For those borrowing, the historic low interest rates on offer can only be considered a good thing. However, for the many prudent savers in the UK, such low rates have been a double hit when taken along with inflation. So what can you do about it? Where can you not only protect the money that you have worked hard to save, but also receive a return on the balance?
Previously, I was one of these places; it was considered a staple of a wide and varied investment plan. That is until earlier this year, when it was announced that the rates of interest paid on these accounts would be cut to as low as 0.01%, in some cases.
We are often asked, are NS&I bonds a good investment? With inflation currently running at 0.90%, to say these rates being offered are unfavourable would be kind. So for those who are perhaps still feeling cautious about investing, here are some options to consider when thinking about putting this cash back to work.
Cash could be invested back into financial markets in regular, smaller amounts – so that the overall amount invested builds up gradually. Because smaller amounts are invested, the short-term ups and downs of markets aren’t as significant – if the market moves downwards, only the invested portion loses out, and the investor still has some assets remaining in cash. This approach can be more appealing to those feeling uncertain when compared with investing a large lump sum all at once, or holding on to cash and delaying investment for an unknown period.
Multi asset investment portfolios can be constructed and managed to take different levels of risk. If appropriate, cash could alternatively be invested in a portfolio at the lower risk investment types, which each has different risk and return characteristics – behaving in different ways, at different times. Rather than concentrate investments in one area, portfolios can allocate to several different types of investment and spread the overall risk taken.
As you can see, over a 10 year market cycle the returns on invested money in a cautious portfolio outstrips the BofE interest rate very comfortably indeed, and too completely overshadows inflation. The returns being some 40% greater than that of bank savings account equivalent, where you are effectively paying the bank to hold your money for you when they are not giving you an interest rate of more than inflation – which is very rare in today’s climate.
It is important for clients in retirement or working towards retiring to ensure their money continues to work for them sensibly, in a risk managed approach so it outpaces inflation. When it comes to achieving long-term financial goals, the focus should be on investing, and remaining invested – I am sure you all keep your money in the same bank account for exceedingly long periods and in some cases almost a lifetime, and for what? To lose the true value of your hard earned money.
If you would like to speak to one of our independent financial planner, please get in touch.