What you need to know to find a balance between saving and investing
Why you need to look beyond savings if you want to grow your money
The British are a nation of savers, with almost ⅔ of us putting money away regularly for a rainy day. But these days the twin effects of inflation and low interest rates mean that just keeping your money in a cash savings account isn’t enough if you want to increase your nest egg to help meet your financial goals.
Those of us who started our saving habits in the eighties and nineties were familiar with bank interest rates that comfortably outstripped inflation, meaning you could grow your money with little more thought than looking at the latest ‘Best Buy’ lists. But since the financial crisis in 2008 the picture has changed, with average bank interest rates consistently tracking below inflation (as the chart below shows). This means that for the 80% of us who aren’t investing our money, we are seeing the value of our rainy day funds decline in real terms. Put simply, the money we put away now will buy us less when we come to use it.
Find a balance between your savings and investments
This situation means we all need to look at how we manage our money if we want to meet our long term goals, but only a minority of us are currently using investments as part of our financial plans. Recent research shows, Brits are committed savers (61%) but only 20% are regular investors, with a mixed portfolio of investments and savings. That means millions of UK savers aren’t yet taking action against the rising prices that threaten their long term financial plans.
The situation is compounded by the fact that most peoples’ money goals are actually long term. As you can see below, retirement, getting on the housing ladder and supporting family members are key financial goals for most, which require long term planning to deliver against. Keeping some of your savings easily accessible is good advice, be it for short term priorities like a holiday or car, but long term goals need a different approach. Savings accounts offer lower rates simply because you have easy access to your money, so it makes sense to build a portfolio that aligns with your goals, with a mixture of savings and investments that offers a mix of risks and returns to ensure your money has the spending power you need when you come to use it, twenty or thirty years in the future.
Investing is too risky for me, isn’t it?
The information above isn’t new; it has always been wise to have a mixed financial portfolio, but many Brits are still reluctant to branch out into investments. Indeed more than 50% of people agreed that they would invest more if they had a greater financial confidence. This is because for many people investments mean stocks and shares, and this means risk and volatility. Indeed, with fluctuations (shown below) in the markets never far from the headlines, this perception is understandable.
But the good news is that stocks and shares are not the only way to invest to get a better return. There is an increasing range of ways to increase your returns without exposing yourself to the risks of investing in the stock market. Peer to peer loans and other debt based investments often lack the volatility of stock markets and can form a valuable part of a balanced portfolio. The return rates offered on the investments vary, but they are higher than those of savings. Investing across different types of investments not only helps expand one’s financial portfolio but is also good advice for building a balanced financial plan.
With Abundance you can choose where to invest, which gives you control of where your money really goes. We only offer debt-based investments — no stocks and shares here — and it’s easy to start with just £5. You can find more information on why Abundance offers debt based loans called debentures in this blog post, or read about how our investments can benefit your broader financial plans here.
Risk warning
As with any investment product there are risks. Part or all of your original invested capital may be at risk and any return on your investment depends on the success of the project invested in. You should be prepared to hold Abundance investments for their full term and investments may not be readily realisable. Estimated rates of return can be variable and estimates are no guarantee of actual return. Specific risks will apply in relation to each product. Consider all risks before investing and read the Offer Document for each investment.
