With interest rates plummeting to record lows and rumours of negative rates on the horizon, many savers are shying away from traditional savings accounts and trying their hand at investing in stock markets. However, it remains important to hold enough for emergencies in an accessible, risk-free form.
While the pandemic has caused financial difficulty for many families over the past year, others have been able to put more money aside as a result of spending less on non-essential items. Official figures1 show that the household savings ratio increased from 9.6% in Q1 2020 to a record high of 29.1% in Q2.
Saving vs investing
A total of £125bn was deposited into savings accounts last year, according to Bank of England data. That figure is expected to rise substantially during the first half of 2021. The average instant access savings rate is somewhere in the region of 0.57% per annum for March 2021, according to Moneyfacts2 . Whereas the FTSE100 Stock Market has grown by as much as 23% (from 1/4/2020 to 31/03/2021). Many people have therefore seen their savings balances grow at a time when savings rates have hit rock bottom. This has prompted many to turn their backs on cash and dip their toes into the investment waters.
The importance of advice
With so many funds available, the investment process can appear daunting, and it can be difficult to know where to start. Working out a sound investment plan with sensible goals is key, as is seeking financial advice before you begin. Your financial adviser will be able to provide help and advice into making the right decisions for you.
Invest over the long term
Investing should be a long-term commitment. Advisers typically recommend that you consider a minimum 5-year plan. And it’s important to have a savings safety net in place before you start. Historically, while investing in equities has delivered better returns than cash, there is inevitably a risk as the value of investments can fall. This will need to sit comfortably with you. Therefore your financial adviser will need to establish your risk tolerance before recommending any investments.
Whether you’re thinking about your pension, creating an investment portfolio, a stocks and shares Individual Savings Account (ISA), or even a Junior Individual Savings Account (JISA) for a family member, your financial adviser can help you begin your investment journey.
1UK Parliament, 2021 2Moneyfacts, 2021
WORDS Angela Davy-Makwana