This is not a new Children’s TV programme or the must have toy for Christmas, this is about the low interest rates provided by banks and savings accounts and the number of underperforming funds that have Billions of pounds invested in them.
The lockdown and fears over the severity of the economic impact of the Covid-19 pandemic have caused households to hoard record levels of cash and miss out on investment income, according to a study by Janus Henderson Investment Trusts.
We recommend you hold an emergency fund or contingency cash to protect against unforeseen events or costs and this should be between 3-6 months’ income.
Cash left in a savings or bank account will remain safe however, it is unlikely that it will increase in value and in fact, the value or purchasing power will be eroded over time by inflation.
The chart below demonstrates the impact over 20 years using the UK Consumer Price Index (CPI) inflation data.
A further example of this is given in the graph below:
The purchasing power of this capital would have reduced to £90,369 after 5 years and £80,000 after 10 years, based on a rate of inflation at 2.5% if the funds were held in cash.
If these funds were placed in an NS&I Income Bond with 1.15% growth per annum (this growth rate is going to reduce), then the same funds would have a purchasing power of £94,708.
An investment with a return of 5% each year would have a gross value of just under £160,000. It’s important to note the 5% investment return isn’t guaranteed each year and some years this could even be negative and your returns could be lower.
If you are risk adverse and want safety then it is worth considering the NS&I products and we can provide advice on this. If you would like to consider investing as you have excess money in the bank or languishing in a Cash ISA, then give Parker Kelly Financial Services a call or email us at firstname.lastname@example.org.
The first meeting is free and we will assess your attitude to risk and capacity for loss and only recommend an investment if it’s suitable for you.
Spot the Dog
For those of you who do have money invested, it is vital that you know where your money has been invested. The number of underperforming investment funds jumps by a ‘staggering’ 65% since Covid-19 according to the ‘Spot the Dog’ report.
The report, which has been published regularly since the mid-90s, names and shames the “worst-of-the-worst” retail stock market investment funds that have consistently delivered poor returns in the markets they invest in.
To be included in the Spot the Dog report, a fund must have delivered worse returns than the market it invests in for three consecutive 12-month periods in succession and by more than 5% over the entire three-year period assessed.
This can impact you in a variety of ways, you may have a Stocks and Shares ISA or General Investment Account which has money directly invested in one of these funds or your pension could be invested in one if you have a defined contribution pension. How often do you check and read where your pension is invested?
Parker Kelly Financial Services will review your investments and provide analysis on their suitability for you. The first meeting is free and during this meeting we can talk and see if we can help you.