Why Investing in Cash is Overrated – My Investment Story
Communication about Financial Products for Women
I listened to the Woman’s Hour episode recently, my interest was sparked when I heard they would be talking about how women are spoken to in the financial press. Certainly not to my surprise it transpires that women are talked down to in the financial press all the time. We can handle money saving tips, simple savings accounts, budgeting, but when it comes to more advanced products and services such as investment ISAs and pensions we are pretty much ignored. Not good, not good at all financial companies and the press!!!
I and the (mainly female) readers of my glorious blog think about the short-term and the long-term of finance. We want to understand the concept of investment and pensions and risk and put our money in the best place to protect ours and our family’s future. We want to know the best place to put our money to get a great return.
Savings and Investments
Rant over, I am passionate about money, making money and having a comfortable life so want to talk savings and investments with you.
So what savings or investments do you have now? Maybe you have an easy access savings account? Yes, that’s me I have two of them. I have my business savings account with a balance of £3k paying me 0.01% interest. Shocking. But I also have a Chip savings account that pays a much healthier 3% interest and I am moving over funds from my business savings as quickly as I can to benefit from a MUCH better rate.
The purpose of this cash is a safety net, an emergency fund. It should be around 3-6 months’ worth of salary, so I need to top this fund up a bit more, but I am doing good. Once you have this safety net sorted its time to think about putting your cash somewhere where you might get a better return on your money.
A few very scary stats to throw at you – According to data from the Bank of England:
- Savers’ cash deposits reached a record high of £1.32 trillion in 2017
- Yet interest income on UK cash savings fell to at least a 20 year low in 2017, down to just £4.6 billion
- If surplus cash were invested in UK equities instead, savers could have earned an additional £31.2 billion in income last year alone. An extra £31 billion compared to the £4.6 billion they earned. This is a huge difference!
So yes, keep your emergency fund in an easy to access account but let’s talk investments for the cash you have on top of this.
Stocks and Shares ISA’s
I graduated from university when I was 22. One month after graduating I started my first job with HSBC as a finance analyst and I began studying for my ACMA accountancy qualification. In my first week I needed to open a HSBC bank account, so I could get paid and at the same time I opened a savings account. Not just any savings account though. I wanted a tax-free account and I wanted something that would give me the potential for good return on my money, so I opened my first stocks and shares ISA.
At the tender age of 22 I thought this was a tool that could give me a good return on my investment. I set up the direct debit of £25 per month and left it untouched for 14 years. There came a point in life where we needed cash. We were extending our house and we didn’t want to fund it entirely from equity release, so we cashed in the stocks and shares ISA. I remember it clearly. The £25 per month, invested for 14 years meant I had put in £4,200. Yet the amount I was withdrawing was £8,000. An increase in value of my investment by very nearly 100%. My money had nearly doubled.
This is the thing with investments, there is always a risk that when you need to sell the value of your investment could be lower than when you started, but also the possibility of the returns is much greater. Over this time period when investments did well and interest rates were low, I would not have got this level of return with a cash ISA or a standard savings account.
Taking a Business Risk
I took a huge risk three years ago and set up my own business, Mrs Mummypenny Ltd, the blog you are reading now. This risk involved investing a significant redundancy payment into replacing my previous corporate salary for 18 months. My goals were to have my business earning enough by 18 months in to pay myself a salary of £1,500, enough to pay half of the bills. There was a slight miscalculation here and some additional funding was required to run the business, pay the mortgage and live. The result was some debt, 15.5k worth of debt.
I made the decision to close my stocks and shares ISA. To cash in any balance and stop investing whilst times were tight. One year on the debt reduction has progressed significantly. During this time, I have managed to pay off £9k of the debt. My remaining debt is all 0% and not far off being paid off. Now is the time to start investing into a stocks and shares ISA again.
Still Feeling Unsure about Investing?
If you are feeling unsure about investing and making that change from cash then I urge you to have a look through this great website with a step to step guide to investing from Janus Henderson. Included on the site is a brilliant guide packed full of great information. There is lots of content to be explored in the 5 simple steps, step 1 savings and investing, step 2 Investment Risk, step 3 Financial goals, step 4 Investment options and step 5 Investment strategy. There is some fantastic content in here including videos, calculators and blogs. I particularly loved the posts ‘When Shouldn’t I Invest’ and also ‘Why I got fed up with cash’ .
Janus Henderson are also running a ‘steps to investing’ event in London on 25th April. Sign up here for an invite and more information . This is ideal for first time investors to be able to meet a variety of financial experts and investors, and the Steps to Investing team.
Disclaimer – Remember investing is different from holding cash. With cash, if inflation is higher than interest rates, the value of cash decreases. With investing, values go up and down, so there is the possibility that an investment could be worth less than it cost and so you may want to consider advice from a qualified IFA. Just make sure they are recommended by a trusted person. Also check the types of investments they can advise on and their minimum investment levels as some will only work with clients with an investment level of at least £150k. This post was written in collaboration with Steps to Investing which is provided by Janus Henderson Investors.