Is investing right for you?

Rock-bottom interest rates are prompting some savers to consider investing

Couple sitting at table using laptop and phone

Rock-bottom interest rates are prompting some savers to consider investing for the first time in the hope of higher returns.

Advertisement

It’s been more than a year since the Bank of England’s Monetary Policy Committee slashed interest rates to 0.1%, the lowest level in the Bank’s 325-year history. Since then, savers have struggled to find returns which keep pace with inflation. According to analysis of Bank of England data by Aviva, £179bn has been added to cash deposits over the past year, despite instant access accounts offering an average return of just 0.05% – a record low.

Many people stick with cash savings accounts rather than investing because they are worried about putting a lump sum into investments only to see stock markets plummet.

lf you are considering investing for the first time, one way to make it less nerve-wracking is to consider making regular monthly payments, for example, paying in £50 a month. Jason Hollands, managing director at Bestinvest, said: “Investing regularly takes the emotion out of investing: it is all too easy to have your investment decisions clouded by current sentiment or events that shouldn’t really matter if you are investing for the long-term. It keeps you going through the ups and downs, ploughing through periods when sentiment is weak or over-confident. Investing then becomes part of your regular routine, like cleaning your teeth or getting up in the morning.”

Another advantage of Investing regularly is that you’ll buy more shares when prices are low, and fewer when they are more expensive, so over time, you should end up paying the average price, which can help smooth out market volatility. It’s also important to take a long term view, and remember that you should only invest for a minimum of five years, or preferably longer, to give your investments the best chance of riding out any stock market bumps. You’ll need to keep a separate cash buffer available which you can dip into in the event of any unforeseen expenses.

When investing, it’s vital never to put your money into anything you don’t understand, and choose investments which are appropriate for you. Myron Jobson, personal finance campaigner at Interactive Investor said: “Your investment strategy should align with your attitude to risk and your investment time horizon.

“The key for investors of all ages is to ensure that your portfolio is well diversified across assets, sectors and regions so that you are not overexposed to risk in any one part of the market.”

Many investment services offer ‘ready-made’ portfolios which can be a good option if you’re not comfortable choosing investments yourself. However, make sure you check the charges carefully and understand the risks involved. If you’re not sure where to begin, you may want to seek professional financial advice on the best options for you.

If you’re not convinced investing is right for you, make sure you seek out the best possible savings returns. According to Moneyfacts.co.uk, ICICI Bank UK, Virgin Money and Yorkshire Building Society all pay the joint-top easy access rate of 0.50% gross, with the ICICI Bank’s SuperSaver Savings Account requiring savers to have a HomeVantage Current Account to be eligible.

Advertisement

“As the savings market remains volatile, savers would be wise to consider challenger banks, which continue to take a firm place within the top rate tables, but also be mindful that a good deal doesn’t appear to last on sale for too long,” said Rachel Springall, finance expert at Moneyfacts.co.uk. “Savers who have existing accounts and have not reviewed them in some time may wish to do so, as they could be on a much poorer rate of interest than they expect.”