How to Invest During Times of Inflation

How to Invest during Times of Inflation

Hindsight is a wonderful thing…

When we look at the best investments over the past 30 years we always have that thought in our mind ‘what if I put £X into that’. We then spend the next 5 minutes working out what we would have made and the 10 minutes after that wondering what we would have spent it on. One thing we rarely do is learn from it. The reality is, that the majority of the best investment times actually came when everyone else around them was losing their heads and refraining from the investment market. Let’s take the stock market. Even over the last 20 years, we have had three amazing opportunities to invest, 2003 when the Gulf War started, 2008-2009 when the global crisis hit, and 2020 when COVID became a global threat.

However, most people avoided the stock market at these times like a plague as they were sighting all the reasons that were being flagged up by news channels and the papers. In 2003 I heard clients avoiding any investment as they ‘did not know what the future held globally’, 2008-09 clients stated that we have seen the biggest dip since the Great Depression so they were not going to invest now, and in 2020, of course, the simple reason not to invest was COVID.

The same inept logic applied to the property market. The past 2 major crashes were 1989-1993 (around 20% dip) and 2008-9 (around 18% dip). However, despite the property being a fantastic bargain towards the end of 2008 we saw that transactions fell from 1.6m a year to just over 800,000 a year despite the fact property was cheaper. We then look at March 2020. COVID-19 hit and the BofE stated that property could fall by up to 30%, rather than falling it actually increased in the two years by over 15% on average. Again, the negative news was incorrect and clients who waited missed a great opportunity.

So this leads us to where we are today in an economic arena of high inflation and rising interest rates.

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First of all, let’s talk about investing when inflation is rife. Do you actually need to invest? If you have money sitting there in the bank, it is being eroded in real terms by inflation. The easy example is, if inflation is at 10% and you want to buy exactly the same things next year as you do this year you will need to have 10% more money than you have now. To ease the burden of inflation many people invest so they can at least come out level or even better, beating inflation.

Now, if you decide to invest you have to then work out what is the best place for your money. Now, the advantage of the property market is that you can leverage. This means, If you have 50k, you can actually borrow £150k. If your rate of borrowing is 3%, your return is 5% income and 5% growth you are still making 7% on money that was never yours in the first place. What I am going to do here is show two spreadsheets.

The first is assuming property prices are increasing inline with current guestimations, the second is what happens if property prices fall by 15%.

As you can see from both of these spreadsheets, even if the market fell by 15% it is still worth investing in property.


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How to Invest during Times of Inflation

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