Check the interest rate on your saving account. Is it less than 1.8%? That figure is the current inflation rate, or by how much the prices of stuff we buy every day is increasing. If your cash is earning less than that, you are actually losing money on your ‘investment’.
I’ll bet that wasn’t what you signed up to when you opened the account. Cash is supposed to be ‘king’, rock solid and no risk. Unfortunately, in today’s environment, that is not the case. And with the economic outlook uncertain – yes, it’s all about Brexit – there’s unlikely to be any change in the near future.
It’s easy not to think about 20 or 30 years in the future but we all need to put away much, much more for retirement. The state benefits – pension, care fees – are slowly being whittled away. But with cash rates below inflation, you cannot save enough to be comfortable in old age.
There’s a really easy way to make your money work harder – invest in shares. If you just bought a basket of the FTSE 100 – the shares of the UK’s 100 largest companies – you’d get about 3.5% a year.
The trouble is women generally don’t invest in shares. There’s a great article in the Telegraph today (in which I’m quoted!) about why we shun the stock markets. Impenetrable jargon, men in suits and constant news articles about boom and bust: we are put off by the gobbledegook and the risk. But we are missing out.
Yes, you can lose money in shares. But the risks of doing so are lessened if you invest over the long term. It’s also better to spread the risk across many shares, not just one company, which is why many people go into investment funds which do exactly that. And – here’s the health warnings – you should pay off debts first, keep a cash cushion and don’t invest money you can’t afford to lose or might need quickly.
One top tip is to invest small amounts regularly rather than risk dumping a big sum just before a crash. That scenario could be about to unfold right now. Stock markets are riding high at the moment and a reverse could be due. Terrifying as that sounds, it might mean you end up buying at the right time – when prices are low. Actually, saving a fixed amount every month means by default you invest more when shares are cheap and less when they are expensive. That is not a bad discipline!
You don’t need megabucks either. Hargreaves Lansdown and Fidelity, for example, have online savings plans starting at £25 and £50 a month respectively. You can stop, start, increase or decrease at any time without penalty.
More risk – yes. Intellectually taxing – to start with. But neither of those things means that we can’t get a piece of the action. There’s plenty of help online – SMM even has a few quick guides to investing here. It’s easy: small amounts over the long term. Let’s do it.