Investing to beat inflation – how to make your money work harder for you

investingWesleyan Financial Services’ Stuart Garlick asks Marc O’Sullivan, head of investments in Wesleyan’s award-winning investments team, about the recent news that inflation in the UK is above the Bank of England’s 2% target and what impact this has on savings and investments.

For anyone reading this interview, why is inflation such a hot topic when it comes to investing?

Marc O’Sullivan: Typically, over time, inflation erodes the value of cash. Including the cash people have sat in their bank and building society accounts.

Think of two shopping baskets of identical goods and services. One basket was paid for in 1995 and the other basket was paid for today.

You will pay a lot more for the items today than you would 25 years ago, even though they’re identical. Five pounds today might get you some bread, milk and apples. But in ten years’ time it’s likely to get you much less.

Basically, this example shows how the money you hold onto as cash slowly loses its buying power due to inflation. However, by investing, you can expect to achieve higher returns over time, with the aim of at least beating inflation.

With that in mind, how significant is it that UK inflation rose to 2.1% in the year to May 2021?

Marc O’Sullivan: The Bank of England has an inflation target of 2%. So the fact that it has tipped over that level for the first time since July 2019 is important.

As inflation increases, money loses its buying power, as I said earlier. So, while interest rates remain very low, you get less ‘bang for your buck’ if inflation continues to rise and it’s an issue that compounds over time.

At 2.1%, inflation is now an even greater threat to the cash savings that people may have accumulated. This makes it unwelcome news for savers. It is especially true after more than a year of lockdowns, when many people have been saving money due to restrictions on travel, holidays and other luxuries.

Investing aims to beat the impact of inflation on cash. But how do people know what is suitable for them to invest in?

Marc O’Sullivan: To protect their savings, people could consider investing in products such as a stocks and shares ISAs. But there are many products and funds to consider.

A lot depends on an individual’s attitude to risk, their life stage, how much money they have to invest, and what they plan to do in the future.

At Wesleyan, our fund managers do exactly what their titles describe. They manage a range of funds that have different risk levels, to meet the different needs of investors.

Investment funds basically ‘pool’ money from lots of investors. A professional fund manager manages that money with the aim of maximising the financial returns for clients.

We often make funds up with different assets. We mainly focus on four key asset classes – cash, bonds, property, and equities (also called ‘stocks’ or ‘shares’, which are all names for the same thing). These assets are the building blocks that form funds, assigned different weightings depending on a fund’s risk level. As a general rule, the more equities a fund has in it, the riskier it is.

Equities are traded on stock markets, which can go down as well as up. They offer the most growth potential for the longer term. However, we must always consider market conditions and equities are the most volatile asset class for investors.

There are even different levels of risk attached to different equity groups. For example, emerging market equities are considered a higher risk investment than UK equities or equities in other developed economies.

It is a fund manager’s daily job to navigate through all this complexity, to buy and sell assets by taking stock market movements, economic and financial data, in-house research, and many other factors into consideration.

They manage a fund in line with its risk level. So the clients who invest in that fund know we manage their money in line with their needs.

I personally manage Wesleyan’s £4bn multi-asset With Profits Fund. Because it has a moderate risk level that shapes the mix of assets I can invest in for the fund.

Earlier, you mentioned cash as an asset class held within funds. But isn’t that same cash also affected by inflation?

Marc O’Sullivan: It is, but cash typically represents only a very small overall percentage of most funds. As professional investors, if a fund is required to have cash due to its risk level and remit, we can invest cash so that it works a bit harder than it would do in a standard building society or savings account.

Fund managers also need access to cash because it’s a liquid asset. We can use it to invest in other assets when promising opportunities arise.

We would need cash available to invest in equities. For example, if a company’s share price reached a level we were willing to pay for, in the belief of longer-term financial returns.

We’re hearing a lot in the media about the volatility of cryptocurrency. Why is that and what do prospective investors need to be aware of in terms of pros and cons?

Marc O’Sullivan: You’re right – there’s been a lot of media hype about cryptocurrencies during the last 18 months. There’s plenty of stories about people ‘getting rich quick’. But regulators generally hold a negative view of them.

Back in May, there was a host of negative press. Andrew Bailey, governor of the Bank of England, stated that anyone buying Bitcoin, Dogecoin or any other digital currency should be: ‘Prepared to lose all [their] money’.

Across the pond, the US Treasury proposed a crackdown to prevent it being used in money laundering or other illegal activities.

At Wesleyan, we prefer to invest in assets we believe will provide the best possible long-term returns for our customers.

Our core ‘buy and hold’ strategy aligns with this objective and runs alongside a ‘contra-cyclical’ approach. That basically means that we work hard to identify out-of-favour equities with long-term potential.


For anyone reading this, you can find out more about the latest news and opportunities in the investments world by subscribing to the Wesleyan Investments podcast.

If you would like further advice and support on how to encourage the growth of your savings, you can speak to a specialist dental financial consultant at Wesleyan Financial Services by booking a review at www.wesleyan.co.uk/dental, or you can call 0800 316 3784.

Please note that past performance is not a reliable guide to future performance. The value of your investment and income can go down as well as up, so you could get back less than you invested. Capital at risk.

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