Worried About Inflation Devaluing Cash?
Published / Last Updated on 18/02/2022
We have already issued a ‘red alert’ warning of the impact of inflation on cash holdings in funds and monies in bank accounts.
If you are earning 1% but inflation is 5% you are clearly losing value and over a three or four year period that could be a 15% to 20% loss/devaluations.
Since then, we have had a number of clients that are worried about the amount of cash fund holdings in their portfolio and asking to invest more into either:
- Inflation linked assets such as index linked gilts, global index linked funds and commercial property funds.
- Equity and stock market related funds.
How We Deliver Asset Allocation
We agree with each client what their investment experience is, frequency of making investment decisions, attitude towards risk and tolerance to investment loss is.
If a client agrees a medium risk approach with tolerance to volatility loss of no more +/- 20% pa then given that many stock market funds can have volatility of +/- 35%pa, so this volatility is softened by mixing the allocation of equities with lower volatility funds such as cash, money market and bond funds. In short, all portfolios will have an element of cash holdings unless you are high risk of +/-35% pa or more.
Moving More Out of Cash
As above, you or we need to make a decision as to whether you should:
- Keep within your risk profile and accept that long term inflation will reduce cash funds but drive-up equity and other asset funds.
- Change your risk profile move more funds into inflation linked assets or equity-based assets.
If you are an existing Money MOT client and want advice on this mid-term, we charge per policy: Mid-Term Review
If you are new to us and you want a pension or investment fund review, try these two services: Existing Plans Review Pre Retirement Review
