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Savings warning: The one action ‘guaranteed to lose you money' as inflation soars

Daily Express logo Daily Express 21/05/2022 Rebekah Evans
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Inflation this week hit nine percent, and experts expect it to rise to double digits by the end of the year. Amid this challenging financial time, Express.co.uk spoke exclusively to James Norton, head of financial planners at Vanguard UK, who provided insight.

He said: "There is no doubt this year has been quite difficult for everyone.

"At the moment, global equities are down almost nine percent and unusually bonds are down as well - by eight percent.

"Coupled with that, return expectations are low, but they are positive and that is really important."

Market volatility has increased within recent weeks and months, Mr Norton highlighted.

READ MORE: State pensioners to be £13,000 worse off as UK inflation soars

savings inflation UK 2022 © Getty savings inflation UK 2022

Combined with the fact inflation has now reached multi-decade highs, millions of Britons are now talking about their financial security.

Consequently, Mr Norton added, investors are getting nervous about what lies in store for them.

However, he stressed it is vital for individuals to not react emotionally.

He continued: "Some people may be tempted to sell investments and hold the cash, but we don't think this is a good idea.

"The one thing that holding cash absolutely guarantees is that you lose money.

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inflation interest rates © Getty inflation interest rates

"Most people who think about selling will believe it guarantees they won't lose money.

"But it is a guarantee you will lose money as inflation has soared to nine percent.

"Inflation has such a corrosive effect on your money, particularly at times like this when it is high.

"Those losses are actually fairly material, so this is important to bear in mind."

Mr Norton warned Britons to never try to time the markets, as this endeavour is too difficult to achieve successfully.

He stated the best chance of not losing money in the long run is to stay the course when it comes to investments.

The expert said the best and worst days when it comes to the market are often tightly bunched together.

This means if Britons sell on bad days, they risk missing out on the good days where their investments could grow.

In addition to this, Mr Norton said the best investment days often occur in market downturns.

He explained if a person invested £100 in 2007 in a standard index fund, they could expect to have £310 by 2020.

However, taking out the best 10 days of investment performance would leave a person with only £170.

Mr Norton said: "Investors, when they sell, can panic as they want to preserve what they have left, but they do often miss out on the subsequent bounce.

"So our message is to stay the course - as difficult as it may be, because discipline is hard.

"When our emotions kick in, we start making irrational decisions that feel rational at the time.

"If you know your goals and have structured them in a low-cost arrangement, doing nothing is the best course of action - or rather rebalancing your portfolio.

"We're trained to think that if something looks broken we fix it - so we sell. In all other areas of life it can be good, but not in this one."

Mr Norton stressed that when markets fall, a person's future expected return will go up.

He concluded: "One of the greatest and most important predictors of the future direction and returns of share prices is their current value.

"If they fall by 10 or 20 percent, what that means is the expected return in the future is higher."

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