The best and worst assets where people parked their money …
Written by a human (me), not Ai.
The Bank of England just held interest rates at 3.75%.
But this time, thedecision was closer than expected with 3 members now voting to raise rates.
Rate cuts, which everyone expected at the start of 2026, now feel like a distant memory.
And the key line: The Bank’s own forecast now shows inflation rising to around 3.2% by the end of 2026.
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And that’s only the official number …
Which is the real point of this note. The official inflation rate is 2.6%. Think about your own experience over the past year: your weekly shop, eating out, travel, utility bills, insurance, council tax etc.
Does it really feel like 2.6%?
Why the headline inflation is misleading …
The Office for National Statistics (ONS) publishes a measure most people don’t hear about. The Household Costs Index was created because CPI doesn’t capture reality.
The HCI includes more items and more accurately reflects the true cost of living. It’s funny how we never hear about this measure!
In the last five years …
Household costs rose 37.6% for households (with a mortgage). That equated to over 6% pa.
What 6% does to your Cash …
At this rate, cash HALVES in real terms, every 12 years … Without a crash, crisis or headlines. Just silent and permanent erosion.And cash is not the only asset that’s suffered from this problem.So the big question:
If your costs are rising at 6%+ pa, and anything returning less than that is making you poorer, in real terms …
Which assets HAVE beaten the cost of living? The league table …
Only one major asset class outpaced the cost of living, in the last 5 years.
Property didn’t, including running and transaction costs. Cash didn’t. And Gilts had a big sell-off in 2022, from which they have never recovered.
And think about it: those assets didn’t make headlines, right? Nobody said they were dangerous – certainly not your work pension fund or IFA-managed funds which may have held gilts or cash throughout this time.
Which is exactly what makes it dangerous.
Growing your wealth in real terms is the big point. That’s what will pay the bills and get you financial security. So the assets you choose matter much more than people realise.
How to BENEFIT from inflation …
As a consumer or saver, inflation hurts. But as an owner of businesses, it’s a huge asset.
When you own shares, you own real companies. And companies raise prices.
Take a business with £100k of sales and £80k of costs. Profit is £20k.
Now with 5% inflation, sales rise to £105k. But many costs are fixed in the short term (rent, equipment), so they might only rise 2%, to £82k.
Profit is now £23k = a 15% rise in profits from 5% inflation.
That’s called ‘operational leverage’. And it’s why stock markets have always outpaced inflation, over the long run.
Shares of quality businesses are on the right side of inflation.
Good companies raise their dividends, year after year, typically ahead of inflation.
Buy a share at 100p on a 4% yield. Let the company grow its dividend 5% pa. In twenty years it pays you over 10p: a 10% yield on your original money, and climbing.
And on shares you already own, options let you rent them out for an extra 1-3% per month.
And as the league table showed, most of the places people park money have not kept up with it.
Your real cost of living has been running at 6%+ over the last 5 years.
The answer (that has proven to work) is to own real assets that grow their values and income faster than real inflation.
Cash liquidity is useful but your real assets should be doing the heavy lifting over the long term.
For a quick chat on how we can help you put surplus cash to work (in personal or Ltd company accounts), book a call with me here.
PS
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About Me
Manish Kataria is a Fund Manager. A CFA-qualified professional with 18 years’ experience in investment management and UK property. He has managed investment portfolios for JPMorgan and other blue chip investment houses. Asset classes managed include Equities, ETFs, Bonds, Funds and Options. Within property, he invests in and owns a range of assets including developments, HMOs, BTLs and serviced accommodation. InvestLikeAPro was set up so anyone can invest like a pro.
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