informed decisions blog

The impact of inflation on €500k since 2021 (& a few other Nuggets!)…Blog253

11th June 2024

Paddy Delaney


This Blog edition coincides with episode 300 over on the Informed Decisions Personal Finance Podcast, and so doing something slightly different over there – check it out here if you fancy giving it a listen.

And in this weeks’ Blog I’m sharing a few nuggets on the following:

  • Inflation vs Investments over the past few years, what has or has not retained your purchasing power
  • Informed Decisions Financial Planning may be hiring!

Inflation vs Investments over the past few years

A mate of mine sold his house a few years ago, and parked the money in the bank while he started looking for a new home for himself and his family. At the time he wasn’t sure how long he’d be parking those funds in the bank, but did ask me if I had any ideas as to how to make a few quid on it over the short term. At the time, the options were;

  • Leave it in the bank where it will not fluctuate and will be readily available when buying the new place (the bank were paying zero interest at the time – though they are paying c3% now, check it out if applies to you!)
  • Invest it to try and get some rate of return on it while it was sitting idle

The trouble in this type of a scenario, which is more common than one might think, is that you don’t know how long it’ll be until you need to access it to buy the next house/car/investment etc. When the time horizon is unknown or unknowable, it is a tricky one to square.

How have the different options panned out, and lets assume this is since January 2021, as it was in the scenario I’m talking about, and we’re now at June 2024. Firstly, lets look at what inflation has done to the money in that timeframe!

Impact of Inflation on €500,000 over the past 3.5 years?

We have obviously seen higher inflation over recent years than we had in a few decades, so it’ll be no surprise to hear that CSO quote overall inflation is 19.8% in the period Jan 2021 to May 2024 (not exclusively property!).

So the purchasing power of €500,000 in Jan 2021 has fallen to €400,500 in that period of time – which might sound staggering. And it is quite a fall in real value over a relatively short period of time, had you got absolutely zero return on the funds sitting in the bank.

To put it another way, to have kept up with inflation during that high-inflationary period, you’d need to have €599,000 in the bank today, to be able to buy the same amount of ‘stuff’ as you could have in Jan 2021!

Check out the really useful CSO Inflation Calculator Tool here.

Impact of investing €500,000 in Global Equities over the past 3.5 years?

We’ve established that to stay apace with inflation, my mate would need to have turned his €500,000 into €599,000. Did Global Equities achieve it during this very specific timeframe?

As you’ll see below, €500k became €745k in the period 1st Jan 2021 to 30th April 2024. That’s a very pleasant 49% growth – far exceeding inflation. In fact it is 2.5 times better than inflation. Of course if this was via an Exit Tax investment, 41% tax is now due on the gains if he draws it down, seeing him Net c€644,000 or a cool 28% net gain over the 3.5 years. That’d be a good outcome!

But in order to have made the decision to invest in Global Equity back in January 2021, these are the factor he’d have had to consider!

  • What if equity values fall or are lower than I invested and I need to get my money out to buy a house!?
  • We’re still ‘in Covid’ – this is a crazy time to invest!
  • I don’t like volatility
  • I should not invest in volatile assets, even diversified ones, for the short term
  • I should not invest if I will need to access all of the money at the one specific/immediate date

Some of the above are fair and accurate – it does reduce your chances of success if you invest for the short term, and/or need to access all the funds at a set date in the future to buy a home or give it away etc. However, hindsight has shown us that in this specific period of time, it was a great time to do just that!

So the prudent principles are solid, and there to protect us as investors, but that doesn’t mean it can’t work out!

So what if you had taken a more conservative approach and invested in Money Market Funds?

Impact of investing €500,000 in Money Market Funds over the past 3.5 years?

It is probably being a bit rough on Money Market Funds here because they only really started doing anything in mid 2022, as the impact of interest rates rises pushed them upwards, but lets look at it anyway! And we wrote about Money Market Funds in Q4 2023 – see here for more info on what’s going on with them.

Over the period, BlackRock MMFs delivered a fairly paltry 3.8% Gross – which is of course better than zero, but not a lot better. The net returns would pay solicitors fees and buy some furniture for the new place, so not to be sniffed at.

And the above timeframe is a tad unfair to MMFs, as that same one has returned just under 4% in the past 12 months alone, but the timeframe we have to work with is Jan 21 to today, so that’s what it did!

Clearly, equity has been the place to be in the past 3.5 years, at least versus Money Market Funds but investing your €500k all in equity in January 2021 would have been a very volatile thing to do – you were potentially putting your future home purchase in jeopardy if markets had have fallen at a time you needed to get your funds. Would you have been able to sleep at night? If, on the other hand you know your time horizon is longer term, and that you won’t have to access all the capital at a given date in future you have full reign to get stuck into equity in a meaningful manner.

And the major point here is that we never know what will happen over the short term. Short term market movements are simply unknowable. Longer-term we do know where it is going, but the path it will take to get there is the bit that’d make us all billionaires if we could know! So if you have short term funds, by all means you CAN invest it, but your success is at the mercy of short-term market movements, good or bad!

Other Nuggets:

  • Our Podcast total downloads!
  • Informed Decisions is hiring!?

Informed Decisions Personal Finance Podcast Downloads

I get asked fairly frequently about the number of listeners and downloads of the podcast – and my genuine answer in the past couple of years has been ‘I have no idea’! My measure of success with it, once it got up and running, was never about the number of downloads, it was about the feedback I hear directly from people, and whether it is helpful or not to them. It has also enabled me to meet and get to work and become friends clients (I was at a client/friends’ 25th wedding anniversary BBQ this past weekend – congrats David & Sue 🙂 – that’s where the gold is for me in all this.

I have loved, and continue to love the challenge and learning and growth I get from doing the podcast (most weeks!). It is always a challenge to make time, it is often a challenge to sit and write and edit and record, and thanks to Siun, to publish and put it out into the universe! But I love it, I love what it does for people who get value from it, and I love what is has meant for our business and our clients. Lots to love!

Anyway – I had to root out my log-in details to our audio hosting website – and here are the all-time downloads as of 10th June 2024; 481,060 – just shy of half a million. I have no idea if that is good or not, it doesn’t concern me, but that’s the number! I guess it is not bad considering we never advertise, have no sponsor (deliberately) and simply put it out into the universe and let fate take care of the rest!!

Informed Decisions Total Downloads June 2024

Informed Decisions Financial Planning is on the look-out for a super-star!

We’re keeping our eye out for a super-star Paraplanner to join the Team – does the below appeal to you??

From Day 1, I have said our priority is to ensure our existing clients are well looked after, planned-for and cared-for. Every time we take on a new client I first ensure that we can take them on, and look after them properly, while also continuing to give the high level of care we do for our existing clients. It is part of the reason why we have a waiting list for new clients, and have done so for the past couple of years – we are low volume and high-quality. We only work with nice people!

The time has come for me to find a super-star paraplanner to work directly with me to support our existing clients. They will not be handed a load of clients to look after – they will support me in looking after them.

Here is what the new Paraplanner in Informed Decisions will never be asked to do:

  • Sell anything, or convince anyone to change pension/investment strategy for Informed Decisions’ benefit
  • Deal with commission products or ones which have exit penalties and lock-ins
  • Cold-call anyone
  • Ring their friends and family asking them to talk to us
  • Treat a client like a number, getting them in the door and tossing them to the side
  • Earn a bonus by selling products or stuff that clients don’t want and need
  • Anything that doesn’t improve the probabiliy of financial success for our clients

Here is what the new Paraplanner in Informed Decisions will be asked to do:

  • Serve, serve & serve!
  • Prioritise each clients’ financial success above all else – and do everything you can to help Informed Decisions give them the highest probability of success
  • Service and care for our existing clients in tandem with me, as if they are the lifeblood of what we do (because they are!)
  • Prepare cashflow analysis using Cashcalc, FE Analytics and other cutting-edge software in advance of client meetings – so that we can give them the most accurate picture and strategic recommendation possible for where they are at
  • Attend virtual client meetings as my ‘shadow’ and support me to ensure agreed actions and strategic updates are implemented following those meetings
  • Educate yourself. Attend every decent learning opportunity to learn about all developments in the Financial Planning, pension and investment landscape so that we continue to ensure our clients get the best of the best of what is available now and into the future
  • Continue to develop your knowledge, skill and curiosity of Financial Planning, Investments, Pensions, operational processes, and the skill of serving clients in our professional, mutually beneficial and friendly client relationships
  • Have direct experience and excellent qualifications (QFA, RPA etc.), you’ll hit this ground running!
  • To not rush into this role. Just as we do with clients; we are deliberate in what we do- time is too valuable to settle for anything but the best! We are in no rush to find the very best human for the role. We will both make sure we are a really good fit before proceeding to next steps. We’d ensure we are in it for the long run, through the good times and the bad, and on the basis that there’s always a win-win if everyone is open and transparent about it.

So, if you think you’d you’re the ideal candidate to join the Informed Decisions team and make a positive difference in the lives of our clients and in the broader world of financial planning, get in touch with me in utter confidence.

A Random Interview!

If you are listening to the podcast at all – you’ll now have to endure an interview with each of my kids – it was possibly the hardest interviews I’ve ever done!!

Thanks dear reader, I hope you found this a useful piece, and speak soon!





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