It might sound strange to suggest that £2 might not always be worth £2. But when you consider the impact of inflation, the buying power of that same £2 could be much less when its value is left to erode over time.
Let’s look at an example: imagine you’d decided to keep a brand new £2 coin in a piggy bank back in June 1998 – how much would it be worth now?
Taking into account the effects of inflation, our analysis showed that the same £2 coin would be worth just £1.07 in real terms today**. However, if you’d decided to invest £2 in the FTSE All-Share Index*** over the same 25-year period, although this would’ve had a greater element of risk, it would be worth just over £6****.
This isn’t a real life example or a recommendation. It's important to remember that past performance isn’t a guide to future performance. The value of your investment can go down as well as up so you might not get back the amount you put in.
However, inflation doesn’t just impact our savings and investments – it has a day-to-day impact on the goods and services we regularly buy, too. So, as the price of those items goes up, your money won’t stretch as far as the same amount would now.