The ideal scenario for every investor that we speak to is – you take no or little risk and get a large return. This used to be possible 10 years ago where you were getting 4,5, or 6% returns in cash accounts. Granted inflation was also around this level which made it easier for banks to offer savings at this rate. Unfortunately, these days are gone and with the Bank of England base rate down at 0.1% and inflation at the time of writing this at 0.6% cash rates are largely reflecting the same returns.
In certain cases you are doing very well to beat inflation with the cash rates on offer at present. But do most people know what returns they are actually getting on the cash accounts? For most, the answer to that is no and normally do nothing about it.
Of course doing nothing is a strategy, it just may not be the right strategy as you see inflation erode the spending power of your money over time. If you do understand the impact that inflation has on low interest rates then you may seek alternative routes to achieve a higher return on your capital.
For a lot of people, they have no plans for this money in the immediate short-term and may look towards investments – we would recommend a minimum investment term of five years.
The objective for this money may be to buy a house, a car, or children/grandchildren university fees, it may just be for people to hold the value of its money, beat inflation and use it in the future when the time is right knowing it has held its value and you can still get what you want.
When investing you then have to take risks which means the value of your investment may go up as well as down. People automatically assume that by investing you will lose all your money. There are varying degrees of risks that you can expect when investing and lots of different asset classes where you can place it, which with the help of a financial advisor, will guide you through the process and pick investments that are relevant to your specific risk profile.
This may mean you have money partially in cash, in fixed interest such as gilts and corporate bonds, perhaps commercial property and even equities within the UK, Europe and overseas – all carry different varying degrees of risk. But why would you take a risk if you didn’t have to?
Investment returns never offer a guarantee but historically over time – a 5-10 year time horizon, more often than not, an investment will outperform or has outperformed cash returns and retained its value against inflation, otherwise what would be the point in investing?
Of course again, no one can offer guarantees on this element. Over the five year term or minimum five year term which has no end date or expiry (its open ended) you would typically sit with your advisor and review how the investments are doing and amend any risk profiles if need be to make sure it always runs in line with your comfort zone.
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The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
Strategic Wealth Solutions LTD is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the Group’s wealth management products and services, more details of which are set out on the Group’s website www.sjp.co.uk/products.