When the global financial crisis hit back in 2008, UK interest rates stood at 5%. This year, the Bank of England lowered its Base rate twice. It now stands at 0.1% with experts asking if negative rates might be on the way. This is all bad news for savers.
At the same time, March saw a period of short-term market volatility. Since then, the markets have risen to June, plateaued towards the end of July, and after a tentative downward trend, rose again through November.
Poor interest rates might mean that you’re looking to move your savings into investments for the first time. Maybe you have an existing portfolio, but having monitored it very closely through March you now think it needs rebalancing?
Either way, you’ll want to weigh up the pros and cons of savings versus investments and be sure that your investment strategy is based solely on achieving your financial goals.
Low rates mean your savings are losing value in real terms
With interest rates low, beating inflation with easy-access or fixed interest savings products has been difficult. This means your savings are struggling to retain their value in real terms. To preserve purchasing power in the long-term you need to match, or ideally outstrip, inflation.
This might mean turning to investment.
Keeping some savings in cash though can be a good thing. An emergency fund needs to be easily accessible to ensure it is there when you need it. But don’t expect much in the way of returns.
Investment offers greater potential for returns at increased risk
Recent stock market volatility may have left you wary of investing. Historically, though, the trend of the markets has been an upward one. There are a few questions you’ll need to ask yourself.
If you think you’ll want to access your money soon, an investment might not be right for you. We would normally recommend an investment is held for a minimum of five years.
A medium or long-term investment gives you the best chance of seeing good returns and means that you can recover from short-term market blips, such as those we saw earlier in the year.
To be sure of your investment timescale you’ll need to know your investment goal. If you’re saving for a child’s education or to help them onto the property ladder, your timescales might be shorter than if you are investing for your own retirement.
The goal, and length, of your investment, will also contribute to the level of risk you are willing to take.
Your risk profile will depend on several factors. You’ll want to expose yourself to less risk if your child’s education is your medium-term goal, but might be open to taking a greater risk if you’re investing for your own retirement, still decades away.
A longer timescale means you can afford to take more risk during the accumulation phase. This is because you’ll have plenty of time to make up for any losses caused by short-term volatility.
As you approach your goal, your risk profile will change.
In the so-called consolidation phase, you might move into lower-risk funds to avoid sharp losses at the time when you can least afford them.
Asset allocation is the way you spread your investment between the various asset classes – stocks and shares, bonds, cash, and property.
Each class comes with its own level of risk. This does not mean investing everything you have into the class that best aligns with your risk profile. Rather, it is important to spread your investments across classes to give a collective spread that matches your attitude to risk.
This is known as diversification.
You can also diversify between different industries and geographical areas within an asset class and an individual share choice. Diversification helps to spread your investment risk. It means that a fall in one sector or region might be offset by a rise elsewhere and won’t necessarily mean a loss for your portfolio.
Diversifying is the investment equivalent of not putting all your eggs in one basket.
Investing isn’t a competition, it’s about achieving your goals
Investment isn’t a competition. Chasing big returns through high-risk investments could see you make big gains, but you’ll run the risk of big losses too.
It’s important that your investments are working well for you and that means one thing: Are they helping you to achieve your goals?
The general trend of the markets is an upward one. Long-term investments aligned to your risk profile might not make huge gains, but they could generate reliable returns. If your long-term goals remain the same, and your investments are on track to get you there, you can feel confident that your investment is working for you.
Get in touch
If you’d like to discuss any aspect of your current or future investments, please contact us today. We can help to ensure your portfolio matches your risk profile and is on track to achieve your investment goals.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
“At Boolers, you know that things will be dealt with properly and professionally. A real safe pair of hands!”
“I have always found the quality of advice, technical knowledge and level of service is second to none. ”
“Thank you to all of you for such a wonderfully smooth transaction! Hope we can do it again some time.”
“Boolers provided excellent advice when we needed it most.”
“Boolers have provided myself, family and business with pension and investment advice for over 30 years and continue to provide a high quality professional service to us all on an ongoing basis.”
“Chris Ball has been our Financial Adviser for many years and, from the start, we have been impressed with his strategic sense, his deep knowledge and his skills in helping us build our own successful retirement. He understands our aims and how to achieve them and has taken great care of us throughout. ”