Imagine you’re at a dinner party. You’re catching up with old friends, and the conversation turns to investments. You listen as one friend, Sarah, shares how she’s diligently saved her money over the years, keeping most of it in safe, low-risk deposit accounts. Sarah feels secure, knowing her hard-earned money is untouched, slowly growing with interest. But as she talks, another friend, John, chimes in with a gentle warning. He’s been down a similar road and learned some hard truths along the way.
John’s story starts with a similar strategy: conservative investments, keeping his money in accounts that felt safe. But over time, something unexpected began to happen. Despite his steady savings, John noticed that his purchasing power was dwindling. Every year, it seemed like his money didn’t go as far as it used to. The culprit? Inflation.
John explains that while his account balances were growing slightly, the rising cost of living was outpacing his gains. He realised that by playing it too safe, he was actually losing money in the long run. Inflation was eating away at his wealth, eroding the value of his savings faster than he could have imagined.
This realisation was a turning point for John. He began to understand that while avoiding risk felt safe, it wasn’t protecting his future. The real risk was in not taking enough risk. John decided to make a change, and with the help of a financial advisor, he developed a plan that balanced security with the need to grow his wealth in a way that would keep pace with inflation.
Here’s what John learned and what he wishes Sarah—and anyone in a similar position—would consider:
1. The Real Threat: Inflation
John realised that inflation is one of the biggest threats to his wealth. If you have £1,000 in the bank earning 1% interest, you’ll have £1,010 next year. But if inflation is 3%, the real value of your £1,010 is only £979 in today’s money. In essence, your money has lost its purchasing power. The security of keeping all your savings in a low-interest account can be an illusion, as inflation quietly diminishes its value.
2. Balancing Risk and Reward
John learned that to protect his wealth from inflation, he needed to take on a bit more market risk, but in a calculated way. Investing in the stock market can be daunting, but history shows that over the long term, stocks tend to outpace inflation, helping to maintain and grow the real value of your money. With the guidance of his financial advisor, John diversified his investments, balancing safer assets with those that offered better potential for growth.
3. Asset Allocation and Costs Matter
John also discovered the importance of asset allocation and keeping costs low. Instead of chasing the latest financial trends or promises of quick, high returns, John focused on building a well-diversified portfolio that matched his goals. By doing thorough research and ignoring the hype, he was able to invest in a way that was both cost-effective and aligned with his long-term objectives.
4. Adapting to Life’s Changes
As John approached retirement, he faced another critical realisation: his income needs would change over time. In the early years of retirement, he wanted to travel and enjoy life, which meant spending more. Later on, his lifestyle would likely become less active, requiring less income. Many people take a level income throughout retirement, which can lead to having too little when they need it most and too much when they don’t. John’s advisor used cash flow modelling to help him plan for these changes, ensuring his wealth would support him at every stage of life.
5. The Purpose of Wealth
John’s journey taught him that the primary purpose of wealth is to support his lifestyle. As his life changed, his financial plan needed to adapt. Without a clear understanding of how much is enough, it’s impossible to have a truly effective financial plan.
Sarah listened closely to John’s story. It was clear that while she had been focused on avoiding risk, she hadn’t considered the risks of inflation and the importance of a dynamic financial plan. John’s experience was a wake-up call—a reminder that with the right guidance, it’s possible to protect your wealth from inflation and build a financial future that supports your life’s ambitions.
If you find yourself in Sarah’s position, feeling secure but unsure if your wealth is truly working for you, consider reaching out for professional advice. A well-structured financial plan can help you navigate the risks of inflation, manage your investments wisely, and ensure that your wealth supports your lifestyle, both now and in the future.
Let us help you craft a plan that’s as unique as your dreams. Don’t let inflation quietly erode your hard-earned money—take control of your financial future today.
Book a no-obligation discovery call today – https://link.custodiafs.co.uk/DiscoveryCall