Equity investors quids in since one pound coin first minted in 1983

• One pound coin has lost more than two thirds of its value since 1983
• Buying power now just 30p as a result of inflation
• By contrast, £1 invested in an average tech fund 40 years ago would now be worth nearly £20
• Even in an instant access account, £1 then equates to £1.14 in real terms now

Laith Khalaf, head of investment analysis at AJ Bell, comments:

“Since the £1 coin was first introduced 40 years ago in 1983, it has lost more than two thirds of its value as a result of inflation. That newly minted coin in 1983 would now have the buying power of just 30p if it was kept in a piggy bank, or down the back of a sofa. However, the reality is that most money isn’t kept in coinage in this way. What isn’t spent is normally saved or invested, and some investments would have seriously beaten inflation over the last 40 years.

“Even £1 stored in an instant access account would have beaten inflation over this period and would now be worth £1.14 in real terms. A £1 investment in UK government bonds would now be worth £2.14, after accounting for inflation, and £1 invested in bricks and mortar would be worth £3.63.

“But the really inflation-busting returns have come from the stock market. A £1 investment in a UK stock market fund would now be worth £10.02, even after accounting for inflation. An investment in the typical UK equity income fund would be worth even more, at £12.99, reflecting the long-term compounding power of rolling up dividends.

“More specialist investments have done even better. £1 invested in a UK smaller companies fund 40 years ago would be worth £15.01 today. But sitting at the top of the tree is, unsurprisingly, the technology sector. £1 invested in the average technology fund 40 years ago would be worth almost £20 today, even after accounting for the effects of inflation.

Sources: AJ Bell, Morningstar, Bank of England, ONS, Land registry, inflation based on RPI from 1983 to 1988 and CPI thereafter

“The fact £1 in 1983 is today worth just 30p demonstrates the damage inflation can wreak on your buying power. But these figures also show it’s possible to fight off inflation by investing your money and being patient. The more risk taken, the higher the rewards have been, albeit with bigger downdrafts along the way. Indeed, many longstanding tech investors will still bear the scars of the dotcom crash in the early noughties. But even more conservative investors can take some heart from the fact that more cautious investments like a balanced managed fund have still beaten inflation, given a long enough time to compound returns.

“Though inflation is forecast to fall rapidly over the next year or so, there is still no room for complacency towards the long-term harm it can inflict on the buying power of your money. Investors should have a plan to grow their savings ahead of the rate of inflation, and those who are willing to put their money away for the long term should certainly be thinking about harnessing the power of the stock market as part of their strategy.”