1. Having too much cash savings can be more of a risk than you think.
Its hard to imagine that having a lot of cash can be a bad thing, but for a long-term saving strategy it can be a bigger risk than you think.
2. Inflation will slowly erode the spending power of cash.
The current interest rates being paid on savings accounts are not up to scratch with inflation, meaning that holding your assets in cash will cause it to slowly lose buying power as inflation increases.
3. Low interest rates will provide very little if any returns.
Low interest rate environments exist with the intention of stimulating economic growth. This is because they make it cheaper to borrow money to finance investment in both physical and financial assets.
Anyone putting money into a savings account or a similar vehicle won’t see much of a return on their assets during a low interest rate environment.
4. Your overall asset allocation may not be in line with your attitude to risk and capacity for loss status.
One of the first steps of any financial plan is assessing your attitude to risk and capacity for loss.
What this essentially means is, how much risk are you willing to take with your assets and how much can you afford to lose because of this risk without it being detrimental?
Holding your assets in cash may be riskier than you originally factored in to your financial plan, and could cause your finances to run out if you’re retired and dipping into your pot.
The best approach to this is to speak to a financial adviser to go through your current situation and discuss your long-term plans, goals and objectives. An adviser will also assess your attitude to risk and capacity for loss, and work out where you should be holding your assets according to this.
5. You could be making your money work harder.
As we mentioned previously, holding your assets in cash could eventually lead to them running out if you’re dipping into your pot regularly.
Essentially this means your money isn’t working as hard for you as It should be – your pot can slowly dwindle away over the years, especially when you factor in inflation, instead of maximising the potential growth of your pot.
6. Profit is in the market.
Holding some of your savings in cash for short-term or unexpected expenditure is perfect to cover costs like a holiday or replacing a broken boiler. That being said, if you’re looking for a more long-term savings plan and want to build your wealth for the future, it’s definitely worth considering investing.
Stock markets tend to perform better than cash over the longer-term – this can’t be guaranteed however as stock markets fall as well as rise, so you could get back less than you invested.
That’s why having a combination of cash and investments is often the most suitable financial solution for a lot of people, and the finer details are often worked out during a meeting with a financial adviser.
7. Investing could be simpler than you think.
The choices available when it comes to investing are huge – there are many different asset classes and savings vehicles you can use, and it can seem intimidating at first.
But it could be a lot simpler than you think, with a managed investment portfolio tailored to your own goals and attitude to risk.
At 7FP, we offer an ongoing investment planning service where we help you choose where you want to invest and how to achieve your financial goals. Your investment portfolio is constantly managed by us, to make sure it always suits your personal circumstances and stays on track to achieve your objectives.
Get in touch with us today to start pointing your finances North East!