Inflation is one of those dull words bandied about by economists, in the finance pages and on the news. Easy to put into the “Yeah whatever” category and move on. But STOP! Inflation isn’t some irrelevant boring word. It is a lethal mouse which eats away your cheese and leaves you hungry on the sidelines! Do you know what your financial mousetrap should be?
So that’s all a bit Hammer House of Horror. But here’s the deal.
Let’s take your £1. Your after tax hard-earned pound. Sitting quietly minding its own business in your current account. Except it’s not because that mouse is currently nibbling away. 3% a year right now. That’s 3pence on every £1 you have in your account. Disappearing under your very eyes!
The old ‘round pounds’ were introduced back in 1983. The inflation mouse has nibbled away at that pound so much that today it is worth the equivalent of just 32p. In other words, what cost you 32p in 1983 would cost you a pound today. That mouse is a lot busier than the bank’s interest rates which simply can’t keep up.
Let’s put it another way. £100 in the bank. With an interest rate of 0.25% you’ll get a whopping 25p interest. YAY!? But £100 in the supermarket will cost you £103 next year.
The only financial mousetrap we have is to put our money somewhere which grows faster than the mouse can eat! This is the stock market. Now lots of us also see the stock market as some big bad monster. And he is. But he’s a bit schizophrenic. He has really nasty years. And then he has awesome years. In the last 12 months he’s been in a good mood. £100 in the main UK stock market over the last 12 months would be worth about £108.101 today. But of course back in 2008 when the monster roared and the markets collapsed, your £100 would have looked more like £70 after the ravaging. So you have to be prepared to ride out the mood swings.
If you are looking at this through a 5 year lens or more, then the mood swings of the monster tend to be less damaging than the mouse which is easier to ignore, yet persistently hungry.
It may seem like having to choose between courting a monster and dealing with dwelling vermin is yet another thing to worry about. However by ignoring the mouse and the monster because both feel overwhelming you stand to lose essential opportunity twice over.
Getting these two creatures to work against each other for your benefit is easier than ever. It is essentially a two-stage process of visiting a “stock market department store” referred to as a platform, and then selecting what to invest in. The best part is that there are so many ready-made options that most of the heavy-duty lifting has been done for us. It’s not that dissimilar from a curated playlist on Youtube or Spotify.
To find the right monster for you, visit our Best Buys section to get platform reviews from us, and other investors. This breaks down key considerations on security, cost, service, suitability and allows you to see who has been awarded our coveted Best Buy seal of approval.
Just remember that the little mouse, so easy to ignore, can be much more frightening for the long-term saver than the big bad monster called the stock market.
Join the thousands of people who get our weekly musings on money, great products, top tips and a dollop of opinion.Sign up for Holly's blog
If you think the stock market is just a bit dodgy. Risky. Not for you. But you know how important it is to save and are also highly fed up with getting pennies in interest every year - you might be a Suspicious Saver.
Overcome your suspicion for 5 minutes and see what investing is really like.Suspicious Saver