5 March 2014

Savings - How to Lose Money

One of the saddest things I see with new clients is where they have held their assets in the wrong place for a long time, and could have done a lot better for themselves if they had done some different. That could mean pensions with poor performance and high charges, property in the wrong place, or simply in cash savings. Really?! Surely having savings is a good thing?

This week marks the fifth anniversary of UK base rates being held at 0.5% - a response in March 2009 to the global financial crisis of 2008. That may have been helpful to homeowners with a mortgage but it has meant that cash has been the riskiest asset for savers.

According to M&G, UK equities would have provided investors with a return of 99.4% over the last five years, while global equities would have provided 69%. Corporate bonds and commercial property would also have provided good news.

But taking tax and inflation into account, they estimate that cash would have lost you 10.4%.

I'm certainly not going to say that you shouldn't have any savings - it's important to have some easy access cash for a rainy day - but you need to be aware of the cost of  holding it as cash. The future is not going to be like the past (and at some point interest rates will start to rise again), but it does emphasise that a long term view of your finances requires consideration of other types of asset.

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