Rethink the cost of cash

In today’s uncertain markets, it is understandable that many investors are safeguarding their money by holding it in cash and putting their investment portfolios ‘on hold’ for now. But not focusing on your financial future today could mean your portfolio won’t meet your needs over the longer term. Therefore investors may need to reassess their portfolios and consider other investment options.

Erosion of purchasing power

Impact of hypothetical 3% annual inflation rate (assuming no interest return for simplicity) on the real value of cash.

This chart is provided for illustrative purposes only. If you place your money on deposit with a bank, interest rates may fluctuate but your original capital investment will remain constant. Past performance is not a guide to future performance. Source: BlackRock, DataStream.

"So what do I do with my money?"

Cash is an essential part of everyone’s finances and plays an important role in saving and investing. Inflation and taxes can erode the purchasing power – what you can buy with your money – on all investments, but historically returns on cash have struggled to keep up with inflation over the long run. That’s why you may need to reevaluate your attitude to risk and rethink your portfolio. We believe that even small steps to change your portfolio today can make an important difference in the future.

Rethink the cost of cash with Ewen Cameron Watt

Rethink the Cost of Cash with Ewen Cameron Watt

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Investors should be aware that moving out of cash in search of higher returns to meet their long -term goals will involve accepting a higher risk of capital loss. All financial investments involve an element of risk. Therefore, the value of your investment and the income from it will vary and your initial investment amount cannot be guaranteed. Further information regarding the risks of investment is provided at the bottom of this page.

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The opinions expressed are those of BlackRock as of October 2012 and are subject to change at any time due to changes in market or economic conditions.

This material is not intended to be relied upon as a forecast, research or investment advice and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any strategy in any jurisdiction in which such offer, solicitation or distribution would be unlawful or in which the person making such offer or solicitation is not qualified to do so or to anyone to whom it is unlawful to make such offer or solicitation. It is your responsibility to be aware of the applicable laws and regulations of your country of residence.

BlackRock has not considered the suitability of investment against your individual needs and risk tolerance. To ensure that you understand whether a financial product is available to you and whether it is suitable to meet your investment needs, please speak to your financial adviser.

All financial investments involve an element of risk. The value of your investment and the income from it will vary and your initial investment amount cannot be guaranteed. Past performance is not a guide to future performance and should not be the sole factor of consideration when selecting a product. Overseas investments may involve risk of capital loss from unfavourable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume.

Moving out of cash and safe haven investments in search of higher returns will involve accepting a higher risk of capital loss. In contrast if you invest your money in a bank/building society interest rates will fluctuate but your original capital investment will remain constant.

Diversification and asset allocation may not protect you fully against market risk.

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