4 reasons why I stopped relying on cash savings alone

Like many other women in the UK, I used to put all my savings into a Cash ISA and regular savings account. It was “just in case” I needed to access it.

And when Covid arrived, I was glad I had something to fall back on.

But I quickly realized that my money wasn’t working as hard for me as it could have been, if I had given it the opportunity.

And slowly my only addiction to keeping all of my savings in cash started to disappear.

Here are four reasons why I stopped relying on cash savings alone and started investing with confidence.

This article is not for personal advice, so if you are unsure of what to do, please seek financial advice. Investments can go down as well as up, so you might get back less than what you put in.

Reason 1 – I adopted financial coaching

I remember the first time I sat in front of a financial advisor.

I was 25 and had spent the start of my career talking to young women about the importance of saving and investing.

How ironic that I didn’t practice what I would preach.

I walked into my first meeting excited and ready. I wanted to start investing and putting more money into my pension and needed someone to help me get a head start.

When I left my meeting I felt like I had only scratched the surface, but at least I had a plan.

It turned out that I wasn’t necessarily ready for long-term financial “advice”. But I was ready for the financial planning and the coaching that came with it.

The result was simple: free yourself from debt, build up emergency cash reserves, then think about investing.

When the time came to start making the most of my savings, I made the mistake of keeping my money in cash for too long due to the nervousness of new investors.

In retrospect aside, being able to talk to someone about my personal goals and how I wanted to shape my financial future made all the difference when I finally decided to start investing.

Reason 2 – I got better at planning

Saving money in cash has its perks, but you shouldn’t have everything in cash.

If you think you need to keep cash to cover short-term, unforeseen expenses, you are right. It is important to keep some of your money in cash, especially when you start to retire.

Although the exact amount will depend on individual circumstances. Keeping between 3 and 6 months of expenses to make sure you have enough to cover emergencies is usually a good idea.

If you’re retired, this pot should be slightly bigger – it’s worth considering around 1-3 years of spending.

A Cash ISA could be a good place to keep your emergency fund as long as you can access it quickly, such as through an instant access account.

Once you’ve built your emergency fund, then you can think about the costs ahead over the next five years – it could be something like planning a vacation or buying a new car. To make your money work a little harder, you might consider holding this part in fixed-term savings accounts. Although your money is locked in for a certain period of time, it could help increase the amount you get back.

After building up your emergency fund and clearing large purchases over the next five years, then you might be thinking about investing.

Investing involves spreading your money over different areas that are not in cash. It can help you grow your money for the long haul. But ideally, you should only invest money that you won’t need for at least five to ten years.

Remember, unlike the security of cash, investments can go down as well as up, so you may get back less than what you invested.

Finally, you need to think about your longer-term savings, such as your pension. If you have an occupational pension plan to which you pay your contributions, you should continue to do so. And if you can afford it, you might even want to increase the amount you pay.

If you are a UK resident under the age of 75, you will normally have an annual retiring allowance of up to £ 40,000. And if you haven’t used up all of the allowances from the previous three years, you may be able to carry over any unused allowances to that tax year.

Not only are you preparing for your immediate future, but you are also preparing for the income of your future life.

It is never too early to start thinking about your retirement, nor too late.

Keep in mind, however, that you can’t normally withdraw money until you’re 55 (up to 57 in 2028). When you can access it, up to 25% is usually tax exempt, the rest is taxed as income. Tax rules may change and the benefits will depend on personal circumstances.

Reason 3 – I have acquired knowledge

Even if you’ve decided to invest, it’s easy to get put off by all the jargon or not know where to start.

I dipped my toe into investing by choosing my first fund because I liked the name. I realized then that this was probably not the best way to do things. So I looked at HL’s Wealth Shortlist, a list of funds selected by our analysts designed to help investors build well-balanced and diversified portfolios.

I knew I had a slight aversion to risk and instead of buying individual stocks in one company which is riskier I chose funds. This way, I could leave the day-to-day management to the experts, but at the same time choose the areas in which I wanted to invest. I review them regularly to make sure the funds continue to meet my risk tolerance, goals and aspirations.

Diversification came next.

There is no rule that says you have to have a balanced and diversified portfolio. However, different areas, investment styles and types of investments may perform differently at different times. If you choose funds that all invest in the same way, you are probably only right part of the time.

The value of some of your holdings will likely drop at some point. But having a well-thought-out portfolio that includes many different types of investments reduces the impact of poor domain performance. It means you are more diverse.

I also learned not to be afraid of market downturns.

When there is a downturn in the stock market, funds or stocks, some argue that it is the best time to invest. In fact, the prices of stocks and funds are going down, which means you could be getting more for your money.

I changed my mindset from viewing “dips” as a waste of money, to viewing them as potential opportunities for higher gains when the stock markets rise again in the long run.

How to build an investment portfolio

Reason 4 – I wanted to be more confident to achieve my long term goals

I knew there was a risk that my investments would go down as well as up. But I also learned that, unlike investing, there was almost no chance that my money would increase.

Everything is linked to inflation.

Inflation is a measure of how much prices have increased over time. This is the rate of silver losing value – £ 1 this year will earn you more than £ 1 next year.

Unless your cash savings account has an interest rate higher than inflation, you are effectively losing money. This is because your “purchasing power” is decreasing.

There is nothing wrong with taking some of the inflation out of your short term savings as it gives you the security that the investment is not able to – especially since inflation does not. is currently only 0.4%. But in the long run, it can add up and seriously impact the value of your money in the future.

The Bank of England has an inflation target of 2%. While this is far from the case now, it could be in the future. And all cash savings products will struggle to beat that.

In contrast, investing in a diversified long-term portfolio is likely to be less difficult.

Over a number of years, even through the ups and downs, your money has a better chance of growing, responding to and even exceeding inflation.

Here is an example.

If you invested £ 100 per month over a 20 year period, assuming a growth rate of 5% and a charge of 1.25% (average expected growth rate), you could potentially increase your money to £ 35,415 . If you waited a year to start investing, that value would drop by almost £ 2,500. If you just saved your £ 100 per month to an interest-free account, after 20 years you would only have saved £ 24,000. This is only an example, past performance is no guarantee of the future and your performance will vary depending on the underlying investments.

The idea of ​​investing in stocks is that over a longer period of time your money enjoys potentially higher returns. It’s about weathering storms to help achieve those goals.

Financial advice helped me and could help you

If you need a little more help planning your finances and investing, you can always seek advice. Not only will they be able to help you with one-off advice regarding your goals, but you’ll only pay for the advice you need.

If you are wondering if the advice is right for you and what it would cost, you can speak to our Advisory Helpdesk. They are there to answer your initial questions, even if they won’t give you personalized advice. If you decide that the advice is right for you, they can forward your contact details to one of our advisors who can then talk to you about your personal situation.