Guest post: Why should I think about investing?
Ahead of our exciting breakfast event with Investec Wealth and Investment next month, Alice Wright and Rebecca Jones, both investment managers with Investec Wealth & Investment , have written a couple of guest blog posts for us. Here is the first one, keep your eyes peeled for future posts…
Why should I think about investing?
To achieve higher potential returns
In the decade since the Financial Crisis, interest rates in the UK have remained near record lows.
As a result, savers have found that the interest rates received on their cash savings have diminished. From 1947-2018, the annualised return (an average return per year) on cash has been 5.4%.
For comparison, the annualised return for UK and overseas equities (company shares) over the same period has been 11.0% and 12.1% respectively.
2. To beat inflation
Inflation is a term used to describe how much prices for goods and services are rising. At the moment, inflation in the UK is around 2% per year. This means that something that cost £1.00 last year costs approximately £1.02 today. In terms of our cash savings, this means that their ‘purchasing power’ (i.e. how many goods or services they can be used to purchase) is eroded over time.
If I have £100 in my savings account earning interest at 0.20% and inflation is rising at 2.0%, it is clear that my savings are not growing at the same rate as prices are rising. As a result, my £100 will buy less in the future than it did in prior periods.
Using the same data mentioned above, annualised CPI inflation was 4.0%. Given that the annualised return for UK equities was 11.0%, they have historically delivered an average return that was 7.0% above inflation.
3. To plan for your future
The figures highlighted above show how the higher potential returns from investing can help you to grow your financial resources over the long-term.
Your investment portfolio can be tailored towards your particular objectives, whether that is saving for a particular financial goal, generating an income, or building up savings for your future and your retirement.