UKH

If you were lucky enough to have £10,000 in 2008, your £10,000 would need to have grown by 2.9% per annum just to have kept up with inflation.

You would need approx.£13,000 in today’s money to have the same spending power as you did back in 2008.

During this same period, we have experienced one of the worst recessions of recent years, with record low interest rates meaning; had you had your nice nest egg in a high street retail saving account (as millions do): the real value of your cash will have fallen.

Had you had your cash in a different investment vehicle, you would have had to achieved a mean return of >2.9% to have actually made a return on your investment. Anything equal to or less than; your make zilch or a loss.

Pretty depressing hey.. wonder how many people have played it safe and given more risky investments a wide birth and not fully appreciated the effect of inflation.

Inflation; the forgotten fist in ones ass.

The Scottish Mortgage Investment Trust (amongst others) looked after me over that time period (SMT LN) 

http://www.iii.co.uk/research/LSE:SMT

(Incidentally it does not have anything to do with Scottish mortgages)

Agree, holding cash since 2008 has not been very rewarding. definitely worth speaking to an adviser or doing your own research into potential investment vehicles. It can seem complicated but it doesn't need to be. Just wrap it in an ISA and forget about it. 

Pretty depressing, is an understatement, shit interest rates and massive house price hikes.

Invest it into property then?

Build a time machine and invest in property, maybe

The real question is "can you afford not to invest?".  

What age, roughly, are you?  Anything less than 5 years to retirement and you shouldn't be holding much cash at all - certainly not £10,000 for 10 years.  Even after retirement, most people are now opting to keep their pensions, or part of, in the market. 

Cash is literally designed to dissolve if you hold it long enough.  The government has a target of keeping inflation at 2%.  As long as they keep that hitting anything >0% ... your cash keeps melting away.  Nothing you can do about it.

S&P500 2008 (JAN) -> 2018 (March), dividends reinvested, would have given you ~ 9%pa or 145% total (neither adjusted for inflation).  If we were to have put your £10,000 into an S&P 500 tracker on January 2009 rather than January 2008 .... you would have made a killing!!!  More like 15.5% pa.

Holding cash is only a good idea over the short term while you wait to move it into something else.   #markettiming #maybeagooddaytobuytechstocks?

Its a matter of putting your hard earned money to work so that you can enjoy it later in the lowest risk manner.  You don't really have choice about accepting some risk.  If you don't make your money work for you ... you loose.  If you invest it for long enough you will win.  Over the last 10 years it has been difficult to loose in the stock market - everything has been rising good or bad.

None of us can afford not to invest.  

Caveat:  I do think a down turn in the markets of the order of 20-30% will appear in the next 12-24 months.  That isn't a reason to be sitting it out.  I hold ~10-15% cash in my portfolio because I like buying dips.  The evidence suggests I should not do this - but I do anyway.  I will be buying tech stocks i.e. Facebook in the next couple of days once I think it's finished cratering out a bit.

what my spare £20 from 1978?

Definite correction on the horizon for the US markets. When that will be is anybodies guess and what the markets will drop well is also anybodies guess. Obv knock on effects for us too here in UK. 

But yea I agree gear up for a 0 to 50 % drop. 

Yes looking at the real value of money should be everyone's starting point when looking at long term personal financial planning. Its not been the worst time for savers though. There have been times when savings rates have been high but inflation even higher still so in real terms savers were losing more on their capital than they typically do now but didn't feel like they did.

The imperative to save is stronger in a recession and investing is risky and it is logical to preserve your capital to fall back on even if that is at the price of losing money in real terms. 

Your point about high inflation and high interest is a good one.

For many people there are only three things to do with your savings.

Buy property.

Put it into a bank/building society savings/isa type account.

Stocks and shares.

The savings account interest rates are a joke.

Many people are only just seeing their money return to pre 2008 levels if they had invested in the stock market. If you're retired you don't want your money to be too vulnerable to the ups and downs of the market, hence you invest cautiously, if at all, and receive a low return on your investment

Property is probably the best return but is heavily dependent on the area your property is in.

Anf I'm sure somebody will be along shortly to tell me how they made 25% on their investments last year but for your average saver it's better to spend the money.

As seen in the increasing number of motorhomes being driven around.

4) Put it into a pension where your employer also contributes - 'guaranteed' 200%+ return because they put money in too. Unless you have a peressing need for the money in the short term it's a no-brainer. If you really need the money you can transfer it into a RATS to get at some of it.

LISA is also worth considering. Obviously, you have to beat inflation with the investment you make otherwise once again, pointless.

Yes, I didn't mention pensions as I was referring to retired people although I didn't make that clear.

You're right, a pension, as early in your career as possible.

Although those who have had pension schemes go belly up might disagree.

I respectively disagree whole hardheartedly. 

If your objective is to sell your labor for the rest of your life, then yes - hold your savings in cash and watch your buying power decay slowly every day.  The number in your savings account will stay the same, which will make you happy, but you'll slowly be getting poorer all the time.  

If your objective is to stop selling your labor and start to live free (I mean free to do what you please each day ... maybe go climbing) then you need to find a way to generate passive income.  By passive income I mean ways to generate money without you needing to sell your labor to do so.  For the most part you have two choices:  1) invest your money to make more money or 2) make something that makes money i.e. build a business or write book for example.  (Maybe worth also throwing in there - sell your liabilities down so that your life isn't so expensive)

You can't win holding cash.  The system is rigged, literally, to make you a slave if you do.  You will be stuck selling your labor forever.  The rich get richer (because they invest their earnings to make more money) and you are stuck at the bottom getting poorer every day, having to sell your labor to generate more money and never able to break out.  The only way to escape the trap is to generate excess cash each month and then put that excess cash to work in a manner of your choosing that itself starts to spin off money for you at rate higher than the rate of inflation.

IMO, the word "risk" is deeply misunderstood w.r.t personal finance.  While technically it is the case that your capital is at risk and you could loose it all, it would be much better versed as "Chance of 12% gain and a risk of 4% lose in any given normal year".  You should take that risk every year.  Sometimes you'll get stung but the markets have more up years than they do down years.  If your money is invested long enough in the markets - you win.  (You might not in the short term)

Worth noting also that 10% return is not twice as good as 5%.  The wonder of compound interest means that getting twice the return annually is, in the long run, equal to many many many times better than half.  Compound interest is the definition of putting your money to work for you.  Your money generates money, then in turn that new money that you have generated starts to generate more money for itself.  It's a snowball effect.  It also explains why you should care about interest rate rises.  When the interest rate rises ... the erosion of your cash pile accelerates and you get poorer quicker. (Maybe caveat this to say retail price index rather than government base rate since its the RPI that is really the measure of your cash pile erosion rate.)

If you don't like stocks and shares - give Peer-to-Peer to go.  Peer-to-Peer is lending money to people.  Its a totally passive process - you don't actually get involved in the lending part at all.  You fund your account, it gets lent out to people (you're not involved in this part), you see money coming back into your account that is part capital repayment and part interest.  Zopa for example returns ~4.8% pa, adjusted for loses, right now.  You can hold your capital in an ISA wrapper - i.e. no taxes on profits no matter how big they might get.  For the foreseeable future that will beat inflation.  Not financial advice, but I see a low risk in loss of "starting" capital and all the while beating "normal" inflation.  10,000 would return you about £60(ish) a month into your account.  You can either invest that straight back into the platform and lend it out to more people or take an inflation adjusted income from it which would be ~£22 a month.  (The "inflation adjusted" bit is important.  If you assume inflation = 3%, the platform is returning you 4.8%, then that leaves you 1.8% = £22/month that you can cream off for yourself without destroying your hard won capital)

The game is rigged.  It is designed to keep us "laborers" poor.  Every government the world over actively intervenes to slowly depreciate their currency and in return your cash savings if you are lucky enough to have any.  

Cheers.  #thesystemisrigged 

(I do you use Zopa btw.  I've had no issues.)

 £10,000 deposit on a "buy to let" house in the right area and you'd have been sweet.

Minimum buy to let deposit is usually 25%. Not too many places with £40k properties.

My wife and my sister are both Lisa's, they're not the same person by the way, you wouldn't get much interest out of either of them.

In 2008 you could buy a whole street in Port Talbot for that!

My late mother's house was valued at  £66k lat November.

Some very good points made in your post there and in particular, the effect compound interest has on your savings is massive. Earning interest on interest.

Sure we've all heard of the latte factor..

But would you class Port Talbot as a hot place to invest in a BTL property....

Well it does have a steelworks

I maintain that it is logical to keep your money in cash if that fits your risk profile as it does for many; probably most.

Having said that it is not what I do to the extent of investing principally in small cap and illiquid AIM listed shares with an unbalanced portfolio but that is logical too as a I have higher appetite for risk than most. 

Debt also represents risk. However, the uncertainties since 2008 has meant that the BOE base interest rate has been below inflation to such an extent that consumer borrowing rates were also potentially available around the rate inflation. This  highly unusual situation where money is in effect given away for free last happened I think in the 70's. Ordinarily debt is a bad thing but when free/cheap money in real terms is available like this then an equally logical reaction is to see this as a golden opportunity borrow to the hilt and re-invest it and the use of leverage to maximise your returns which meant property for me as borrowing to invest on the stock market (or spreadbetting) is a level of risk too far for me.  

For now...

Right Move would suggest that lots of properties in Port Talbot are still selling for less than they did in 2008. So to use your late mothers property as an example, it may well have been valued at £80k in 2008, requiring a £20k deposit and resulting in a loss of £14k reducing any rental yield significantly.

But if you could rent out the house for say £400/mth, that might be better than buying a house for £180k in a 'nicer' area and getting £500/mth. As house prices and rental values don't always track each other. 

I often think that buying property is a leveraged bet, on an illiquid asset. Would the same people borrow ~£100K and stick it on the stock market? Probably not, because it's seen as risky. But, buy a house to rent out, and it's 'safe as 'owses'.

There are still people underwater from the last housing crash. The government keeps changing the tax rules about buy to let. And BTL landlords price first time buyers off the housing ladder. These are not the traits of a safe or indeed ethical investment.

It absolutely is just that but good luck trying to persuade  a bank to lend you money with the stocks as security!

The difference is that price movements on stocks are more volatile in part because of that liquidity. Those that use spreadbets are effectively borrowing to buy stocks but can be forced to sell those stocks in a downturn even though those stocks might irrationally undervalued. A mortgage company wouldn’t  force you to do the same with your house during a housing crash.

It is safer in the sense a person doesn't have to own shares, but they do need a home, so there will always be demand, until enough homes are built or some disease halves the population. 

This is the case if it is your own home. But, for a BTL landlord keeping up a mortgage when they are in negative equity, would be a worry. All it takes it takes is for a tenant dispute or a protracted eviction with loss of income and / or a delay in finding another tenant.

The point I'm making, that that property is not quite a safe as some people make out. Selling a house, even when everything is going well, takes an age. Selling in a crash would be far worse.

Did you hear the one about the American sub prime crisis? It has a happy ending (for the rich). Lots of the foreclosed houses were bought up by hedge funds. It turns out they are crappy landlords, but hey, what can you do?

You are almost certainly right, but my main point was that you would struggle to get a buy to let even in Port Talbot in 2008 with a £10,000 deposit. Even if you could the localised depreciation combined with mortgage interest payments could make sticking the money in a savings account look  appealing.

I speak as someone with a buy to let, but in my circumstances, it was owned as a home first and is owned as a buy to let because at the time it didn’t feel like the right time to sell.

Same here.

You think that lets you off the hook do you? You're both still evil bastards

Zoopla tells us that in the last 10 years, prices in Port Talbot have increased by 12.13% This does not take into account the money gained from rents.

My Rightmove data will tell you that it far from uniform. You would still have needed more than £10k.

12.13% is a real terms depreciation, you would still be taxed on it of course.

Depends if the forges are running. And Mr Gupta clearly thinks so.