A lesson in the corrosive effects of inflation.
In a shameful example of ‘do as I say and not as I do’ it seems I have, in a small way, inadvertently contradicted this old proverb. It tells us that if we are sensible and regularly save small amounts of money we will soon amass a large amount. But if we corrupt the proverb a little and take ‘look after’ to mean ‘stash away’ I’m afraid the pounds certainly won’t be able to look after themselves.
Now, I bet I’m not the only one – have you been ‘looking after’ those pennies by dropping them into a jar on the bookshelf? In my case it’s a single malt whisky tube (for want of a better word) and it has been sitting there on the shelf, with a slight coppery overflow, for maybe the last 10 years. There are so many coins I have had to resort to weighing it to find out how much I’ve got. Apparently a 1p coin weighs in at 3.56g and a 2p coin is, unsurprisingly, double that. At an unexpected 6.5kg, my tube of pennies comes in at £17.80, and so, for the last ten years, £17.80 of copper (well, copper-plated steel actually) has just sat there doing nothing, other than gathering dust.
Today, that might just stretch to a bottle of uninspiring blended whisky, but ten years ago, from the same tube, I could have had the whisky, a bottle of ginger wine to make a Whisky Mac, some olives and a bag of crisps. Okay, I exaggerate a little, but you get the idea – £17.80 today would have been worth £23.45 in 2009. Such is the corrosive effect of inflation.
To get £23.45 over ten years would have required 19.5p per month of coppers to be dropped into the tube. It’s not really possible to invest £0.195 on a monthly basis (actually it now is, but that’s for another time), but if I could have done, and if I had invested in a balanced portfolio of low-cost tracker funds, it would today be worth £30.57. That’s some canapés, Twiglets, and cheese on toothpicks to add to my cocktail party. So the proverb is correct after all, so long as you look after the pennies properly and don’t just stash them away.
I often find pictures speak louder than words and the graph below proves this, I hope. If we set inflation as the baseline in red, then we can plot the other two against it. The blue line is the investment and the green line is the pennies on my bookshelf. One caveat here: this assumes a single lump sum at the start (I’m not able to produce this graph on a regular savings basis), nevertheless, it does clearly illustrate the principle. You can easily see how the value of those pennies is depleted by the effects of inflation and how, over the longer term, the invested money beats all.
This all brings me to a news item I read recently, discussing the potential fate of 1p and 2p coins. A quite astonishing (to my mind anyway) six in ten 1p and 2p coins are used in just one transaction before being put in a jar, or even, 8% of the time, simply thrown out with the rubbish! With more and more low-value transactions being made with contactless cards, fewer people are carrying raw cash and there are some retailers no longer accepting cash at all. The suppliers and operators of ATMs are beginning to introduce charges for withdrawals, which is only likely to accelerate the move to a ‘cashless’ society.
So, with the writing on the wall for the little copper coins in your pockets, purses, jam jars and whisky tubes, maybe now is the time to find a charity willing to take them off your hands before they become entirely worthless (leading, of course, to a tax break for the charity)… or you could buy a bottle of scotch for the coming penny wake.
Philip Chandler FPFS, CFPTM, Chartered MCSI
Chair of Aspinalls Technical and Investment Committee