Investing basics

Investing to keep up with inflation

To help your savings grow so they keep in line with inflation – or grow faster than inflation – you can consider taking on more risk to benefit from the potential growth. You can take this risk by investing your money in stocks and shares, or in other investments.

Investing lets you put your money into things like shares, which means you own a small share of a company, or other investment options. The assets you own may increase in value if, for example, a company you have invested in may perform well on the stock market – so the original amount you invested will grow too.

Why consider this?

The interest that is received as a result of paying in to a savings account is a way in which people can look to grow savings. Interest is where your bank or building society pays money into the account because you choose to save with them.

With interest rates at record lows, your savings will be secure but won’t rise as much as they would with higher interest rates. It’s also difficult to make sure the buying power of your savings doesn’t decrease due to inflation. In its most basic sense, inflation means that £100 buys you less this year than last year because prices have gone up.

All investments come with risk

It is important to remember that all investments come with some risk. The value of assets (the things you own) can fall as well as rise and you may get back less than you originally invested.

Keep that in mind as we look at the different types of investments.

Gilts and corporate bonds

Two investment options for assets that can return interest and are generally more stable than shares are Government bonds also known as gilts and corporate bonds. These investments are issued by Governments or companies when they need to raise money, for example to finance a new development.

As an Investor, you lend money, and agree the government or company can hold this money for an agreed period of time. You will then receive a fixed rate of interest in return (known as the coupon) each year until the term or maturity of the bond is reached and the initial loan is then returned.

These assets generally offer low growth, and returns linked to bonds will be related to confidence in the issuer of the bond.

Investing in property

You do not need to buy properties to be able to invest in them. There are many funds that invest in commercial and residential property assets with the aim of gaining a return from the rent paid by tenants, and through capital value appreciation as the property rises in value.

Types of risk

To get your savings to grow more than a normal savings account, you’ll probably want to achieve a return that’s higher than inflation. If you’re considering investing, it’s important to think about the level of risk you're comfortable with.

As a general rule of thumb, more risk means greater potential rewards. However, this isn’t guaranteed – you can always end up with less than you originally invested.

Different types of risk that affect investments include:

• Changing interest rates
• Changes in inflation rate
• Market falls
• Poor fund manager performance

Invest in the things you believe in

Whether you invest in shares or funds, your money could have an impact on environmental and social issues. There are a range of ways to align your investments with your personal views and consider the wider impacts of your investment portfolio.

Know where your money is going

Investing in funds

If you invest in funds or ETFs, the way the fund invests will be reported. You can find out what proportion of the fund is invested in a certain industry and look at what the top company or asset holdings are.

There are many funds which focus on sustainability and social outcomes. Whichever share dealing platform you decide to use, you’re likely to be able to find sustainable options to invest in.

Investing in companies

When investing in specific companies by purchasing stocks and shares, its useful to do is some research so you understand the company’s stance on issues that matter to you, if sustainability issues are important to you.

Investing in government bonds

It’s important to remember that investing in government bonds may mean your investments aren’t aligned to your preferences. For example, a government may be increasing spending on mining for fossil fuels or supporting the production of advanced weaponry.

As with all investments you may get back less than you invest. If you’re not sure about investing, seek financial advice. You may get charged for any advice you receive. Tax treatment depends on individual circumstances and may be subject to change in the future.