Make your money work for the future

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

The rewards of investing in stocks and shares may outweigh any potential risks.

If you’ve been hoarding cash at home, inflation will do its best to devalue it, so it could be time to rethink your saving strategy.

We live in uncertain times – the COVID-19 pandemic and Russia-Ukraine conflict in Eastern Europe have affected supply chains, prices and, crucially, inflation – and this tends to make everyone tighten their belts and migrate to the safety of cash. However, simply keeping it under your mattress or in a savings account leaves it vulnerable to inflation.

Inflation measures how quickly the prices of everyday goods and services change, it was running at more than 10% in the UK at the end of 2022 with a further 4% inflation in February in 2024.1This means that, on average, the cost of food, fuel and even a simple haircut is considerably higher than it was this time last year. If prices rise quickly and wages don’t keep up, you can’t afford to buy as much.

To combat inflation, central banks tend to raise interest rates because this discourages borrowing and spending. If people aren’t spending as much and demand for goods and services falls, suppliers drop their prices, which helps curb inflation. The Bank of England raised its base rate to 5.25% in February 2024. But even the most generous high street bank will only offer you a savings rate of around 5% on an instant-access account2. Accounting for rising prices (4% inflation) the returns would be modest so it could be worth investing instead.

It’s never too early to start investing because it’s time in the market that counts (rather than market timing). If you can afford to save a little each month, you could invest in your future by making a regular contribution via direct debit to a Stocks and Shares ISA.

People are often wary of investing when the markets are volatile, but the low prices can make this a great time to buy for investors seeking higher returns.

There is strong evidence that investments deliver higher returns than cash, but investors must be prepared to lose money in the short term because markets can react to global events, recessions and conflicts. To get the most from your investments, it’s better to have a long-term strategy.

As investors gain knowledge and confidence in the markets, they might branch out from holding a diversified portfolio of UK and US companies to include more volatile sectors like emerging markets. There is still risk attached to any investment but, as investors become more experienced, they might be more comfortable taking a little more risk in the knowledge that they could see higher returns.

Risk: Emerging market investments are usually associated with higher investment risk than developed market investments. Therefore, the value of these investments may be unpredictable and subject to greater variation.

1 Source: Bank of England, 22 December 2022 & Bloomberg, 28 February 2024.
2 Source: Money Savings expert, 28 February 2024.