Reasons to invest – take 5
In the current pandemic, saving may be more difficult than normal. But here are five reasons why, we believe, setting money aside now could be beneficial.
1. Making your money work harder
With interest rates at historic lows, banks and building societies are offering little, or virtually no, interest on savings accounts. Investing, by contrast, gives you the potential to aim for stronger returns over the long-term, to achieve goals such as buying a house or saving for a long-overdue holiday. In exchange, you accept an element of risk. You should also be aware that the value of your investments can go down as well as up.
2. Cash savings may erode over time
Cash may often seem a ‘safe’ option, particularly during the current pandemic when safety is at a premium and you might need to release funds for personal needs. But the value of cash can be eroded by inflation, or rising prices, over time. While the level of inflation may seem comparatively low at the moment, if you are in work, and your wages don’t keep up with inflation, then your standard of living can fall due to the fact that your ability to buy the same amount of goods and services becomes less.
3. The potential opportunity to make money on your money
The concept of reinvesting any interest you may receive on your investments, year after year, is a powerful investor tool and is known as compounding. It stands to reason that the greater amount of time you allow your savings to grow, the greater the opportunity could be for increasing your savings. You can read more about the power of compounding here.
4. Tailoring the level of risk to suit your requirements
Generally, the more risk you are prepared to take with your investments, the higher the potential return you could receive. Company shares, otherwise known as equities, are typically considered higher-risk investments than government bonds. (A government bond is effectively an IOU, whereby an investor lends to a government for a set time-period in return for a fixed rate of interest). These are generally deemed safer investments as governments guarantee to pay the investor, with interest, at the end of the bond’s life. Because they are deemed less ‘risky,’ the returns tend to be lower than those offered by company shares. Our experts believe the best way to offset risk is by holding a broad range of investments. You can read more about this in our blog on diversification.
5. Still unsure about the world of investing?
The world of investing can often seem a complex one, especially as there is a fair bit of jargon involved. But for first time and seasoned investors, a stocks and shares* ISA is one of the most tax-efficient ways to save. You can choose what types of investments you would like to include in your ISA. Alternatively, if you are still unsure where you’d like to invest your money, take a look at our we do it for you range.
*Please remember the value of your investment and any income from it may fall as well as rise and is not guaranteed. We recommend that investments are held for at least five years. Tax rules for ISAs may change in the future and their tax advantages depend on your individual circumstances.