Why cash isn’t always King!Uncategorized
With global stock markets rising to record levels this year, attitudes towards investing make for interesting reading. New research suggests that more than half of Brits feel investing money is “too
much of a gamble” for them at the moment.
The research from investment provider Alliance Trust found that 56% of UK investors share this view. The biggest reason for not moving from cash savings to investments was a fear of losing money, with 32% expressing this view.
Needing easy access to the money was also a commonly held concern, with 21% saying this was their reason for sticking with cash. 20% of respondents said that investing money was too complex for them. The findings come at a time when interest rates are at record lows and the purchasing power of money left in cash savings is eroded over time by rising price inflation.
43% of people said they would invest if they had more money available, but 36% said nothing would convince them to invest their cash savings, even if they could achieve a higher return.
The high proportion of people who leave money languishing in cash savings, despite evidence that investing can produce higher returns over the long-term raises concerns about financial education and capacity.
The chart enclosed compares the difference of investing a £10,000 lump-sum into cash against one of our medium risk investment portfolios with regular monthly contributions of £250 per month over the last five years to 13.01.2021.
Total investment over the five years would have been £25,000 into each. Today cash would be worth £25,405 and the investment portfolio £36,773.
Clearly this is a significant difference not to be ignored measured over a realistic minimum investment timeframe of five years.
With interest rates at historic lows, cash savings will likely result in a real-term loss over the years. As part of a clients overall financial position there is still a requirement for cash savings and we would always encourage this however it is important to get the balance right.
The research above states one of the main factors for cash being savings being preferred to investments was the fear of losing money or not understanding how it all works, this is completely natural. A good financial adviser will be able to guide clients through the whole process, break down the jargon and have a robust investment proposition and review service working alongside clients for many years.