![]() ![]() Past performance is not a reliable indicator of future results. Returns from £10,000 in cash and shares, before and after the effects of inflation Although it’s not possible to invest directly in an index (you can only do so through a fund, which involves costs) it does give you a sense of the bigger picture. Now see the same chart reproduced below, but with the performance of a global stock market index superimposed. The key point, though, is that investing in shares can help grow your wealth more effectively in inflation-adjusted terms than cash can over the long term.Ĭonsider our first chart, for example, which showed the real value of £10,000 in cash over time once adjusted for inflation. (the DMS UK Equity Index, DMS UK Bond Index, DMS World Bill Index).Īs last year’s market falls showed and the table also highlights, shares (and bonds) are more susceptible to market uncertainty than cash. Sources: Vanguard, using Dimson-Marsh-Staunton global returns data from Morningstar, Inc. Nominal value is the return before adjustment for inflation with dividends and income reinvested real value includes the effect of inflation. Notes: Data cover 31 December 1900 to 31 December 2022. How shares have fared compared with cash and bonds: total returns 1901-2022 2) Shares are historically a better inflation hedgeĬompared with cash, shares have a far stronger long-term track record when measured against inflation.Īs the table below highlights, the average inflation-adjusted annual returns for shares stretching back more than 120 years is more than 5%, whereas for cash it’s only around 1%. ![]() This is why it’s worth considering whether putting your money to work in different ways can help grow your wealth more effectively. Even then, as the above chart shows, the fact remains that cash historically remains at the mercy of inflation. Our own economists don’t expect interest rates to rise above inflation until the end of this year. However, with UK consumer price inflation at 10.4% at the last count in December and the Bank of England’s policy rate at 4.2%, that’s still some way off. This, in turn, feeds through to higher savings rates, which can help to counter some of the effects of inflation for cash savers.Īt some point, savings rates could even rise above the rate of inflation. ![]() To slow economic activity and, consequently, help control inflation, central banks like the Bank of England usually raise interest rates. Source: Factset, Vanguard calculations based on period 31 December 1998 to 31 December 2022. Notes: Cash returns represented by the Intercontinental Exchange (ICE) Libor GBP 3-month benchmark inflation by the UK Retail Price Index. Returns from £10,000 in cash, before and after the effects of inflation That can have a devastating impact on the value of your money, as illustrated by the chart below, which shows the recent return on cash (using Libor – a wholesale bank rate – as a proxy) adjusted for the effects of inflation. When prices rise quickly, people’s wages often are unable to keep pace, so their overall spending power is reduced. Many investors in the UK have never faced double-digit inflation. Here are five reasons to invest in shares over cash right now. Shares don’t move in straight lines, but historically they have tended to move higher over the long-term. The sharp declines in many global markets in 2022 underlined how the value of your investments can go down as well as up.īut that’s the nature of investing: there will be bad times as well as good, but hopefully more of the good times. ![]()
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