Investing to beat inflation: A change in motives for UK investors

Managing Director Jake Webster looks to use his knowledge and experience to advise people who are considering diversifying their investment portfolios to understand why, during an ongoing recession, investing – and investing well – is more important than ever.

Recently, I have noticed a huge turning point in the motives behind investing for many. Gone are the days where the majority of people are putting money into assets to simply build upon their wealth; now there is a new wave of investors who are looking for ways to beat inflation and retain their wealth with the rising cost of living.

The effects of inflation on the UK economy

As the Guardian recently reported, inflation has hit a 40-year high, rising to 9.4% in June, and with some predicting it to reach 12% by autumn[1]. So, it’s not hard to see why there has been a huge shift in mindset from many investors. The recession we are possibly heading into is predicted by some to be worse than the last, due to a wide range of events including the coronavirus pandemic, cost-of-living crisis, Brexit and ongoing war in Ukraine. All of which has culminated in a huge rise in inflation and ongoing economic uncertainty. Whenever I talk to investors, inflation is the number one thing they want to discuss. On average, UK investors would receive around an 8-9% return. But they are now looking for a 12-15% return in order to beat inflation, which has risen for the ninth month in a row. Despite the Bank of England’s vow to “deliver inflation back to its 2% target”[2] through rising interest rates (which has its own knock-on effects on the economy), it’s not hard to see why people are turning to investments as a way to secure their future, as it’s going to get a lot worse before it gets better.

Creating a salary through investments to cover the cost of living

Unfortunately, people’s real living wage is not increasing at the same rate as inflation. When adjusted for inflation, pay actually fell by 4.5% in the year to April,[3] which is leading many to look at alternative ways to offset their living costs. We are seeing many investors come to us looking to invest to cancel out their increased cost of living, which in the current circumstances, I find to be a smart move and I’m more than happy to help anyone find ways to protect their wealth. Where previously most investors were in it to get a good return on their money to build their wealth, now with the ongoing cost of living crisis and huge increase in inflation, we are seeing many more wanting to invest so they can continue to live a comfortable life and protect their hard earned savings.

The UK’s workforce has actually shrunk by 1.2% since the start of the coronavirus pandemic, as many people in the top two-thirds of the earnings ladder managed to save money during the pandemic.[4] Now, with pay levels not helping to draw people back into the workplace, those with disposable income or savings, who may not be working at the minute, are using this money to create money – effectively creating a salary for themselves that can help offset their living costs.

People no longer want to leave their savings sat in bank accounts with low interest rates. Instead they are looking to invest this into something that will help them actually get a return from their savings, as opposed to it effectively decreasing in value. And with the instability of the banks, it’s not hard to see why people see this as a less risky option.

I believe investing in assets that retain their value during times of crisis, such as property or gold, is an incredibly shrewd move that can lead to long-term benefits. Although many tend to act more cautiously during times of economic uncertainty or crisis, the real opportunities exist when people look for ways to invest smarter, so when the market picks up they see significant returns.

A move toward “hands-off” investments

One of the most popular forms of investment, standard buy-to-let properties, which I see a lot of around where we are based, in and around Liverpool and Manchester, aren’t providing the return many hope for. Often companies will promise an 8-9% return, but really that nets down to 3-4%, and they can be a lot of work for those who aren’t looking to invest a lot of time and effort into their investment. Now, I am seeing a lot more people opting for ‘hands-off’ investments, and we here at the Seventy Ninth Group are aiming to be the UK’s leading provider in this space. Hands-off investments allow you to reap the financial rewards without the added stress and administration headaches. This works for many as they often have an existing career or other projects they want to put their time into, so managing their own property portfolio isn’t something they have the time for. It’s also a great option for those looking for foreign investments, as you can enjoy the luxury of generating an income from high-yielding assets without having to live in the same country – something I have experienced first-hand through some of the other companies my family and I own, Seventy Ninth Resources and Seventy Ninth Luxury Living.

The hard truths about inflation

The truth of the matter is, inflation isn’t going anywhere. It’s only set to rise in coming months, and we haven’t seen the worst of this economic situation yet. Although this is a troubling thought for many reasons, we actually aren’t worried about its effect on our business. We specialise in the acquisition, management and development of lucrative assets in times of uncertainty and economic turmoil.

This means we are well prepared for the current economic climate, and aren’t worried about what is to come. Indeed, unlike many other asset management companies, our business model really excels during times of economic uncertainty, as these economic climates enable us to acquire assets at markedly beneath what their market values would usually be; paving the way for us to significantly develop and improve these assets prior to bringing them under our management, full time, or moving them on for a large profit.

We’re also well aware that investors know what is going on in the market. One thing we don’t do is shy away from the facts, or sugar coat the truth. We always give our honest opinion. This is one of the reasons people have said they enjoy attending our events and like working with us. I think – because despite our global reach, we’re a business that is founded on family values – we develop a greater relationship with our clients and are always happy for them to drop us a call or come down to the office if they want to chat. I often drop them a call to check in and make sure they’re okay, and encourage them to call me whenever they feel the need to. Case in point: a few months ago I was at one of our investor events in Dubai at the Capital Club, an organisation that’s bridging the gap between the private sector and the government to provide a platform for business leaders to have their voices heard and facilitate real change to the economic future of the UAE.

There were a lot of investors there: pilots, teachers, lawyers – a lot of ex-pats – and I was honest about the fact that there is going to be a market crash, that we’re going to be in a deeper recession than last time and that basically it’s going to be a very difficult time for the British economy. But I also went on to explain our strategy, and what we’ll do to ensure success. We did our best business in the last recession and we’re going to do even better business during this recession.

Then, unexpectedly one of the investors actually came up to me and thanked me for being honest. She said that I’d confirmed all her suspicions, something that other asset management companies weren’t doing. She said she’d been to so many other companies who were making out it’s all going to be okay, and just try to sell to her offering a guaranteed 10% for the next ten years. And there are so many other companies out there like that who are just trying to sell the glossy brochure, and get investors to spend their money without being honest.

Investing remains a reliable way to grow and protect savings

In the current climate, investing actually remains one of the most reliable ways to grow and protect your savings – provided it’s done correctly. Many are now seeing that investing is a less risky option, as it protects their savings against inflation. When inflation rises, personal savings lose their purchasing power as cash is worth less when people get round to spending it.

So, with inflation set to hit a record high of 12% by October, we are experiencing a huge turning point for UK investors who are looking for ways to offset their increased living costs whilst building their wealth during the ongoing cost of living crisis. And with prices continuing to rise at their fastest rate for more than 40 years; and everything from petrol and energy to milk, eggs and cheese is set to increase further[5], this explains why we’re seeing this new trend, that I mentioned earlier, of people looking for new ways to invest to secure their future.

Jake Webster is Managing Director of the Seventy Ninth Group. If you’d like to chat more with him about these issues or ask any questions, get in touch today. You can drop us a call on 0151 316 0392, or email us at [email protected].

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