Martin Lewis compares savings to investing in stocks
Investments carry risk, meaning while there is a chance of getting a return, capital could potentially be lost. For those who find investing money does suit their financial situation, knowing where to start can seem like a big hurdle.
UK savers are sitting on around £1.5trillion of cash in individual bank accounts nationwide, and, according to analysis by BlackRock, around £600billion of this could be working harder and generating higher returns.
Last year no doubt delivered a financial shock to many households, prompting a widespread reassessment of savings and debt across the UK.
April 2020, the first full month of lockdown, saw households repay a record £7.4billion of consumer credit.
This was the largest net repayment since records begin in 1993, as people who were able to took steps to improve their financial health.
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Joe Parkin, Head of Banks and Digital Channels in the UK at BlackRock, commented: “Last year saw UK finances put under immense pressure as COVID-19 changed our lives, but now at the start of the year, there is perhaps an opportunity for people to reassess their financial position and take steps to ensure that their money is working as hard as possible, rather than sat in a bank account.
“Investing is absolutely key to meeting financial goals, allowing people to access not only higher returns than a savings account, but also mitigate the growing risks that inflation presents to cash deposits.
“While investments carry more risk and might not be as smooth a ride as cash, they play a key role in helping to increase financial security.
“Being in control of your finances and financial wellbeing doesn’t happen overnight. Just like improving physical or mental health, getting our money in order is best achieved one step at a time.
“Successful investment is all about getting started and investing consistently over your lifetime to harness the full benefits of compound interest.”
For UK savers looking to move into the world of investing, BlackRock has shared five expert tips.
Assess your current financial position
“As a first step towards improving financial wellbeing, it is important to work out where you can pay down any debts, manage day to day spending and shore up emergency funds,” said BlackRock.
“If your savings cover more than your emergency funds (which should equate to about three to six months living expenses), it is worth considering how to make you money work harder.”
Get your head around compounding
“The most important concept around long-term financial wellbeing is compounding: regularly investing and letting any increases build upon themselves by keeping your money invested.
“Over the next 10 years, and even in the current market environment, BlackRock estimates a 4.1 percent rate of return from a standard investment fund accessible to most people – this means that £20,000 invested today could be worth almost £30,000 in 10 years’ time.
“If you were to supplement your investment with an additional £1000 every year, your money could be worth almost £41,000 in 10 years’ time.”
Set your investment goals
“You might be investing and saving, you might even have been doing it for a while, but are you doing enough to meet your later life and retirement goals?
“Becoming independent of one’s salary is a goal shared by almost everyone, but there are certain steps to take to ensure you are on track to be able to afford your retirement.
“Consider if you are investing enough and if your money in the right investment products for your aims and timelines.
“Many investment approaches are designed to support the lead up to and throughout retirement, using your age to take appropriate levels of risk and to support your retirement spending.
“To look after the financial wellbeing of your whole family, it might be worth discussing the option of opening an investment account for your spouse or children too.”
Embrace the digital revolution
“In the UK in 2020, around one million people became digital investors.
“Technology is disrupting and changing every industry (travel, music, entertainment) and financial services are no different.
“Many firms have developed digital investment platforms to capture this trend and new offerings are emerging almost daily, designed to make investing accessible to both seasoned and first-time investors online and through your mobile phone.
“However, before fully embracing investing online, make sure you do your research to find a reliable platform with deep expertise and a proven investment strategy. A number of large, established fund providers offer digital investment tools as part of their services.”
Make your money contribute towards a UK or global recovery
“Money invested in companies, either in equity or debt, will play a significant role in helping rebuild global economies in the aftermath of the pandemic.
“Allocating capital, rather than keeping it in cash, enables to companies to grow their business, invest for the future, and provide jobs.
“The £600billion of UK savers’ cash which BlackRock estimates could be deployed in the markets illustrates the power that investors have in providing capital which positively contributes to the economic recovery.
“You may also further improve your and your family’s carbon footprint by investing sustainably.
“Investing sustainably is a great way to allocate capital to companies that are moving the dial around important environmental, social and governance issues, for example climate change, diversity and inclusion and other major challenges society faces today.
“As an investor, there are now many different investment vehicles which could allow you to invest in companies that are focused on environmental and societal benefits.”
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