Cash is not king – planning is!

09 October 2016

The heady days of high interest rates and getting a warm glow from watching savings grow for very little effort are long over – yet still vast sums remain languishing in cash accounts that barely manage to earn 0.3%.  Absolute Wealth Management directors, Simon Harnaman and Pete McBride, have spent the past few months encouraging all their clients to consider better returns on their cash.

“Putting cash in the bank is a guaranteed way to lose money in real terms,” asserts Pete. “Since inflation is running above current interest rates (offered by the bank), saving in a traditional way is not the smartest investment decision.”

As Absolute Wealth Management’s graph shows, keeping cash in the bank has seen the lowest performance. In contrast, investing in a recognised fund can yield much higher returns. One of the funds that has performed consistently well for the past ten years is M&G’s Corporate Bond. The fund, worth in excess of £5 billion, invests in a wide range of industryies from telecoms and utilities to government bonds.

“Choosing to pay regular amounts into an investment scheme like M&G’s Corporate Bond can make financial sense,” confirms Simon. “It is a clear alternative to cash which has seen good steady growth in a low risk environment."

“Keeping a reserve of cash can be useful as an emergency fund, but any significant amounts should really be invested so that they can grow. Sadly, as our graph shows, retaining the same amount of cash in a standard bank account yields very little.”

Making your money work harder

Prudent investments are a perfect way to help bolster a retirement plan, with savers being offered better rates for longer terms. There are still some options for savers to invest in if they require access to funds, such a tax free stocks and shares Individual Savings Account (ISAs).

“A stocks and shares ISA remains a good way for those in their 30s and 40s to save, since it will still see a steady return but allows access to funds,” comments Pete. “Furthermore, from April 2017 the ISA allowance that individuals can invest rises from £15,240 to £20,000.

With so many different ISA products to choose from we would be more than happy to help you choose the right one.”

Accessing your pension fund at 55

"Following the changes to pension law last April, we have noticed that a large proportion of people wishing to access their pension funds has greatly increased," notes Pete. This might seem like an exciting prospect, allowing you to pay off a mortgage or make a one of purchase, yet both Pete and Simon caution against doing this without advice.

“We have seen some clients rush to access their tax free sum only to leave it in the bank!” concedes Pete. “This is probably the worst place possible; not only will it cease to grow substantially, by removing it from your pension, this amount loses any protection from income tax and inheritance tax. We would recommend that you take time to consider before doing this and let us advise you on the best investment options.”

Absolute Wealth Management would like all to encourage all their clients to be more versatile with their investments by considering a diversified portfolio, one which includes a variety of investment options. If you would like further advice on how you can improve your investment position, you can arrange an appointment with Simon Harnaman or Pete McBride. To make an appointment please click here or call us on 0117 907 1965.

Categories: Advice, investments, pensions