Why investing savings is worth the risk

None of us likes to gamble with our savings but the truth is there is no such thing as a zero risk investment.

Monday, 4th April 2016, 9:49 am
Updated Monday, 4th April 2016, 10:56 am
Keep some rainy day money when setting up investments

You are always taking on risk when you invest but the amount varies between different types of investments.

Money paid into deposit accounts generally lose value over time. This is because the interest rate paid will not always keep up with inflation. You could try index linked plans as these investments follow the rate of inflation. But you could come unstuck with these investments as inflation could fall to very low levels and market rates could be higher.

It is also not true that at least with deposit/zero risk investment accounts your money is totally safe. The amount the government covers savings with one institution is £75,000, but it does depend on the government to be able to cover this. As yet the state has not defaulted on this commitment but I would imagine the return of the financial crisis of 2007/08 could make it very difficult for them. I suppose you could fall back on keeping your money under the bed, but I don’t think this is a good idea as I think it would move your low risk investment to very high risk indeed!

With national savings accounts falling further and the chances of you winning on the premium bonds also lessening, I believe that for many it is worth considering moving out of the comfort zone of so called zero risk investment, however before doing this I believe you need to be able to commit to investing for at least five years. Also I think that it is worth keeping cash, that I called “rainy day money” to ensure you have enough money around you to pay for items that may break down and need replacing. The main reason for this is that you don’t want to be drawing money from investments, particularly during the early years, having just paid charges to get into the investment.

Finally, it is worthwhile spreading your risk by putting your money into a number of different products and asset classes. That way, if one investment doesn’t work out as you had hoped you have still got have others to fall back on. This type of diversified investment I believe in the long run is likely to outpace so called zero risk investments and maintain your capital in real terms.