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High inflation and savings – time to invest cash?

Our August 2021 YouGov survey found that many high-net-worth individuals have saved a significant amount of cash over the course of the pandemic. If you find yourself sitting on a large amount in cash, our investment management experts explain the effect high inflation and comparatively lower interest rates are having on your savings, and why you might want to consider investing your cash.

Don’t underestimate the effect of high inflation

Inflation, as measured by the consumer price index (CPI), has been in and out of the headlines for the past couple of years with the Bank of England now suggesting it may hit 13% in late 2022.

Meanwhile, many consumers have been assessing the effects of the COVID-19 pandemic on their financial futures.

Against this backdrop, we partnered with YouGov in August 2021 to survey 1,006 high-net worth individuals (HNWIs)[1] to find out whether they had saved money over the course of the lockdowns, and if so, what they were planning to do with that extra cash. We also wanted to find out whether high-net worth individuals truly understood the impact of inflation on their cash savings. Many of the results surprised us.

What is the real impact of inflation on savings?

We asked the HNWIs in August 2021 how much they thought £1,000 cash would be worth in real terms after 10 years in the bank, taking into account both interest rates and inflation[2]. The average (mean) answer was £1,404 – a gain of more than 40%.

Inflation_850x315_1.04 v2.png

In fact, the true figure was vastly lower at £877 – a 12% decline in real terms. This is a huge £527 less than the average guess!

As a whole, our survey respondents did not realise cash would generate a loss in real terms when taking into account low interest rates and higher inflation.

More cash despite high inflation

This lack of awareness about the real impact of high inflation and comparatively lower interest rates at a time when many HNWIs had increased cash savings may be a serious blind spot.

Most people who responded to our survey (61%) said they had increased their cash savings as a result of the COVID-19 lockdowns. Nearly a quarter of them had saved more than £20,000 since the outbreak of the pandemic. 25% had accrued between £5,000 and £19,999, 15% had accrued between £20,000 and £50,000 and 8% had saved more than £50,000.

More men (65%) than women (56%) reported increased savings.

Of those who had increased their cash savings, the extra money was burning a hole in their pocket, with 41% planning to spend it, 27% to invest it and 18% to keep it in cash. Another 15% didn’t know or chose ‘other’.

Women were noticeably less likely to plan to invest their lockdown savings than men (22% vs 31% of men).

Why do people choose not to invest their cash?

We asked those who had saved money but were not planning to invest cash in the markets, what their reasons were. We then asked CIO of Canaccord Genuity Funds, Justin Oliver, to respond with his thoughts.

Investing would tie my money up for too long

While we would always advise investors to take a long-term view, ideally seven years or more, any prudent investment strategy will be highly liquid. Given that cash savers may need to deposit their money in a fixed-rate account for at least a year to get an interest rate much over 3% (as at August 2022), an investment portfolio could offer both potentially higher returns and increased flexibility to withdraw funds if necessary.

Investors with CGWM are free to withdraw their funds as they wish, although they may of course incur losses if the value of their investments has fallen since investing their money. This is why we always work carefully with new clients to ensure their portfolio is right for them at the outset.

I am worried about market volatility

It is a fact of life that markets go down as well as up and you may not get back the amount you originally invested. However, history shows us that investing in equities over the long term has offered the best opportunity for delivering real returns and, while volatility will always exist, it can be managed and reduced. You can read more about this in ‘Ten reasons why stock market highs shouldn’t be feared’

You should also discuss this with an investment manager, as depositing funds into your portfolio on a regular basis (such as monthly from salary) can help you invest at different prices, averaging out the overall price at which you get into the market. Known as pound-cost averaging, this can help you smooth out any fluctuations caused by market volatility over the long term.

I believe in cash

As we can see from the graph below, keeping cash in the bank when inflation is higher than interest rates results in a loss of value in real terms. 

Real return of cash graph 2022.jpg

Past performance is not a reliable indicator of future performance.

Investing in a diversified investment portfolio may be a better option if you want to protect your cash against inflation. If you have excess cash in the bank, you may wish to seek professional advice on the best approach for your circumstances.

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Is it time for you to invest cash?

While you may still feel cash is king, it could be time to consider whether that loyalty is misplaced. If you would like to discuss what to do with your cash savings, get in touch to arrange a complimentary initial consultation with a personal wealth manager.

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Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. Past performance is not a reliable indicator of future performance.

This is not a recommendation to invest or disinvest in any of the themes or sectors mentioned. They are included for illustrative purposes only.

The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific person or entity.

The information contained herein is based on materials and sources that we believe to be reliable, however, Canaccord Genuity Wealth Management makes no representation or warranty, either expressed or implied, in relation to the accuracy, completeness or reliability of the information contained herein. All opinions and estimates included in this document are subject to change without notice and Canaccord Genuity Wealth Management is under no obligation to update the information contained herein.

[1] All figures, unless otherwise stated, are from YouGov PLC. Total sample size was 1,006 high-net worth individuals. Fieldwork was undertaken between 6th - 25th August 2021. The survey was carried out online.
[2] At the prevailing Bank of England base rate and consumer price index (CPI). Figures calculated at 30 June 2021.

Photo of Justin Oliver

Justin Oliver

Chief Investment Officer, Canaccord Genuity Funds

Justin provides direct assistance to the Chief Investment Officer in maintaining responsibility for the investment philosophy, process and methodology of Canaccord Genuity Wealth Management, and acts as the alternate to the CIO. He is Chairman of Canaccord Genuity Wealth Management’s Portfolio Construction Committee, a member of the Asset Allocation and Fund Selection committees and manages several of Canaccord Genuity Wealth Management’s Select range of funds. Justin is a Chartered Fellow of the CISI and is a former President of the Guernsey Branch of the Institute.

+44 207 523 4963

Investment involves risk and you may not get back what you invest. It’s not suitable for everyone.

Investment involves risk and is not suitable for everyone.