For savings & investments
It has been a depressing time for savers in recent years with interest rates at rock bottom lows. Some savers have got so fed-up with seeing no return on their years of saving that they have opted to try new, more “risky” investments. Others, are still holding tight for a brighter tomorrow and keeping their money in close range, just in case it is needed, or for the fear that by placing it elsewhere, it may disappear all together. Are financial rewards possible without risk?
The “rainy day pot”
The rainy day pot is good practice for financial management. Having a stash of cash, within easy reach, should it be needed for unplanned eventualities, gives you and your family financial reassurance.
A guide would be to have three months of either your salary or at least your monthly outgoings, i.e; mortgage, living costs, school fees, average credit card bill, car running costs etc.
It is great to earn a few quid on any investment, even your back-up reserves, however, the difficulty often comes when needing reasonably instant access to the funds as well.
Everyday savings – where is best?
With everyday savings some options give better returns, some are higher risk and some have restricted access. It is a case of finding a balance that suits your style taking into account your requirements and your attitude to risk.
LOW RISK MEDIUM RISK HIGH RISK
Regular current accounts
Most people don’t even know the rate of interest on their current account, as it is so minimal.
However, it is instant access so low risk – you will at least get back what you put in!
Deposit savings accounts
Traditional savings accounts often have access restrictions of between one and five years.
As rates are not attractive at the moment, savers are not generally impressed with this
option – it’s still low risk but it’s higher hassle!
Other current accounts
A number of banks now have started to offer higher rates of interest on current accounts with a minimum balance of usually a few thousand £’s. There is typically a minimum monthly requirement for deposits into the account too, however interest can be around 5%, compared to under 2% for a typical deposit account. No access restrictions makes this a low risk and higher return option.
Cash ISA’s
ISA’s are another means to save, and tax efficiently too. Since the rules changed, the entire allowance, 2015/2016 is £15,240, can be invested into a Cash ISA, perfect for low-risk investors. Unfortunately, ISA rates are pretty depressing right now so other accounts are proving to offer higher returns. Income earned from an ISA is tax free though.
Stocks and Shares ISA’s
Stocks ISA’s are dependent on the performance of the stock exchange, which does increase the risk factor. There are less risky stock investment options though for investors who are keen to increase their returns but not stand to lose everything either. Considered a medium to high risk investment, where returns can be significantly higher than a Cash ISA or a current or deposit account. However, investments can also decrease in value too.
Combination ISA’s
The middle ground with ISA savings is to split the annual allowance between a Cash ISA and Stocks and Shares ISA. This allows investors to still keep their “rainy day pot” close to hand and not put all their eggs into one basket. This spreads their investment between low and high risk.
Which type of ISA would suit me? Complete our Risk Assessment Questionnaire and call our team to arrange for a qualified financial adviser to analyse the results with you.
Long-term investment options
High risk investments
Other higher risk investments can give higher returns although access is typically restricted. This could involve foreign investments, high yield NCD’s and bonds, as examples.
For any investment that involves high risk it is suggested to work with a professional financial adviser who can help minimise risk and maximise reward whilst helping to manage your portfolio.
Property as an investment
Investing in property can be lucrative too however, usually over the longer term. Sure, it is possible to make a quick buck, with the right property and the right market conditions, however it takes planning and isn’t guaranteed. Money can in fact be tied up in property for decades.
So, is reward without risk reality or fiction?
Low-risk investment products, like savings accounts, are at present not producing high returns, so low-risk investors are almost certainly going to be stuck with low level rewards. Therefore in current market conditions, reward without risk is more fiction that reality.
Taking a step up the risk ladder, without going right to the top, could increase the chances of a higher rewards, however, there are no guarantees. At the end of the day, investors need to be comfortable with their risk tolerance and prepared for all eventualities.
Before you go…
Don’t forget to download our free FactSheet looking at short, medium and long term investment strategy.
Dental & Medical Financial Services have expert knowledge of investment planning. Call to speak with Darren, specialist and independent financial adviser.
Tel: 01403 780 770