Welcome to my site about making more of your money. You may like to subscribe to the RSS feed for the latest articles. Thanks for visiting!
Cash is the safest place for your money in the short-term.
Sounds obvious, but cash is money. Shares, property, bonds, gold and pension funds are all assets whose value constantly fluctuates according to the whims of their markets. You can only be certain what such assets are worth when you come to sell them.
In sharp contrast, while the real value of a £20 note will go down due to inflation over the long-term, short-term it’s the safest store of value there is. You know it’s worth exactly… £20.
The price for this safety is you can expect lower returns from cash compared to investing in shares, over periods of five years or more.
Note that I’m talking here about keeping the interest you receive in the savings account, to benefit from compound interest over time.
If instead you spend the interest you receive, the real value of your savings will go down with inflation. Right now that would mean your cash would lose 3-4% of its spending power every year.
Despite the low returns, everyone needs some cash stashed away for a rainy day – or more specifically for when the roof leaks and you need to get it repaired.
You’ll also want cash savings for near-term known expenditure, such as school fees or a house deposit. You don’t want to lose your dream home because the stock market happens to be having a bad month when you come to buy, for example.
You might also keep some proportion of your long-term investment money in cash, depending on your views on the stock market, and increase the proportion in cash savings if you’re feeling very gloomy.
Just remember, over time you risk losing out to inflation, so you really want your long-term money in assets like shares or property.
Cash savings are the simplest of investments, but there’s still plenty to cover. Let’s get going.
