Making your Money Work

A year of uncertainty

Political uncertainties make for market volatility and, if last year told us anything, it was that any prediction, however confident, can prove wide of the mark.  In this climate, investors need a plan that can withstand all eventualities – especially since savers will find themselves between record low interest rates and rising inflation.

At the start of 2016, markets expected the Bank of England to raise base rates by the year’s end.  Due to the Brexit vote, however, rates were halved in August to 0.25% - their lowest level ever. Since lenders will not need to attract savers for funds in the short term, savings rates will remain correspondingly low.

Savings rates at record lows

Saving rates are at the lowest ever recorded.  The average no-notice savings account is paying 0.40% according to interest rate data provider Moneyfacts.  At that level, a deposit of £250,000 would earn a mere £1,000 in annual interest.  For cash ISAs, the average instant access rate has fallen to 0.73%.

Other options

If you want your money to work harder for you, there is little role for cash beyond an appropriate amount for emergencies.  The Barclays Equity Gilt Study 2016 shows that the stock market has outperformed cash in 75% of all the five year periods since 1900, rising to 91% of the 10 year periods.

Spreading your risk

While some level of risk is needed to generate income, risk is mitigated by being spread across different asset classes and geographic areas.  These can include equities, fixed income, property and alternative assets to create a well-balanced and diversified portfolio.

Bear in mind that one of the first steps towards satisfactory returns is making sure that your investments are as tax efficient as possible.