Investors cite inflation as biggest threat to wealth
New research from online stockbroker and fund supermarket Interactive Investor shows that ISA investors are most haunted by the spectre of inflation, with over half of investors (53%) saying that inflation is the single biggest threat to their wealth over the next 12 months.
The findings come as inflation reached twice the Bank of England's target rate this week, with the Consumer Prices Index (CPI) now at 4%.
In comparison, just one in six investors (17%) said that tax will be the biggest threat to their wealth, while a further one in seven (15%) chose interest rates.
Rebecca O'Keeffe, head of investment at Interactive Investor, said: "The fear of inflation uncovered here is proof positive that investors really are feeling the pinch as prices continues to soar, whilst at the same time interest rates have languished at a record low for almost two years. For many individuals, their own personal inflation rate will be even higher than the average CPI rate of 4%.
"What more and more people are waking up to is that this is a very difficult environment to save in. Faced with this combination of sky-high inflation and record low interest rates, doing nothing with your money is in real terms losing you money."
How can ISA investment reduce the threat of inflation?
To reduce the threat of inflation to savings and wealth, Interactive Investor points to a number of options available to investors.
Rebecca O'Keeffe adds: "Investors may be loath to move into riskier assets and there will be some who have no interest in taking any risk with their money, despite the fact that their real return is negative. However, for others it is not a question of having to dive in to individual shares in order to generate a real rate of return - there are plenty of low risk options.
"Government bonds and index-linked options may be attractive to some and there are also plenty of low risk bond funds to choose from. Investors looking for income may also want to look at equity income funds as an alternative for those who are looking to take on slightly more risk. The absolute fund sector has had mixed reviews, but there are some consistent performers.
"For those that do want to pursue more adventurous options, these can be found both on the funds side and in directly held shares, investment trusts and exchange traded funds."
Rebecca concludes: "What is of paramount importance to all investors is keeping all options open and exploring whether there are better alternatives. That could involve transferring to a better savings product, exploring Cash ISAs or potentially taking on some additional risk. What is clear is that doing nothing is unlikely to be in your best interests."