How to help your money beat inflation

Whether you’re a cautious saver or – thanks to the pandemic – accidental, the twin forces of zero interest rates and rising prices are creating a perfect storm that will slowly erode the value of your cash pile if you let it languish. a deposit account.

According to the Central Bank, the surprising surge in savings growth over the past year has actually slowed down over the past two months as the lockdown finally begins to lift, but ordinary households are still depositing money in bank accounts at record levels – whether they want it or not.

But if you’re worried that the value of your fund will be eaten away by inflation over the next year, what are your options?

1. Invest it

Assuming you are happy to lock in a medium to long term amount of money an investment strategy – whether it’s putting your money in an investment fund or managing yourself your own investments – worth considering. Needless to say, there is always an element of risk, but there are ways to mitigate it while still outperforming inflation.

“I would generally ask those who want to fight inflation to look at the route of managed funds and, in particular, index funds, ETFs (exchange traded funds) or even the managed funds of passive leaders Vanguard or even Fidelity and Dimensional, ”says Frank Conway of financial wellness provider MoneyWhizz and qualified financial advisor.

“Other more active managers may be more expensive and this will erode the long-term growth of money without necessarily achieving more real real growth than their passive options.”

For those who are happy to try the DIY route using online investment platforms or brokers, stocks are “where real inflation protection can take shape,” says Conway, but that still requires a lot of work and research.

“It goes without saying that a healthy dose of reason and less emotion are needed to have any chance of success. As stock prices rise and fall, the investor should take reasonable profits as they occur and also limit losses. “

Ownership is riskier, he adds, unless you have significant funds to play with and know the landscape of the area.

2. Increase your pension contributions

According to a recent survey of retirement advisers by the Independent Trustee Company, more than four in ten people have increased their contributions during the pandemic. It’s easy to see why, because contributing to your pension doesn’t have one, but two tricks up its sleeve in any battle against inflation.

The first is that your pension will be invested in a broad asset base, such as stocks and stocks, property and bonds, which should help beat inflation in the long run.

The second is the tax break, at 20% or 40%, depending on your higher income tax rate. So for every $ 100 you contribute, the actual cost to you is only $ 80 or $ 60. There is also the investment gains tax break as well as the lump sum that you can withdraw when you retire.

You should aim to have your pension worth at least double the value of your home when you retire, according to Mary Reilly of Royal London. “€ 500,000 sounds like a big fund, but it might only provide you with an income of just over € 1,100 per month for the rest of your life after you retire at 60,” she says. So contributing to your pension as long term anti-inflation is hard to beat.

You can also pay voluntary supplementary contributions (AVC) to your pension fund which allow you to take full advantage of the tax break.

3. Paying too much for your mortgage

Paying off more on your mortgage can also have a lot to say, as it could shorten your mortgage term and save you thousands of dollars, but it’s worth taking advice on this if you’re unsure.

“We advise any mortgage holder to think carefully about their access to an emergency fund for rainy days before using all of their savings to reduce their mortgage amount,” says Joey Sheahan of broker MyMortgages.ie and author of The mortgage coach. If you have enough funds for a rainy day, go for it, but run the numbers to your lender or broker first, he says.

“If you had, say, a mortgage of € 300,000 at 3% interest over 30 years, you could save € 5,200 by paying off a lump sum of € 10,000, € 10,400 by paying off a lump sum of € 20,000, or € 15,600 by paying a lump sum of € 30,000. Alternatively, by overpaying $ 100 per month, you could save almost $ 20,000 over the life of the mortgage and nearly $ 35,000 by overpaying $ 200 per month.

However, at least one advisor feels that your mortgage overpayment shouldn’t be high on your list of anti-inflation factors. “As an ‘investment’ option, it is overrated, oversubscribed and underrated,” said Conway.

4. Pay off the debt

Along with the accumulation of savings, more and more people have used their extra cash to reduce their debts, but the household debt ratio has not fallen as sharply as the savings stock has increased. In addition, the number of borrowers entering into personal insolvency agreements (PIAs) has not decreased significantly.

So if you have “bad” debt (ie.

Rank these debts starting with the most expensive (that is, with the highest interest rates) and clear them first.

It is essential to check that there are no penalties for early payment. PCP auto loans, due to their structure, may not be candidates for prepayment.

If your credit card bill is greater than your fundsOne option is to transfer to a provider like An Post Money, which gives you 12 months to repay at zero interest.

5. Spend it on a big item

If you already have a decent rainy day fund, don’t have bad debt, your mortgage interest is reasonable (if not, change), and you’re happy with your current level of pension contributions, so of course, treat yourself to an expensive item. If your hopes of a 2021 summer vacation were dashed by the Delta variant, there is still summer 2022. But if you’re happy to spend now, you can still be reasonable about it.

For example, buying a new car – especially if it is an EV (electric vehicle) – may be a better bet than a nearly new model or a model that is 3 to 5 years old because the prices of cars. used here have stiffened considerably thanks mainly to Brexit dragging down imports of used cars from the UK, where many of the best values ​​were to be found. You’ll have to pay a lot more for a used car than you would at this time last year, and that’s good news if you have a not-too-old car to trade in (unless you have a it is not the subject of a PCP agreement).

Alternatively, if your home’s Building Energy Efficiency (BER) rating could be improved, spending money on a renovation that improves your home’s energy efficiency is a great way to spend on an expensive item that will ultimately improve. counts your bottom line – that is, increasing the market value of your home and saving on your energy bills. The Sustainable Energy Authority of Ireland provides grants that will subsidize up to 35pc of the cost of a renovation, which could include measures such as insulation of exterior walls, new glazing, solar panels and air-to-water heat pumps. That said, the cost for an average household to raise their home to a B2 level is € 30,000 to € 40,000, leaving you with a final bill of around $ 26,000, so you may need to borrow a bit.

If you do, there are a few programs that can handle the whole process for you, including finance and project management. One of them is ProEnergy Homes, managed by the Credit Union Development Association in partnership with SEAI and Retrofit Energy Ireland.

About Janet Young

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