Why Invest Rather Than Simply Save?


Why should you invest rather than simply save?

It is common for people to feel the need to retain cash. Bank and building society accounts are the ideal place for your savings and emergency money as they are easily accessible and tend to be the safest place to put your money, but doing so exposes your capital to the enemy of the investor - inflation. In turbulent times it’s natural to respond cautiously, but some investors can over react and sell an investment at the wrong time, or others are discouraged from investing in the future, which is why it is important to understand how investments work.

Cash itself is not risk-free. Although the capital value may be secure, it is easy to overlook the impact of inflation which reduces the purchasing power of each pound. Investing in cash may lead to long-term financial disappointment as savings rates tend to be lower than inflation, meaning prices rise faster than the value of your savings.

A further explanation can be found by downloading 'Our Guide To Investing' HERE

Understanding the principles of investing

All savings and investments involve some degree of risk, but by making an informed decision to accept risk creates the opportunity for greater returns, known as the risk/reward trade-off. It can be explained like this:

The amount of reward to want/need will determine your level of risk or  put it another way - the level of risk you take determines the level of reward you could receive.

Your ability and willingness to accept risk will determine the most suitable range of assets for your investment. If you are not comfortable with, or do not understand the risk you’re taking, you should not invest.

What are the building blocks of investing your money?

Typically, Independent Financial Advisers use 4 main asset classes to invest your money - Cash, Fixed Interest, Property & Equities (Shares). But which ones do you choose?

No-one can predict which will be the best asset class each year. The performance of individual asset classes vary according to market and economic conditions including sentiment which is explained futher in Our Guide To Investing.

Time in the market not timing the market!

No one can predict the peaks and troughs of financial markets and it is extraordinarily difficult to time when the best days (peaks) are. Missing the forty best days over a period of 15 years your annualised returns could be minus 2% versus remaining fully invested of 8.9&.

Timing the stock market is extremely difficult, the best policy is usually to stay fully invested over the long term.

Source: Datastream, from 30.06.03 to 30.06.18, annualised return. Returns based on the performance of the FTSE All- Share, with initial lump sum investment of £1,000 on a bid to bid basis with net income reinvested.
Issued by Financial Administration Services Limited (Fidelity), authorised and regulated by the Financial Conduct Authority.

The importance of tax planning

Tax planning can be equally as important as asset allocation when recommending an investment portfolio. After all, there is little point in taking the time to search out the best funds for your objectives if tax then wipes out the return.

Each client’s circumstances are different, so we take care to ensure that the most appropriate tax wrapper(s) are selected without compromising asset allocation. We want to maximise your return by minimising tax you pay.

Read more by downloading Our free Guide To Investing HERE

If you'd like some information or advice on your investment options ahead of your retirement, please get in touch with Chris Hill on 01539 942030 or email at chris.hill@armstrongwatson.co.uk

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