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Are you losing money in real terms?

Record low interest rates and an inflation figure of 3.2%*, means the nation’s cash savers are struggling to get anything like a decent return on their money meaning they will be losing money in real terms, as the purchasing power of their money reduces.

According to the new FCA Consumer Investment Strategy, 8.6 million people are saving more than £10,000 in cash which for many could be working much harder if invested.

Many savers view investments as far too risky and flee to what they believe is the safe haven of cash

Conversely, the pandemic also saw a new breed of investor emerge, as some of those with additional savings chose to pile these newfound funds into higher-risk investments, leaving themselves open to heavy losses or even online scams due to their inexperience.

Investments have never been more accessible, and you can now buy and sell securities, including complex products like options and other derivative contracts, at the click of a button.

Financial advice can improve how you invest

The UK’s advice and guidance gap has led to consumers making choices that are unsuitable for their needs or disengaging from their finances and making no choices at all.

  • 45% of those who had invested without advice did not understand that they could lose money**
  • 24% of UK adults have little or no confidence in managing their money
  • 46% have low knowledge on financial matters.

At present only 8% of the nation has received financial advice, which is worrying when it can have such a dramatic impact on someone’s financial life. Advice is about far more than just investing: it’s about taxation, investment choices and helping people to navigate emotions, behavioural biases, and the practicalities that life throws at them.

Beware of scams

According to the FCA, consumers lost £570 million to investment scams in the 2020/21 financial year. It’s important to have the tools to spot investment scams – if an investment proposition offers an unrealistic rate of return and downplays the risks or puts you under time pressure then it is more than likely a scam.

Discover what to look out for when investing

Heather Owen, financial planning expert shares her top tips for investors:

Please remember, everyone’s circumstances are different, which is why taking personal financial advice is so important.

Diversify, diversify, diversify:

“The first rule of investing is to diversify your portfolio to reduce the risk. For example, buying one single stock is incredibly high risk as you are putting all your eggs in one basket, whereas buying a range of shares can diversify the risk. Diversification extends beyond just shares. Having a diverse asset allocation including bonds, property and alternatives is a good way to go.”

Understand what you are investing in:

“The investment universe is enormous and growing at a rapid rate. From Cryptocurrencies to commodities and everything in between. But do you really know what you are investing in? Are you actually investing in the underlying assets, or simply a derivative of that asset? If you are leveraging the investment, do you understand that you could lose more than your initial investment?”

Have a realistic plan:

“You need to know how much you can realistically set aside each month to invest, understand your capacity for loss, and get exposure to a suitable amount of risk given your investment objectives. For instance, if you want the money you’ve built up through investing in the next five years, then reduce the amount of risk. If you want to get rich quick, then investments are not for you.”

Beware of social media money ‘mentors’:

“Anyone can set up a social media profile and start handing out investment tips and advice. We see a growing number of people acting as investing ‘mentors’, who provide trading and investing tips, at a cost. They will often pose as successful day traders, but the reality is anything but. If they do not appear on the FCA register, then it is likely that they are providing advice without the necessary permissions.”

Remind yourself of scam red flags:

“Investment scams facilitated online and on social media are becoming more and more prevalent. Be wary of an investment proposition that offers an unrealistic rate of return, which downplays the risks or puts you under time pressure to make a decision. If in doubt, check the FCA’s register and make sure you a dealing with a regulated financial services firm and remember, if it seems too good to be true, it probably is.” For more information visit https://www.fca.org.uk/scamsmart

The content of this document does not constitute investment advice and should not be construed as such.

Quilter Financial Advisers

If you don’t have an adviser, you can get in touch with one of our financial experts.

Is a cash ISA still worth having?

People in the UK hold billions of pounds in cash ISAs even though the average rates of return are currently below the rate of inflation.


*September 2021
** Source: Financial Lives 2020 survey: the impact of coronavirus (fca.org.uk)