Cash vs Real Return
Listed Under: News
A key part of any financial plan is to consider how you can protect your hard-earned savings from the ravage of inflation. Keeping your cash ‘under the mattress’ will see the value of your savings fall in real terms due to inflation. In July 2023 the Bank of England (BOE) rates rose to 5%, meaning that savers should be seeing greater returns from their cash. However, whilst many banks were quick to raise mortgage rates, many held back on increasing interest rates on products such as cash ISAs or fixed rate bonds.
Time in the market and not timing the market
During periods of pronounced downward volatility, it becomes temping to exit the market in an attempt to ‘reduce risk’. However, this can be the worst time to do so for several reasons. Future returns are often more attractive once markets have fallen but a big decision relies on re-entering the market at the right time, however the average investor typically waits too long to do so.
Markets can turn quickly and being out of the market for even a short period of time can significantly reduce your returns. The best days tend to follow the worst. A study showed that if you invested £10,000 in 1999 but missed the 10 best days of performance, you would have a return nearly 50% lower than if you remained invested, which shows the importance of time and patience when investing.
Should you switch into cash?
Cash can play a huge part in your overall financial plan, depending on your situation, your appetite for risk and your investing time horizon. However, overall, a more sensible approach is to remain focused on your long-term financial plan, remaining invested and ‘ride the waves’.
If you would like to discuss the above in more detail, please contact us.