The five rules of investing that will help you protect your money from runaway inflation

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February 14 is an important date – and woe to anyone who forgets it. Yes, that’s right: this is when our Fantasy Fund Manager contest kicks off.

Players have six weeks to grow a virtual pot of £100,000 by investing in a minimum of five stocks or trusts, competing for a grand prize of £7,000 (not a bad return, considering it’s free) . There will also be £2,000 for runner-up and £1,000 for the top performing fund each week.

While Fantasy Fund Manager is ultimately just a game, it’s a useful tool for anyone who wants to try their hand at the stock market – without the hassle.

In today’s climate, investing is crucial. Inflation hit a 30-year high of 5.4% in December and the Bank of England expects it to hit 7.25% by April.

There are no savings accounts that offer an interest rate close to this. At the current rate of inflation, £1,000 held in an easy-to-access account paying the average rate of 0.21pc would lose £49 over a year.

Meanwhile, the skyrocketing cost of living means you need your money to do more. Successive increases in the bank rate this year will make your mortgage more expensive. In April, energy bills will increase by half and your taxes will increase.

Investing your money in the stock market is therefore crucial if you don’t want the value of your savings to run out before your eyes.

This is risky because the value of your investments can go down as well as up. But in a way, it’s less risky than leaving your money in cash, where it’s guaranteed to go down. Swings, however, can be wilder and more volatile.

There are ways to mitigate this. First, look at the pennies. Invest through an Isa stock and share, where your earnings and dividends will be tax-free, and check the fees at the provider you use and on the investments you buy.

Second, choose funds over stocks. These are professionally selected baskets of stocks, so you won’t lose everything if a company crashes. Passive funds, which track an index, are an easy way to spread your money and are generally less expensive.

Third, diversify your portfolio. Make sure you’re not overexposed to a particular region, industry, or company size, so you’re protected if a domain falls out of favor.

Four, think long term. Try to leave your money invested for at least five years, if not decades. Don’t try to time the market or make a quick buck.

Five, give your money a drip. Instead of putting a big sum on the market, which could plunge the next day, put small sums regularly. This will also help you benefit from ‘pound cost averaging’, where the same amount of money buys more when the markets fall.

These are the five basic rules of investing. But the fun thing about Fantasy Fund Manager is that you can throw them all out the window. Push down all of a sudden. Forget diversification. Think short term. And aim for maximum profit.

Previous winners have gone all-in in healthcare stocks, gold mines or stocks of companies ready to take control. Some successful players cut and changed their holdings every day, chasing the biggest wins.

But as we know, past performance is not indicative of future results. So what method are you going to try to get your hands on the grand prize?


You can contact Lawrence at [email protected]

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