It is probably fair to say that all forms of saving are a “good thing”, but the elephant in the room for any form of cash saving is inflation, eating away at the value of your money as you try to accumulate it. The Consumer Prices Index to April 2019 gives an inflation rate of 1.9%, so a savings return of less than that is slowly losing you money. Typically, money in the bank or building society will give you a return much nearer to the Bank of England Base Rate, or about 0.75%.
Holding cash in the short term is unlikely to be a problem, having ready liquidity can be a big advantage too, but holding cash for much more than two years without an expectation to use it for something specific suggests that you need to look towards some form of investment. As some investments have tax advantages, it makes sense to start with these and take advantage of any incentives available.
The ISA has been around since the 6th April 1999 and currently gives you the ability to shelter up to £20,000 of savings or investments from Income and Capital Gains Tax each year. In its’ cash form the ISA has few advantages over a bank account, but as a stocks and share ISA you enter the world of investment, which should (when invested across a range of well-performing cash, fixed interest, equity and property funds, appropriate to the amount of risk you want to take) produce a return, over time, greater than cash.
For some people, investing can bring some nervousness, as they feel they are losing the security of a steady, predictable, (and small), return in return for a future possible gain. But inflation moves the argument to “how can I preserve and increase the value of my money over time?”.
Using an IFA to select an investment portfolio, using an ISA structure, investing early with a lump sum and dripping more money in over time, will dramatically increase your chances of making a good return from your investments over time. Vanguard, the fund provider commissioned research that suggests that a good adviser and investment process could add 3% to your investment returns, reducing the influence of poor years and inflation to the final outcome.
Modern portfolio theory suggests that time in the market is a key contributor to returns, so if you have money to invest do it now; if you have surplus income every month, invest it each month, using compound interest and pound-cost averaging to your advantage.
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Please contact Sarah Austin at [email protected]or call her on 01223 792 196 to arrange an introductory meeting, at no cost to yourself.