Wealth managers warn retail investors of rising inflation

Wealth managers have urged retail investors to consider the impact of rising inflation following the 10.1% rise in UK consumer prices revealed this week.

Savers should seek to pay down debt, review current and future spending intentions and retirement plans, and try to reduce the effects of inflation on their portfolios, due to soaring prices, financial experts said .

Official inflation statistics for July broke the double-digit barrier for the first time in more than four decades to reach an annual rate of 10.1%. UK households are facing the highest inflation in the group of advanced G7 economies.

In addition to heightening concerns about the cost of living, inflation leads to difficult market performance, making it harder for savers to protect their wealth by investing.

According to analysis by investment platform Interactive Investor, only gold and residential real estate investments gained ground in inflation-adjusted terms in the year to end June, while other asset classes lost value in real terms.

“Rising inflation continues to attack consumers from all angles and shows no signs of slowing down any time soon,” said Les Cameron, savings expert at M&G Wealth.

Cameron said official inflation statistics were more useful as a general economic indicator than as a guide for households rethinking their budgets. “The measure of inflation is ‘one size fits all’, so depending on your age and lifestyle, your reality may look completely different,” he said.

Rather than assuming that prices will increase by around 10% across the board, people should dig into their personal budgets to see how much they are spending in different categories and how much those costs are increasing. Low-income people, who spend more of their income on food, will be hit harder, as food prices have risen by 12.7%, for example.

Housing costs rose 9.1% in the year to July, an impact split between renters and homeowners, many of whom will have to worry about the ripple effects on their mortgages.

Adrian Lowery, financial analyst at British wealth manager Evelyn Partners (formerly Tilney, Smith & Williamson), said rising inflation was increasing pressure on the Bank of England to raise interest rates.

“[This] should really focus the attention of borrowers who can take steps to try to lock in at the rates that are currently in the market,” he said. “Some lenders will consider withdrawing their best rates after this inflation data.”

“The rising cost of servicing mortgage debt is kind of a double whammy for homeowners, and especially those with larger loans that need to be renegotiated over the coming year,” he said. he adds.

The cost of other borrowing is also expected to rise, so experts suggest households pay off as much debt as possible before higher interest rates bite even harder.

Retirees face particular challenges as rising prices make it tempting to squeeze more out of their retirement savings, at the same time markets have hammered wallets.

“The natural thing to do in response to the rising cost of living might be to squeeze more income out of your pot to maintain your standard of living, but that increases the risk of your fund running out early,” Tom said. Selby, head of retirement policy at AJ Bell.

“This risk will be further exacerbated if larger drawdowns are combined with substantial market declines – which many have already experienced in 2022.”

Among AJ Bell clients, 16% of pension plan investors were increasing their withdrawals. But a larger cohort, 24%, reduced their incomes as markets fell, and 60% remained stable.

“To retire, people will need larger retirement funds than before to meet rising prices, but at the same time they will likely feel even more cautious about where to use their retirement savings. , for fear of running out of money too soon. They’re caught between a rock and a hard place,” said Becky O’Connor, head of pensions and savings at Interactive Investor.

Selling stocks and bonds at the same time for much of this year has been particularly difficult for do-it-yourself investors, as conventional wisdom dictates that losses from one asset class should be offset by the other. Interactive Investor said Isa’s average portfolio on its platform fell 16% in the year to June.

Dan Howe, Head of Investment Funds at Janus Henderson, said: “It is critical in inflationary environments like this that families and individuals take action to protect their savings. . . Diversification is our friend in times of uncertainty.

Dolores W. Simon