A Practical Guide To Help You Get Higher Returns (Hopefully)!

In over 20 years advising clients on their nancial affairs, one of the most frequently asked questions is receive is “How can I get a better return on my savings?”

Perhaps a more appropriate question might be “am I prepared to take more risk to get a better return on my savings?”

I hI have written this guide to give you some ideas on how to get a better return, but it also provides background information to help you consider your approach to investment risk. It is not intended as advice as individual circumstances are different – but hopefully you will gain a better insight into the different options you have when you have money to spare for the future.

FFor example, are you prepared to risk investing some of your savings in funds which can (and will) fall in value – but which as a result, have potential to grow by far more than you would get in a bank or building society account?

Best regards,Graeme Mitchell

Whenever you set money aside for the future we all want the best possible returns with the least acceptable risk. There are two key options to consider• Savings (deposits) – e.g. Bank Building Society, National Savings etc• Investments – e.g. ISAs Investment Bonds, Pensions Share portfolios etc

AAll Savings and Investments have advantages and disadvantages and you will have to weigh up these when deciding the balance between savings (generally seen as a safe-haven for short term accessibility) and investments (where hopefully you can get better returns if you can leave the money for a bit longer).

TThe mix between savings and investments may well change over time – for example, to cut the risk as you approach a time when you might need some money (e.g. retirement).

SAVINGS AND INVESTMENTS

SAVINGS INVESTMENTS

There are m any investm ent risks, includ ing currency exchang e rates (recently hig hlig hted in the referend um d ebates), travelling o utsid e the U K, p o st-Brexit, g lo bal eco no m ic facto rs (e.g . slo w d o w n in U SA o r China’s g ro w th rate, o r trad e w ars and tariffs) etc. ho w ever the tw o m o st d irect and ever-p resent risks are:

1.1. In ation (Purchasing Po w er) Risk – is the red uctio n in the p urchasing p o w er o f yo ur saving s d ue to the co st o f g o o d s and services. So fo r exam p le if in atio n is 3 % and yo u earn 1% in yo ur saving s acco unt – in a year’s tim e yo u have lo st 2% o f the value o f yo ur saving s.

MM o st p eo p le w e m eet are co m p letely unaw are o f the risk to their saving s fro m in atio n. They d o n’t think abo ut the p o ssibility that every year they co uld be ‘g o ing backw ard s’ as far as the value o f their cash is co ncerned .

2.2. Mark et (Cap ital) Risk – if yo u w ant to have a chance to beat in atio n – yo u m ust be p rep ared to see yo ur investm ent lo sing so m e o f its value in o rd er to tap into the m uch g reater g ro w th p o tential.

HH o w ever, the certainty o f alw ays having the am o unt yo u p ut in p lus so m e interest (ho w ever m eag re) is w hy m any p eo p le leave so m e o f their m o ney in a bank o r build ing so ciety, so as to balance their risks.

SAVINGS AND INVESTMENTS

What are the risk s to you r saving s and investm ents?

SAVINGS AND INVESTMENTS

Finding things other than cash to invest in has historically proved to be the best way for providing growth that outstrips in ation. Most common are Pensions and ISAs which provide great tax incentives to invest.

There is always a risk that these “stocks and shares” investments can fall in value but, when you invest over the long-term, there is more time to recover your losses.

INVEST MONEY IN STOCKS OR SHARES

Pros:

Cons:• It’s impossible to second guess the markets so don't be tempted to try to pick the perfect time to invest • The greater the return you want - the more you will have to accept the risk of getting back less than you paid in.

• Potential to increase the value of your money by more than in ation• Better potential returns mean you might not have to invest as much as if you leave everything in a bank or building society.• Your investments do not have to remain the same funds forever. So if you approach a time when you may need some more cash, you can switch funds into lower risk investments.

TimeINVE

STMEN

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LEAVE MONEY IN SAVINGSThis removes the risk of market ups and downs, but limits your ability to increase your funds.

If you need quick access to funds and are not requiring any signi cant increase in your equity, then leaving your money in a bank, building society or Premium Bonds would be a viable option.

Pros:

Cons:• Over time the purchasing power of your cash will invariably erode as the in ation rate is usually higher than the interest paid on savings.• You are forgoing the higher returns that are possible with investments.• Time is required to monitor your savings interest rates.

• Zero risk to your cash, so the original amount you start with (less any money you take out) will never be less than you paid in.• Quick-access to cash when you need it (unless tied up for better interest).• Very low costs to maintain your savings.• Worry-free solution.

TimeSAVINGS

What are the Pros can Cons of leaving money in Savings versus Investing in the Markets?

Passionate Ab out Pe nsions Low land Financial, 1 Gre e n Stre e t, Galash ie ls, TD 1 3AE 01896 751007 w w w .low land nancial.co.uk

Pe op le te nd to ignore in ation risk and conce ntrate on m ark e t risk , b ut it’s b oth of th e se tw o factors w h ich m ust b e tak e n into account to answ e r th e inve stm e nt dile m m a of “Am I prepared to tak e m ore risk to g et a better retu rn on m y saving s?”

AA critical p oint is to e stab lish a m ix b e tw e e n th e re lative ly safe Bank & Building Socie ty accounts, and inve sting in th ings lik e ly to grow m uch m ore – b ut w h ich w ill fall in value in line w ith m ark e ts from tim e to tim e (e .g. stock s and sh are s).

AA k e y p rob le m w ith inve stm e nts is th at m ark e t risk m e ans you could lose value at any tim e , and if th at h ap p e ns righ t at th e start - ie b e fore it h as h ad tim e to grow - it can tak e tim e to re cove r. H ow e ve r th e counte r to m ark e t risk - is m ark e t re turns w h ich can b e m uch h igh e r th an le aving m one y in th e b ank e tc.

IIf you do ne e d acce ss to your m one y in th e m e antim e , th e n w ith re gular re vie w s it sh ould b e p ossib le to anticip ate any one - off e xp e nditure (car, h oliday, h e lp ing fam ily e tc) and p lan ah e ad.

ButBut of course , h igh e r re turns cannot b e guarante e d in any w ay. Th e re fore you sh ould h ave a sp re ad w ith som e of your m one y in cash (for tough tim e s and e m e rge ncie s), w h ile th e re st can b e inve ste d. As a re sult of th e m ark e t risk , inve stm e nts sh ould e arn m ore and h op e fully grow th e value of your m one y ove r m ost p e riods.

Getting the rig ht balance

Ple ase call m y office on 01896 751007 or se nd m e a sh ort e m ail to g raem e@low land nancial.co.u k

INFLATIONRISK

MARKETRISK

SAVINGS AND INVESTMENTS

If you h ave savings and inve stm e nts, and you’d lik e to e xp lore w h at diffe re nt op tions are availab le to you, and th e re lative p ros and cons for you, th e n p le ase fe e l fre e to ge t in touch for an inform al ch at, w ith out cost or ob ligation.

What are you r options?