We focus mainly on financial planning in these articles and the financial plan should always come before the investments. But the investments are also really important as they’re the engine that will drive long term outcomes.
Here’s some data for the 12 months ending 31st July 2022, UK inflation was 10% (see note 1). The return from an investment portfolio made up of 60% global stock market and 40% bonds was -0.57% (see note 2), ie a small capital loss. The purchasing power of the investments would therefore have fallen by 10.57% over 12 months, which is not a great outcome at all if you’ve purchased the investments with a view to beating inflation.
Let’s now look at the 10 years to 31st July 2022 (also see the chart) UK inflation was 2.5% per annum, whilst an investment portfolio would have returned 6.7% per annum. Let’s be very generous and say that, over that period, leaving the money in cash deposits would have earned a return equal to inflation. Cash deposits would have returned less than that but, if a return equal to inflation had been achieved (ie only standing still in terms of buying power), £100,000 would have grown to £128,000. The investment portfolio (growing at 6.7% per annum) would have achieved a sum of £191,000. And remember, this is the 10 year period in which we had Brexit, Covid and the Ukraine conflict, not to mention many other global events that could have derailed the investments.
The results are just as compelling. The admission price for achieving these returns is to stay the course when every bone in your body is telling you to jump ship and do something different! It’s not easy. The financial press isn’t your friend as it tends to focus on all the negative events. After all, bad news sells! lives when they don’t need the money. Gifting to children in their 30s and 40s can change their lives. However, you need to be sure that you’re not jeopardising your own lifestyle. Do any of these issues strike a chord with you? If so, please do get in touch