The Silent Killer of Your Wealth

I previously wrote about how Fees erode your wealth to fund someone else’s.

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In this note, I’ll outline something even more dangerous …

Some people worry about market volatility (it actually helps your investments), but the real and permanent killer of your wealth is something much quieter.

That something is Inflation.  

The good news:  we can neutralise inflation with how we invest (covered below).

But we must first understand how inflation really works …

Imagine this …

You plan to retire with what feels like “enough”.  Enough to travel freely, enjoy your retirement and pass some onto your loved ones.

But your big risk is that ‘enough’ is insufficient – you won’t have enough to live off.

This is already true for millions in retirement right now.

Why?  Because costs rise much more than we expected …

• Holidays feel more expensive
• Meals out are a big decision
• Spending for yourself vs passing it down becomes a trade-off

The REAL rate of inflation

The government tells us the rate of inflation is around 3%.  That’s the official rate.

But take a moment to think about your own experience:

• Your weekly shop
• Utility bills
• Eating out
• Property costs
• School/Nursery/Childcare fees

Does it really feel like 3%?   I have consistently said the official stats are nonsense.

Your true inflation rate is likely to be 3-5% higher than the official rate.

The difference arises for various reasons including frequent changes to the official ‘spending basket’ calculation.  Or ‘shrinkflation’, which isn’t even measured.

And think about this:  if the government did report the real higher rate, it would have to raise the wages of 6 million public sector employees!

But don’t just take my word for it.  John Williams is an experienced economist who publishes the ‘reality rate’ on his website ShadowStats.

How inflation kills your wealth …

For simple numbers let’s say you have £100.

If inflation runs at 5% pa (higher in reality, remember!):

• In 10 years £100 will have the buying power of £61
• In 20 years, it’s worth just £38

How £100 shrinks with inflation …

You effectively lose:

• 40% in 10 years
• 60% in 20 years

That’s not because of some disaster, crash or volatility. Just the corrosive impact of inflation on your cash.

A rule of thumb to remember:

With 5% inflation your money halves every 15 years, in real terms.

And with a more realistic 7% …
Your money halves in 10 years.
And loses 75% in 20 years.

That’s the real risk.   Stocks have never declined anywhere close to that!

Holding too much cash, for an extended period of time, is the only way to guarantee a loss, in real terms.

Stocks never make a permanent loss – regardless of wars, pandemics, crises, recessions …

Stocks have ALWAYS outpaced inflation, over the long term.  8-12% pa on average.

Why stocks beat inflation …

When you own stocks, you own real businesses.

And businesses:

• Raise prices by passing on higher costs
• Grow revenues
• Profit in inflationary environments

Whereas inflation erodes the value of your cash, businesses profit from it.

Your Key Mindset Shift … 

Most people think:  ‘Cash is safe. Stocks are risky’

But in reality, over the long term:

• Cash is guaranteed to make a loss, in real terms
• Stocks fluctuate, but always outpace inflation

In fact, i’d say stocks are the greatest passive wealth creation tool ever created.

How this fits into our approach

This is exactly why, inside our GPI framework, we own inflation-beating growth assets.

Our GPI system is a structured, disciplined approach to:

• Grow your wealth
• Protect it
• And create income from your assets

My next note will cover the final element of FITs: Taxes.  Including how to capture Free Money from the taxman before 5th April.

And for a brief chat with me about our Options and investment training, book a call with me here.

Resources for this note:

Watch a 2-min video explainer of this article

Get the 1-pager Infographic on this topic

Always Remember: Time in the Markets always beats timing the markets Stay Diversified  Minimise those leakages:  Fees, Inflation, and Taxes Financial Markets are a great source of recurring income   ETFs, Balanced Funds and Options achieve all the above Being educated helps you outperform 99% of the population … to ensure your investments work for YOUR financial freedom (not someone else’s)      And …  For more guidance, our Investment Academy will help you implement all of this in a step-by-step way.    Thousands of people have learnt how to diversify and pound-cost-average into low-cost, set-and-forget ETFs & Funds for inflation-beating growth.  And Options to create recurring income. Click here to learn about our Investment Academy Finally … – Don’t take the above as advice as it may not apply to you personally – Your Capital is at Risk – You may not be covered by the FSCS – Anything mentioned in a podcast or in a previous article was valid at that time and may not continue to be now