As individuals with life-savings behind us, we are undoubtedly the luckier ones. Luckier? Well not just luckier in most cases, prudent – yes, sensible – undoubtedly. Savers need to have earned more than they have spent over long time-frames to have arrived in their current position of strength. However none of us feel as strong currently as we did towards the end of 2021. Prices are running higher as investment values have gone lower. It seems to be an every dripping tap and could even make us question investment itself.
Why we invest
The definition of individual savings in economics text-books is “deferred consumption”. We exchange money earned for the goods and services we consume daily. The point seems pedantic, but in economics text books, life savings are simply a measure of things we haven’t consumed yet.
Deferred consumption could therefore be measured in time. For many individuals on this planet, some could measure their ability to cover the cost of future consumption as infinity. The billionaires of the world could never consume all they currently have saved – even if they live forever. Many millionaires have reached an age where they could never consume their own savings in goods and services over the balance of their lifetimes.
So why take investment risk? Why bother investing further if you have enough?
The answer of course is that the cost of consuming goods and services today is known, but the future cost is unknown. An educated guess would probably be higher prices next year. Over the medium to long term the rise in the price of real assets, like shares and property, has always outpaced inflation and therefore should allow us to purchase goods and services even if the cost of them rises.
The rise in the cost of goods and services is measured by The Office of National Statistics and published monthly. You would have had to have lived under a rock recently to not have heard that global inflation is currently on the up and reaching new records. There today’s blog is all about how inflation is measured.
Continue reading “Drip, Drip, Drip”