It is tempting, but foolish, to put it into the building society. Statistics from HSW Ltd show that over the past 10 years building societies have safely outperformed inflation - broadly meaning that if you had reinvested half your net income from a building society in the past five or 10 years and spent the other half you would have preserved the value of the capital.
But the period from 1945 to 1980 tells a different story. If you had reinvested all the net income you received during the period 1945 to 1975, spending none of it, the purchasing power of your capital would still have fallen slightly.
If you had gone on reinvesting all your net income from 1975 to 1980, the real value of the capital would have fallen by 50 per cent. So you would have lost half the purchasing power of your money in 25 years without getting any income from it at all.
In theory, investing in UK unit trusts should protect you from the worst of inflation, since in the long run, business profits should also rise with inflation. The pub that sold beer at 20p a pint in 1974 for 5p profit should be able to make a profit of 50p 20 years later when a pint costs pounds 2.
Over five years, HSW's figures show average UK unit trusts with net income reinvested only slightly ahead of the building society, although it should be remembered that that is still comfortably ahead of inflation. Over 10 years the difference is marked - unit trusts returned well over twice as much as the building society, which itself made twice the amount needed to cover inflation.Reuse content