Britons are sitting on some £60billion in cash savings earmarked for the long-term but this is declining in real value at a rate of £1.5billion per year by not being invested, according to new research.
Fund management giant BlackRock conducted an extensive study on the saving and investing decisions of 4,000 Britons, discovering that of their average £8,700 held in cash, a quarter, at £2,270, is set aside for ‘long-term savings and investments.’
It says that higher inflation over recent months has seen this savings mountain eroded in real terms by over £600 million so far this year.
Britons are sitting on some £60billion in cash savings with many having no intention of investing.
If inflation were to continue at the 2017 average of 2.4 per cent, another £880 million could be lost between now and the end of the year, BlackRock said, which, as an investment firm has an obvious interest in more people investing.
The decision made by so many make to keep a large amount of their money as cash is not based on any lack of awareness that inflation exists or is getting sharper, however.
The survey found three-quarters of people predicting that inflation will rise further in the next 12 months.
Inflation compounded over 20 years would see the average £2,270 pot that Brits have set aside for long-term savings and investments depleted by over a third, or £860 per person, the study found. This amounts to more than £20billion for the nation as a whole.
Head of UK retail sales at BlackRock Jeremy Roberts said: ‘It is encouraging to see that over a quarter of Brits’ savings has been earmarked for long-term savings and investment. This is outside of money set aside for monthly expenses, upcoming events and emergencies.’
‘However, there is still an emotional barrier that stops us from taking the leap out of cash and into investing. If UK savers had invested their £2,270 pot of cash in the FTSE All Share over the last 20 years, it would be worth £8,350 today.
‘Even if they were to have invested a quarter of their pot in the FTSE All Share, they would still be £1,525 better off.’
Inflation in the UK is now running at 2.9 per cent, cutting into the real value of cash.
The survey identified a ‘particularly vulnerable’ group of 16.5 million people in the UK with savings. These ‘pinched’ savers as BlackRock dubbed them are least likely to feel in control of their financial futures, and only one in five of them said they feel knowledgeable about investing.
A second group which emerged was dubbed the eight million ‘pausers.’ These people did not rule out investing but said ‘now is not the right time’ to be moving any savings out of cash.
The final group identified was the ‘planners.’ BlackRock found three million savers in the UK who said they have ‘seriously considered’ moving some of their money out of cash and plan to do so in the next six months.
What you can do to make your money work harder
It is one thing to recognise a problem but what can be done about it?
If you have a chunk of money you’ve set aside for the long term and don’t fancy watching it dwindle in real value as the months and years roll on, it’s actually an easy and cheap thing to fix, as long as you are willing to take some risk with it.
This is Money has put together both a free investment guide and picked out 50 good fund options with the help of investing experts.
Below are some options for easy investing.
Get a broad tracker fund
If you are just dipping your toes in the water of investing and are also cost conscious – in terms of how much of your money you are prepared to see an investment firm pocket – a broad passive tracker fund or exchange-traded fund is a good place to start.
These can deliver returns directly linked to a major stock market such as the FTSE 100, or America’s S&P 500 index, or better still invest all around the world at a low cost.
If you sign up to one of the several well-established UK DIY investment platforms you could be up and running in a few minutes.
You can then select ETFs or passive funds from the likes of iShares or Vanguard for as little at 0.07 per cent of your money per year in fees. Do not pay much more than this for a standard developed country index tracker, there’s no need – beware those with fees approaching 1 per cent. Global trackers will cost more, but spread your money around the entire world.
Here are a few options:
Vanguard’s FTSE All-World UCITS ETF follows the FTSE All-World index, investing in almost 2,300 companies around the world, including emerging markets. It has ongoing charges of 0.25 per cent.Blackrock’s
iShares MSCI ACWI UCITS ETF tracks the MSCI ACWI index, investing in stock markets around the world, including emerging markets. It has ongoing charges of 0.6 per cent.
Both these ETFs invest in stocks and shares across a total of 47 different developed and developing countries – weighted by the size of the country as part of the global stock market, so the US makes up more than half of the respective portfolios.
The Vanguard LifeStrategy funds allow investors to choose their risk levels and then buys a basket of assets that suits them, across shares and bonds around the world. They are cheap, simple and allow investors to move from the cautious end of the scale at 20 per cent equities, to the high risk at 100 per cent equities. Ongoing charges are just 0.22 per cent and the more cautious options would hold 40 per cent equities or less.
Use a robo-adviser
The difference here is that you can choose a level of risk you are comfortable with and the service will automatically invest your money across a range of assets rather than just one or two indices to reduce the short term risk.
This additional protection doesn’t come for free though. Fees are significantly higher than a FTSE or S&P tracker, ranging from around 0.45 per cent to 1.1 per cent a year.
However, for that extra cost you get someone else to decide where you should invest and run your money for you, keeping track of market conditions and opportunities, delivering a hands-off approach.
Pick a broad active fund
If you are feeling more adventurous and don’t mind splashing out a bit more of your money in return for having specialists picking exactly which individual companies your money goes into, you could choose an active fund.
Again this is best done via opening an account on one of the investment platforms.
Given you have been holding onto cash, it is likely you want to take a cautious approach as you start investing. If this is the case, here are a few decent active fund options, which give a nod to caution and protect against short term falls, picked by our experts.
Rathbone Strategic Growth Portfolio
Ongoing charges: 0.5%
‘Rathbone Strategic Growth Portfolio is one of the new breed of funds that target risk and then look to maximise returns,’ says FundCalibre’s Darius McDermott. ‘It is a fund of funds with the manager selecting what his team like to call ‘best of breed’ funds – whether they are actively managed open-ended funds, investment trusts or index funds. This fund is targeting a risk of around two thirds of equities, so investors are shielded somewhat during market downturns.’
Ongoing charges: 0.64%
‘This fund has an approximate 70:30 ratio between holdings in fixed income and equities, with the allocation actively managed and a focus on risk control and capital preservation,’ says FundCalibre’s Darius McDermott. ‘I really like the fact that the managers attend company meetings together and decide not only whether or not to invest, but if the investment would be best made via the company’s equity or debt. While exercising caution and diversification, the fund has a record of consistently outperforming the sector average and is a strong contender for cautious investors.
M&G Episode Allocation
Ongoing charges: 0.88%
‘A cautious fund is one that is spread across more than one asset class, and which restricts how much can be in the stock market’, says Fund Expert’s Brian Dennehy. ‘Most suitable for either a novice investor or someone who would find the day to day ups and downs of the stock market too volatile.
Newton Real Return
Ongoing charges: 0.79%
‘Newton Real Return manager Iain Stewart focuses on capital preservation first and then capital growth second’, says Architas’ Adrian Lowcock. ‘This is because he believes it is easier to grow your capital if the value hasn’t already fallen. I.e. if £100 falls to £90 it would need to grow just over 22% to get to £110, whereas it only needs to rise 10% from the original £100 investment a much smaller ask. Stewart runs a core portfolio of blue chip large UK companies and then compliments this with exposure to cash and government bonds to keep the volatility down and protect the portfolio.’
Pyrford global total return
Ongoing charges: 0.81%
Pyrford global total return invests in a combination of shares, government bonds and cash with the aim of delivering attractive long term growth with less volatility than the stock market and was chosen by Mark Dampier of Hargreaves Lansdown. In its Wealth 150 report, it says: ‘They adopt a disciplined and long-term approach, which is all too rare in the investment world, and we consider it cautious at heart. This fund could sit at the core of virtually any investment portfolio.
Personal Assets investment trust
Ongoing charges: 0.93%
‘Here you would be looking for a flexible trust with proven ability to protect client capital in more volatile market conditions’, says Canaccord Genuity Wealth Management’s Patrick Thomas. ‘The trusts we like have a relatively low correlation to broader equity markets. We have been long term investors in RIT Capital Partners which provides attractive exposure to areas like property and private equity. That said there is reasonably large premium on this trust. Personal Assets Trust is a defensively positioned trust with a relatively low exposure to equities and positions in index linked government debt and gold. It has proven resilient in more challenging market conditions (eg 2008) and operates with a zero discount policy.’