Key Issues in Personal Finance

1) The Inflation Risk

Savings and investments that expose you to inflation risk usually fall into the “safe” category. For example, we all tend to think of building societies deposits accounts as risk free, but are they effectively so? If you are worried about the risk of losing your original capital of the inheritance, then provided you stick to the well-regulated UK building societies, you can put your money on deposit and your original capital will indeed be safe.

The capital will not diminish; indeed it will grow, assuming income is reinvested. However the growth will be modest, and in real terms, it may even be negative, depending on the rate of inflation. For the next to five years inflation will keep an average of 2, 5% per year. This doesn’t mean I will have to ignore deposits accounts, since in fact they play a very important part in providing an easy access home for emergency funds and for short-term savings where capital security is the primary goal. N...