"HatTip" - "A Tax On Stupidity"

It remains one of life's oddities that the very people who must invest are typically those least inclined to do so. Many such people choose to shun investment "risk", preferring instead the illusory safety of cash.

This is probably very true at the moment: markets are apparently volatile; one can almost hear the waves of relief as nervous "investors" sell their portfolios to cash until things "settle down".

However leaving money to languish for years in a savings account is not a sensible, low-risk option. What is sensible is having a coherent investment strategy, aligned to your needs and goals, that will at least give your money the potential to grow over the long term and thus help protect your lifestyle in retirement (in no way guaranteed etc).

Don't be a dummy

That is the idea, at least. Unfortunately human beings are wired to avoid unpleasant experiences. And few things are more unpleasant than seeing your investments plummet in value, as they periodically will (that is guaranteed, by the way). To avoid this unpleasantness we choose instead to leave the money in the bank, even when interest rates are derisory, as they have been now for over six years. Madness!

And this fear of loss leads people to make daft decisions.

Research consistently shows that UK savers would rather miss their goals entirely than take on any investment risk in order to help reach them. But leaving money in the bank is inherently risky; in real terms (allowing for inflation), the average Cash ISA fell in value by 12% in the post-crash years through to December 2014.

This is why Cash ISAs are apparently labelled as a "tax on stupidity" by some in the banking sector; perhaps a blunt description but one that is hard to disagree with.

So we have people who:

1. are knowingly choosing a reduced quality of life by not investing to achieve their goals
2. are unknowingly seeing the value of their cash savings fall year in, year out, thanks to the insidious effect of inflation.

This conservative hoarding of cash for the illusion of safety is madness, even reckless, when seen in this light. Proper financial advice, centred around a highly personal Lifetime Financial Forecast, can demonstrate to you the consequences of applying differing investment strategies to your savings. Combining this with an advisory relationship focused on investment education will then help you stay on course - especially when the markets next tumble (as they surely will).

Cash is the investment killer: tax and inflation are the accomplices. Are your dreams being sacrificed on the altar of "Reckless Conservatism"?

{This article is not specific financial advice aligned to your unique circumstances and requirements. If you act on any of the above without first reading your own body weight in Key Features Documents, personal illustrations and fund fact-sheets then you may well be struck down by lightning.}
© 2016 Nick Lincoln