We work very hard to accrue our wealth, so naturally we want to see our finances flourish and develop. That raises the question: how best should we grow our finances?
Many people are drawn to banks to save their money, opting for the chance to get some interest and their money back. But in a time of rising inflation, such savers may be watching their money devalue over time. The wealth of many people in the UK is under threat, as inflation has risen past interest rates to slowly reduce money’s buying power.
With inflation vastly outstripping savings account returns by 2%, it may be time to seek out other more valuable options to invest.
Equities are much more likely to produce higher returns than cash deposits. The most recent Equity Gilt Study released by Barclays found that since 1899, British stocks have returned 4.9% a year in real terms, compared to 1.3% for gilts and 0.7% for cash. Over the last decade, the respective figures are 5.8% for stocks, 2.7% for gilts and a lowly -2.5% for cash.
An investment kept for five years at any stage has a 76% chance of outperforming cash, which is no small margin. Further, if the holding period is extended to ten years, the figure climbs up to 91%. The Barclays study also found that reinvesting income dividends is crucial to long-term returns.
With cash suffering from a steady decline as time goes on, it may be better to look towards other avenues of financial development as a way to diversify savings and help them grow.
It is important to remember the value of investments or income from them may go down as well as up.
19 June 2019
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