Finance Matters: Isn’t investing risky?

July 28, 2014

Mention stocks and shares and people go wobbly at the knees, especially after the turmoil of the credit crunch.

But how safe is cash? Well, it depends on your perspective. If you spread your money around different institutions (no more than £85,000 at each institution per individual) you should be covered by government guarantees.

But that’s not what we’re talking about here. We’re talking about the insidious effects of inflation on cash savings, especially when interest rates are as low as they are now.

The UK Inflation rate (as of July 2014) is 1.9% using the Consumer Price Index (CPI) or Conservative Price Index as I like to call it! The Retail Prices Index was 2.6% for the same period.  You’ll be lucky to get 3.5% in a savings account right now. The effective rate is even lower after tax has reduced the headline rates. So, currently you are guaranteeing to reduce the real value of your money by holding too much in cash.

Barclays Capital states that over 10 years, investments in the stock market are likely to beat the interest from cash 90% of the time and 99% of the time over 18 years. It’s proof that stock market investments are typically better at combating the risks of inflation. Historically, over the medium to long-term, investing in shares has produced the best returns.  This is why it’s important to hold enough cash but not too much.

So are stocks and shares risky? In the short term, yes they can be, but history teaches us that the long term benefits should not be ignored.

 

This article is for general use only and is not intended to address your particular requirements. It should not be relied upon in its entirety and shall not be deemed to be or constitute advice.

GreenSky Wealth Ltd is an appointed representative of Financial Limited which is authorised and regulated by the Financial Conduct Authority. FCA No: 516410