Five ways to protect your savings from apocalypse

Here are five ways to protect your savings from high-inflation type disasters. Does gold make the list?

Recently, a friend told me she wanted to protect her savings from a potential apocalypse scenario whereby all financial hell breaks lose, e.g. rampant inflation.

So, in response, I told her I'm using most of these techniques:

1. Property

If you have enough savings, buying your home with a long-term fix should protect you, come what may. (Read more in Pay 5% on your mortgage for a decade.)

Prices can rollercoaster – a problem if you must sell quickly – but, long-term, bricks and mortar have been a great store of value, rising faster than inflation.

If you need to, you could also let a room. Find out more in Give yourself a £5,000+ pay rise.

2. Get hoarding

Crazy as it sounds, buying and storing durable food and goods prepares you for high inflation or a temporary barter economy. I don't consider expanding your larder to be an extreme idea. If nothing goes wrong, you eat up your hoard. It's a low-risk strategy.

3. Small savings

For short-term savings (for emergencies, MOTs etc.), easy-access savings accounts and cash ISAs make sense. You might underperform inflation, particularly if you don't switch every 6-12 months, or faster if the balloon goes up. However, don't overlook the important other side to this equation: the risks are relatively small in that your losses can more easily be contained.

Short-term investing in anything other than cash can lead to massive sudden loss. You shouldn't expose your emergency fund to that.

If you maintain your savings well enough, you might break even or beat inflation over the long-term with much smaller short-term risk than other strategies. Read an example of how in Earn 15% interest on your savings.

Beating inflation with cash is easier before and after apocalypse, rather than during, so you should get a head start now. That way, your average performance against inflation between now and the end of the apocalypse should be reasonable – and at low risk!

4. Improve yourself

If you expand your skills, you'll find it easier to keep earning, even setting your own wage, if the financial worst happens. Investing in yourself is often reliable and low-risk.

5. Stock market

Shares, like anything other than cash, are a long-term investment. You need spare money – in excess of your emergency savings – that you won't need for many years.

Shares are funny during the bad times. When the economy takes a battering or the pound rapidly loses value, some companies can't adapt and go bust. Others make smaller profits due to the costs of adapting. Worried investors sell.

However, in the long run, a diverse portfolio of shares has been the most reliable way to beat financial problems like inflation. Even if some companies in your portfolio fail, others become much stronger thanks to reduced competition. When inflation decelerates, shares tend to catch up with inflation and overtake it, making you richer than before the troubles started.

Businesses are assets that make things. Financial Armageddon or no, we'll always need things! Your share of the business will often pay you an income (called a dividend). Thanks to that income and a business's profits, it's relatively easy to value shares. And it's businesses that set prices. If we have high inflation, companies you invest in will charge more for their products, making shares logical against inflation. You can invest in shares through ISAs, pensions and stock-broker accounts.

Dead metal

After my advice, what did my friend do? She invested in gold. I wasn't surprised; she'd been dead set on it and just wanted me to agree. Gold is in all the news having performed well for 10 years and people believe it's an inflation beater. People feel safe with gold, so what's wrong with it?

How do you value gold? I have no idea. It doesn't produce or sell anything, or make profits, and you can't live in it, so how can you say what it's worth? Very little gold is used in manufacturing. Indeed, much gold isn't used for anything except sitting in vaults or hidden behind the bottom-left drawer in the study-room desk. Gold just sits there, dead weight. How much gold actually exists? That's hard to know, because much of the 'gold' we invest in is merely electronic.

Gold speculators trade on hype and panic. The price is often marked up very high when we buy and very low when we sell – an immediate disadvantage. You pay annual fees if you store it in a vault or buy gold funds such as ETFs, yet receive no income to offset that.

If you can't say what fair value for gold is, how do you know you're not paying too much? Before this bubble bursts, lots of people will do that. Then we have the second problem: when you sell, what is the right selling price? When the gold price falls, do you sell, or is that a temporary blip? If it keeps rising, when do you sell? With gold, you have to buy and sell whilst having no idea how much it's actually worth at any time.

You see, gold brings angst as well as feelings of security. Gold hasn't beaten inflation for most of the past few decades.

Is gold always 'bad'?

Whilst gold is unreliable, it can give you peace of mind. Hence, 'hedging' is an argument for gold that I can just about accept. Hedging's when you take a small portion of your cash and put it in other things. I convinced my friend to do this rather than going “all in”. She kept 5/7th in savings, put 1/7th in gold and 1/7th in Swiss francs.

Hedgers will not be the best performers. Gold, the Swiss franc or your 'normal' savings will do well but the rest will underperform, relatively. Hedging takes the edge off your losses if it's your normal savings that do relatively badly. If your savings do relatively well, you'll have lost out with your investments, but as they're a small part it's not too dramatic.

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