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Being robbed by the bank

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By Michael O’Connor from theislandinvestor.com

This week, inflation in Europe hit 10.7%. Just 12 months ago, this figure was 4.1%.

Painfully high energy and food prices continued to push inflation to record levels. Over the past 12 months, energy prices rose by 41.9%, while food prices increased by 13.1%. With Russia's withdrawal from an agreement that allowed grain exports from Ukraine, grain prices are likely to go up even more.

Of course, we don't need to be told the exact figures. We can see it all around us; the food we buy, the bills we pay.

The precarious balancing act that the ECB now faces is too layered a discussion point for this short article, but it is a fight they are currently losing.

Statements from the IMF this week reiterate this point.

"European policymakers face severe trade-offs and tough policy choices as they address a toxic mix of weak growth and high inflation that could worsen."

As the outlook worsens, the knee-jerk reaction may be to do nothing. But this is not the answer.

One point I have been trying to press home with clients lately is - the price of inaction in the current inflationary environment is immense.

In economics, the Fisher Effect is the tendency for interest rates to change to follow the inflation rate. As inflation rates rise, so too should interest rates, or at least this was the case before the mass amounts of credit in the system made this an unviable option.

Historically, the Fisher Effect held true. In the late '70s, inflation ripped through economies and in turn, interest rates rose to nearly 20%. Those battling inflation had the ability to offset these rising prices by simply leaving their money accumulate the higher interest rates available in their savings accounts at the bank. Doing nothing was an option.

Since then, things have changed. Bank interest rates in the US reached an all-time high of 20% in March of 1980 before a precipitous decline brought interest rates to a record low of 0.25% in December of 2008. Europe took it a step further and introduced negative interest rates.

Despite the changing narrative, the old belief that 'your money is safe in the bank' still rings true for many. Unfortunately, the residual advice of a previous generation who benefited from a different economic framework muddies the clarity for many trying to save in this new environment.

What worked for your parents won't work for you. A lot has changed. Simply putting away a little money every week into a savings account isn't enough anymore if you want to be able to function as an independent adult. It's a harsh reality, but it's true.

What you are saving for is rising in price faster than you are saving, so you need to do something to tie yourself to these higher prices.

Take the first step

They say the price of inaction is far greater than the cost of making a mistake. This is especially true for so many investors in the current market.

On average, the stock market has returned roughly 10% annually since 1974. A far more enticing return than the pennies on offer in your savings account.

You don't need to make a huge decision regarding your life savings all at once. Focus on finding an investment better than your current deposit account and work from there.

Start small but start now. After that first step, it all gets a little easier.

Doing nothing is no longer an option.

If you have any questions, scan the QR code above and reach out. Always happy to help.

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World Rally Champion Phil Mills’ Killarney visit

Former World co-driving champion Phil Mills will be one of the guests of honour at a special Killarney and District Motor Club event next month. The club is celebrating Prodrive’s […]

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Former World co-driving champion Phil Mills will be one of the guests of honour at a special Killarney and District Motor Club event next month.

The club is celebrating Prodrive’s association with the Rally of the Lakes on October 14.

The legendary British motorsport preparation firm was responsible for building some of the most iconic associated with the local rally.

The celebration, which will raise funds for the Jack and Jill Foundation, will be hosted by the voice of Irish motorsport Alan ‘Plum’ Tyndall.

Welshman Mills, who won the 2003 World Rally Championship, alongside Petter Solberg has confirmed his attendance at the Killarney Racecourse-based event.

He is just one of many superstars attending the showcase.
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“Accompanying the stars will be a collection of iconic Prodrive machinery, ranging from the BMW E30 M3, all the way through to the Subaru Group A and World Rally Cars the 1990s and early 2000s,” said Killarney and District Motor Club vice chairman and organiser Mike Shea.

“All proceeds of this event will go directly to the Jack & Jill foundation helping provide support and special care to children across the country and is a once in a lifetime event.”

This event is in association with: Lyons of Limerick; C.Wharton Tool Hire Ltd; BG Motors Ltd; Castleisland Tyre Centre; Aherns Motor Group; Reen’s Rathmore Peugeot; KC Print and Moriarty’s Central Car Sales

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National Park Autumn talks series 2023

The National Parks and Wildlife Service will run a series of talks on Thursday nights in October and November. Beginning on October 5 until November 16 the six-meeting programme will […]

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The National Parks and Wildlife Service will run a series of talks on Thursday nights in October and November.

Beginning on October 5 until November 16 the six-meeting programme will cover everything for the nature within the national park to the history of Killarney and its surrounding areas.

The opening lecture, by the NPWS’s Eamon Meskell will tell the story of the White-Tailed eagle in Killarney.

The following week, local historian, Owen O’Shea will deliver a speech on the Civil War in Kerry.

The final October talk is scheduled for October and its topic is the fungi growing in the park.

The lectures resume in November, on November 2, John Breen will talk about the various ant species in the park, the following week will feature a talk on the McShain family’s contribution to the town.

The final meeting, on November 16 covers the Blasket Islands, past present and future.

All events take place at Killarney House at 8pm – free admission but limited seating.

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