen novels were to the 19th century.
To work out inflation, the statistical gonks put together a conceptual shopping basket which contains what they think the average person spends their money on. About 180,000 separate price quotations are collected every month, covering over 720 representative consumer goods and services.
Housing and household services are about one-third of the basket. Transport is 11%. Food 9%. Restaurants and hotels 7%. Clothing and footwear 6%. Alcohol and tobacco a very presbyterian 3%. And so on.
New additions to the CPI this time include couscous, hand hygiene gel, frozen pre-prepared vegetables and men’s loungewear bottoms. Yes we’re all turning into hygienic lazy slobs. And a home-killed lamb shoulder with bone and Axminster carpets have been removed. So retro.
(Do many people kill lambs at home? This is disturbing me – time to move on.)
Why does inflation matter?
The Bank of England has a target to keep inflation to around about 2%. I always think of inflation like caffeine. A small amount can be beneficial and keep even the grumpiest old sour-puss animated and productive on a winter’s day. Too much is bad news – things can overheat and spiral out of control – people need to spend more so they want to earn more then prices go up and people need to spend more so ……[repeat to fade]
The next meeting of the Bank of England is on 16th December. After keeping rates low in their last meeting, the consensus view is that interest rates will ratchet up. Worth keeping an eye on if you’re shopping around for savings accounts or have a mortgage deal coming up to expiry.
There is a very basic sum that everyone needs to do when considering their long-term savings. If I have £100 today, what does it earn in the bank? (Clue – about 1p). And then subtract inflation from the answer. Which basically suggests that £100 in a current account today will buy you £96 of stuff 12 months down the track. You may as well take a pile of 100 one-pound coins and go and throw 4 of them into the bin.
Pretty much the only legal way we can protect ourselves from this is to invest our long-term savings in the world’s biggest companies. Hitch our fortunes to theirs. And participate in their growth rather than sit out the race on the side-lines. More than ever, this inflation rate is a call to arms for cash-huggers or investment refuseniks.
One for parents and grandparents…..
Here’s an observation. The worst example of people being recklessly cautious with their money that I see is people who save for their children. Most parents who are going to save for Little Bubba, do so in the first 3 years of her life. Whilst they are still enthused, before long-term sleep deprivation and ‘being broke because you have spent it all in John Lewis’ kick in. And about 75% of all Junior ISAs are in ……………..CASH!!!
This my friends is nuts. Bonkers. Crazy. If Lil Bubba is 3 – that money is by definition locked away for 15 years. Lil Bubba should not be in cash! NS&I are currently paying 1.5% on cash Junior ISAs. Inflation is 4.2%. Back to throwing coins in the bin……
We have a webinar coming up on Monday 29th November to discuss all things related to saving for children. With loads of info on the practical details and potential solutions. We’ll be joined by financial adviser Carly Dunningham and Andrew Russell, CEO of robo adviser Wealthify. Grandparents –tell your kids. Parents – come along. And please pass on to any friends or family you think might want to listen in – either live or on catch-up. You can sign up here.
A final jolly note
One silver lining to my grumpy week. We went live with our fundraise on Crowdcube and have raised over £2 million so far to help us with our ambitions plans for 2022 and beyond. This comes at a time of substantial growth for us – we had our biggest traffic week ever this week as 40,000 people visited our website to help them make better choices with their long-term savings.
Thank you so much to many of you who have come on board and supported us. If any of you are still tempted to back us and own a slice of Boring, you can have a look at the pitch here.
Investments of this nature carry risks to your capital. Please Invest Aware.
Have a lovely weekend everyone. Sequins and silicone and men’s loungewear bottoms here I come!
