With the BoE expecting inflation to reach >7% what are the best options when you may need the cash in the short term (1.5-3 years)?

[presh201]

@amazingayla Yeah I don't wanna push you towards something that's not right for you. But my attitude is this:

A 7%pa loss on a diversified stocks and shares account would feel pretty rough, but that's what's happening to your cash right now.

So if you kept the cash in a current account, you might be looking at a 23% loss after 3 years. Good tracker funds manage 7-10% a year (on average in the long run).

So just going by the averages, you might be exiting an asset that would give you a 23% loss by the time you're ready to buy, and getting into an asset that'll give you a 23% gain.

Problem is neither will always stick to the averages - if you got unlucky and bought just before a big crash and/or decided you wanted to buy much sooner, you might end up with a loss.

But for me, the risk/reward probabilities would be good enough to make me invest.

 

[chantalxo]

@presh201 Yeah I wouldn't consider this myself. Judging by some recent posts on this sub, I think quite a few folks are going to really hurt themselves by getting into investments over radically too short timeframes because they see it as a panacea to the declining value of cash in inflationary environments. What they forget is that periods of high inflation are typically not good for equities either, so much so that the educated and informed projections I've seen expect stunted and uneven returns on the market over the next decade, let alone over a period of a mere year and a half. Probably the least mentioned yet most reliable hedge against inflation is that the price of labour power gets more expensive too, meaning you either receive or at least can bargain for higher wages, though a discussion of that is perhaps beyond the permitted purview of this sub.

 

[vickig]

@presh201 7% a year over 50 years, could easily be -20% for the next 3 years and lose OP his entire deposit.

That’s also gambling on 7% inflation every year.

Imo it’s not worth risking possibly destroying your chances of buying a house, to try and beat inflation for a year or two.

This is from someone that loves risk, I put a lot of money into crypto over the years and have done well, but I’m still putting in a lot as I’m hedging on another 20-30x on some of my coins, but this is money I can afford to play with and lose.

 

[presh201]

@vickig Yeah I mean that's why I added a bit of a disclaimer at the start.

I agree with all your points (and hey, I'm big into crypto too!). So I think we agree on the facts, it's maybe just a matter of character whether you'd invest it or not under those circumstances.

 

[sued]

@amazingayla The 'wait for it to cool' strategy is basically gambler's fallacy

If you want to buy, then buy. You have terrible odds of beating the market especially when your savings are losing a lot of value

 

[resjudicata]

@amazingayla It's worth noting that inflation is the 'average' of increases for a variety of different product or services. In this case you are only looking at one particular product - house prices. Whilst house prices have risen a lot over the last 18 months or so, they have now started to level off (or drop off). Fuel and utilities have driven a lot of the increase in inflation we are now seeing, not increases in house prices.

Whilst I'm not going to speculate on future house prices, the change in house prices is not fuelling inflation, and premium bonds seems a fairly sensible place to keep your deposit.

 

[catlover1979]

@amazingayla Unfortunately there's nothing available as an inflation hedge currently other than tactical actively managed funds.

I'm sure plenty will say "stick it in bonds" as that's standard advice on here but realistically cash is likely to outperform most if not all assets classes over the near term.

The housing thing is a bit of a catch 22 as when Central Banks begin to raise rates, and the housing market comes down, it's becomes harder/more expensive to borrow.

It's a great time to borrow as much as possible, providing you're income is stable and you aren't subject to broad macro economic whipsaws.

Good luck!

 

[hlb95]

@amazingayla Inflation linked bonds?

 

[kelbren]

@amazingayla With interest rates going to rise and a record lowest 10 year fixed, announced the other day. Might want to factor that into the equation.

 

[neilgram]

@amazingayla I cycled my deposit money through regular savers and whatever the highest-paying other savings/current accounts were for the five years before I was ready to buy and I think that's the best thing you can do.