By Grace Dandridge
Next year I am determined to get on top of my finances.
I have a small chunk of savings which are sitting in a bank earning very little interest. Concerned that my retirement is 15 years away, I wondered if there were better ways of getting financial returns. I want to hide the money away, so I can’t spend it.
Tom Orchard DipPFS, director and financial planner at Annetts & Orchard Ltd gave me some advice over the telephone.
“Cash savings are indeed earning very little interest at the moment, even for those diligent savers who shop around for a good deal,” Tom said. “Crucially, savings rates are currently below the rate of inflation and have been for many years. This means prices are rising faster than your savings can keep up with: therefore the real spending power of your cash is slowly being eroded over time.
“That said, cash savings still play a very important role. The first step in any Financial Planning exercise is to ensure that you have enough readily available cash to cover any known expenditure, plus any emergencies. So, if for example, you know that the car will need changing in two years’ time, or you are planning a kitchen refurbishment – that needs to be accounted for.
“Adequate cash savings means you do not need to revert to debt to cover an expected cost, and you are not forced to sell any investments at the wrong time.
“Once we have covered off the cash aspect, you could now consider investing the money for the potential of a better return. This could be via a pension, or a tax efficient product, such as a Stocks & Shares ISA.
“The key difference between savings and investments, is that, with an investment, you could get back less than you put in. An investment portfolio will fluctuate in value. The severity of these fluctuations can be controlled to a degree by agreeing to what is known as a ‘risk profile’ for your portfolio. The lower the risk profile, the lower the severity of the fluctuations will be, but the long-term growth prospects will also be lower. Conversely, the higher the risk profile, the greater the fluctuations, the higher the potential for long term returns.
“These portfolio fluctuations are why we suggest investments are only considered for money you can commit for at least five years.
“For help determining how much cash you should hold; which investment product would be suitable for you, and how much risk you should take, you should seek regulated independent financial advice specific to your circumstances.”
Grateful to Tom for his advice, I have made an appointment to get help. It will be nice to know I am doing the best I can with my savings.
Annetts & Orchard Ltd are authorised and regulated by the Financial Conduct Authority. Annetts & Orchard Ltd are on the FCA register (FCA number 820272).
Castle St, Salisbury SP1 1TT