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Brewin Dolphin : What does inflation mean for me and my money?

10/06/2021 | 11:16am

It's easy to think of inflation as something that only economists need to worry about. However, research from Brewin Dolphin, the wealth manager, shows that £100 invested in the stock market in 1996 would be worth £3221 now compared with £131 in cash savings. However, £100 now would be worth only £54.50 in terms of buying power after 25 years of inflation at 2.5%2.

Lee Clark, financial planner at wealth manager Brewin Dolphin, says: "Inflation isn't a bill that you pay directly, but it can cost you over the long run. Without careful financial planning, you run the risk of your money's purchasing power being eroded over time. Taking financial advice could help you avoid this so-called 'hidden tax'."

What is inflation?

Inflation refers to the way that prices for goods and services increase over time.

An easy way to measure inflation is to compare the cost of things today with how much they cost in the past. So, if inflation is 2%, it means prices are, on average, 2% higher than they were a year ago. If a loaf of bread cost £1 a year ago and it now costs £1.02, its price has risen by 2%. That doesn't sound like much, but it adds up over time.

The effect of inflation is more pronounced over longer periods of time. According to the Bank of England's inflation calculator, goods and services costing £10 in 1980 would cost £43.85 today. This is because inflation averaged 3.8% over the last 40 years.3

How does inflation affect me?

Figures from Brewin Dolphin show that inflation can significantly reduce the value of £100 of cash savings.

Lee explains: "Higher food and fuel bills are the most noticeable effects of inflation. If your salary hasn't kept up with inflation, you might find your household finances are squeezed. A less obvious effect of inflation is the way it erodes the value of your savings. If you have £100 sitting in a zero-interest bank account then over time, inflation will reduce the 'real' value of your £100. After 25 years, you'll still have £100, but you'll be able to buy significantly less with it than you could at the start. For example, £100 now would be worth £54.50 in terms of buying power after 25 years if inflation was at 2.5%."

The chart below demonstrates how inflation can reduce the value of £100 of cash savings:

Source: Brewin Dolphin. Impact of four hypothetical rates of inflation on £100 of cash over 25 years. For illustrative purposes only.

Lee adds: "If you're saving for a long-term goal, like retirement, then it's really important to factor in inflation. You might think saving up £600,000 will set you up for a comfortable retirement but, in 20 years' time, it's very unlikely that £600,000 will go as far as it does now."

How do I protect myself from inflation?

To prevent inflation from eroding your savings, you need to ensure your money grows at or above the inflation rate. The rate of inflation changes from year to year, and even month to month. Ten years ago, the rate was above 5%. So even if inflation is low, you can't assume it will stay that way forever.

Over the last 40 years, inflation has averaged 3.8%, which means that unless your money has grown by at least 3.8% each year, its real value has fallen.

Interest rates on cash are typically below inflation and currently very low. The highest rate on an easy access savings account is around 0.6%, while the highest rate on a five-year fixed-rate savings account is 1.8%.4

Research from Brewin Dolphin of the value of £100 invested in cash compared to the FTSE All Share since 1996, below, shows how investing in the stock market can give your money the opportunity to beat inflation.

Source: Refinitv Datastream and Brewin Dolphin. *Total return assumes that all earnings and dividends are reinvested.

Lee explains: "If you keep all your money in cash, there is a high chance it will lose value over time, which could put your financial plans in jeopardy. Investing in the stock market can give your money the opportunity to beat inflation and grow in value. Equities carry investment risk, but history demonstrates that, over the long term, they tend to outperform cash and produce an above-inflation return.

"The important thing to remember is that equities go up and down in value. This means you should invest for the long-term - at least five years - and spread your money across different asset classes, sectors and regions. By diversifying your money, you can reduce the impact of one asset or sector falling in value."


For further information, please contact:
Richard Janes / Tel. +44 (0) 20 3201 3343
Siân Robertson: / Tel: (0) 20 3201 3026
Anita Turland: / Tel: (0) 20 3201 4263
Payal Nair / Tel: +44 (0) 20 3201 3342



  • The value of investments, and any income from them, can fall and you may get back less than you invested., Tax treatment depends on the individual circumstances of each client and may be subject to change in the future., Neither simulated nor actual past performance are reliable indicators of future performance., Information is provided only as an example and is not a recommendation to pursue a particular strategy., Information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness. Brewin Dolphin is authorised and regulated by the FCA (Financial Services Register reference number 124444)

About Brewin Dolphin

Brewin Dolphin is a UK FTSE 250 provider of discretionary wealth management. With £56.0* billion in total funds, it offers award-winning personalised wealth management services that meet the varied needs of our clients including individuals, charities and corporates.

We give clients security and wellbeing by helping them to protect and grow their wealth, in order to enrich their lives by achieving their goals and aspirations. Our services range from bespoke, discretionary investment management to retirement planning and tax-efficient investing. Our focus on discretionary investment management has led to significant growth in client funds and we now manage £48.7* billion on a discretionary basis.

Our intermediary business manages £17.6* billion of assets for over 1,700 advice firms either on a discretionary basis or via our Managed Portfolio Service, the MI Brewin Dolphin Voyager fund range and Sustainable MPS.

In line with the premium we place on personal relationships, we've built a network of 34 offices across the UK, Jersey and Republic of Ireland, staffed by qualified investment managers and financial planners. We are committed to the most exacting standards of client service, with long-term thinking and absolute focus on our clients' needs at the core.

For more information, visit:

*as at 30th June 2021.

1 FTSE All Share Total Shareholder Returns assumes all dividends were reinvested and gross of fees - see graph on page 3
2 Source Brewin Dolphin - see graph on page 2
4 Data retrieved 31 August 2021


Brewin Dolphin Holdings plc published this content on 06 October 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 06 October 2021 15:15:08 UTC.

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