In times of market volatility, you will probably worry about how much cash you should keep for immediate use and emergencies and how much you should keep invested. If you’re keeping up with how fast the rate of inflation is increasing, you might think the best course of action is to keep as little cash as possible.
This does not constitute advice and advice should be sought in all instances before acting on it.
But you might also be looking at the stock market and are concerned about what the volatility will mean for your money. Should you follow the strategy of moving cash into the stock market to mitigate losses due to inflation and be ready for when the market inevitably picks up again?
The impact of inflation
Inflation is always a factor when it comes to your investment and savings strategy, but it’s of particular concern at the moment because it’s so high. As time goes on, the real value of your money in cash decreases, but with rates inching toward the double digits, your money will dwindle even quicker than normal.
Think about it this way: if you put £1,000 in a bank account today, at the current rate of inflation, next year at this time it would be worth £917.43. And that’s assuming the rate stays consistent and doesn’t increase, which unfortunately, is highly likely given the current economic climate. Once the UK deals with supply chain bottlenecks and increased oil prices, economists hope inflation will get under control.
It’s clear that keeping the majority of your assets in cash will not give you the returns you desire long-term. Despite interest rates rising, there is no guarantee that savings account interest rates will rise along with them, or at least as high as borrowing rates will go. But there is still merit with keeping cash for short-term purposes.
Three to six months of your salary is a reasonable amount of cash to have on hand to cover any short-term emergencies. But keep an eye on your portfolio so you can reevaluate and shift strategy should you need to.
What can you do?
So what else can you do? Explore other asset classes like property and equities, which are often lower risk even if their value will also fluctuate.
Of course, there are always pros and cons to each asset class. This is why it’s important to have a diversified portfolio that caters to their individual risk tolerance.
To speak with a financial advisor about building or reviewing your investment portfolio, get in touch with the experts at Dental & Medical Financial Services today.