The most dangerous mouse in Britain

9 November 2017

Inflation is one of those dull words bandied about by economists in the finance pages and on the news. Easy to put into the “yeah, whatever” category and move on.

But STOP! Inflation isn’t some irrelevant boring word. It is a lethal mouse which eats away your cheese and leaves you hungry on the sidelines! Do you know what your financial mousetrap should be?

So that’s all a bit Hammer House of Horror. But here’s the deal.

Let’s take your £1, your after tax hard-earned pound sitting quietly minding its own business in your current account. Except it’s not, because that mouse is currently nibbling away 3% a year right now. That’s 3p on every £1 you have in your account disappearing under your very eyes!

In fact, the inflation mouse has nibbled away at that pound so much that today it is worth the equivalent of just 32p compared to when the old ‘round pounds’ launched in 1983. In other words, what cost you 32p in 1983 would cost you a pound today. That mouse is a lot busier than the bank’s interest rates which simply can’t keep up.

Let’s put it another way. £100 in the bank. With an interest rate of 0.5% you’ll get a whopping 50p interest. YAY!? But £100 in the supermarket will cost you £103 next year.

So, what can you do? The only financial mousetrap we have is to put our money somewhere which grows faster than the mouse can eat!  This is the stock market. Now lots of us also see the stock market as some big bad monster. And he is. But he’s a bit schizophrenic. He has really nasty years. And then he has awesome years.

In the last 12 months, he’s been in a good mood. £100 in the main UK stock market over the last 12 months would be worth about £108.10 today. But of course, back in 2008 when the monster roared and the markets collapsed, your £100 would have looked more like £70 after the ravaging. S,o you have to be prepared to ride out the mood swings.

If you are looking at this through a five-year lens or more, then the mood swings of the monster tend to be less damaging than the mouse, which is easier to ignore, yet persistently hungry.

It may seem like having to choose between courting a monster and dealing with dwelling vermin is yet another thing to worry about. However, by ignoring the mouse and the monster because both feel overwhelming you stand to lose essential opportunity twice over. 

Holly Mackay is the founder and chief executive of investment website, Boring Money