There are many reasons why people invest their money in real assets such as property and company shares commonly known as equities. The primary reason is the potential for a strong return over the long term. However, there are many other reasons why you should consider investing your savings as follows:
In a low interest rate environment, the money you hold in a bank or building society account will not earn a meaningful return. Since 2008, interest rates on traditional bank and building society savings account has been less than 0.5%. Conservative savers believe keeping their money in a bank or building society account, is the safest way to save. However, once inflation is factored in, (which has averaged 3.1% per annum since 1913), such investments have lost value in real terms.
Inflation, otherwise known as the cost of living, is the silent killer of your savings. Stock market returns have historically outpaced the rate of inflation. The average return on the S&P 500 (America’s primary stock index) of 10.265% per annum over the last 100 years, demonstrates why investing is the most effective way of protecting your money against inflation.
Einstein once made the point that compound interest is the 8th wonder of the world. He had a point. Compound interest (which is the combined effect of adding interest on top of the initial capital and then earning more interest on that interest and repeating over as a long a period as possible) can be one of the most powerful tools in helping you build up your savings. Let’s put that into perspective:
Let’s say you invest £100,000 which earns a 5% annual return. In year one, you would earn £5,000, giving you a new balance of £105,000. In year two you would earn 5% on the increased value of £105,000, which equates to £5,250, giving you a new balance of £110,250. Now let’s see the power of compound interest over 20 years.
This effect is further amplified when you add regular contributions to your investment.
You may be reaching a time in your life when you want to consider what to leave your children, or even start thinking about building up a nest egg for their future. Investing is one of the most powerful ways you can achieve this. You can set up an investment for your children and leave it to grow so they can make the most of it. Our investments offer complete flexibility in terms of how your children can access your funds. You can make the investment in your name and then pass it on to them when you die or you can set it up in your children’s name (subject to them having achieved the age of majority) and they can access it whenever you/they see fit.