Soon we’ll not be supporting this browser anymore.
This means our website may not look and work as you would expect. Read more about browsers and how to update them here.

Skip to main content
  • Register
  • Help
  • Contact us

4 reasons why I stopped relying on cash savings only

Here are four reasons why I stopped relying only on cash savings and started the journey to investing with confidence.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Like lots of other women in the UK I used to put all of my savings into a Cash ISA and a regular savings account. This was ‘just in case’ I needed to access it.

And when Covid turned up, I was glad that I had something to fall back on.

But I realised quickly that my money wasn’t working as hard for me as it could’ve been, had I given it the opportunity to.

And slowly, my sole reliance on keeping all of my savings in cash began to disappear.

Here are four reasons why I stopped relying only on cash savings and started the journey to investing with confidence.

This article isn’t personal advice, so if you’re not sure what to do, please ask for financial advice. Investments can fall as well as rise, so you could get back less than you invest.

Reason 1 – I embraced financial coaching

I remember the first time I sat in front of a financial adviser.

I was 25 and had spent my early career talking to young women about the importance of saving and investing.

How ironic, that I didn’t practice what I would preach.

I walked into my initial meeting excited and ready. I wanted to start investing and putting more money into my pension and I needed someone to help me get a head start.

When I left my meeting, I felt like I had only just scratched the surface, but at least I had a plan.

It turned out that I wasn’t necessarily ready for long-term financial ‘advice’. But I was ready for financial planning and the coaching that came with it.

The outcome was simple – get debt free, build up emergency cash reserves and then think about investing.

When the time came to start making the most out of my savings though, I made the mistake of keeping my money in cash for too long due to first-time investor jitters.

Hindsight aside, being able to speak to someone about my personal goals, and how I wanted to shape my financial future, made all the difference when I did finally decide to start investing.

Reason 2 – I became better at planning

Saving money in cash has its benefits, but you shouldn’t have it all in cash.

If you’re thinking you should hold money in cash to cover short term and unforeseen expenses, you’re right. It’s important to keep some of your money in cash, particularly as you enter retirement.

Although the exact amount will depend on individual circumstances. Holding between 3-6 months of expenditure to make sure you have enough to cover any emergencies is usually a good idea.

If you’re retired, that pot should be slightly bigger – it’s worth considering around 1-3 years’ worth of spending.

A Cash ISA could be a good place to keep your emergency fund as long as you can access it quickly, like through an instant access account.

Once you’ve built up your emergency fund, you could then think about any costs coming up over the next five years – this could be something like planning a holiday or buying a new car. To make your money work a little harder, you could think about holding this portion in fixed term savings accounts. While your money will be locked in for a certain period, it could help boost how much you get back.

After building your emergency fund and allowing for any big purchases over the next five years, you could then think about investing.

Investing involves spreading your money across different areas which aren’t cash. It can help you to grow your money over the long term. But you should ideally only be investing money that you won’t need for at least five to ten years.

Remember, unlike the security offered by cash, investments can fall as well as rise in value, so you could get back less than you invest.

Finally, you should think about your longest-term savings, like your pension. If you have a workplace pension that you pay your contributions into, you should carry on doing so. And if you can afford it, you might even want to increase how much you’re paying in.

If you’re a UK resident under the age of 75, you will normally have an annual pension allowance of up to £40,000. And if you haven’t used all of the previous three years’ allowances, you might be able to carry any unused allowance over to this tax year.

Not only are you future proofing your immediate future, you’re preparing for your later life income too.

It’s never too early to start thinking about your pension, nor is it too late.

Remember though, you can't normally take money out until age 55 (rising to 57 in 2028). When you can access it, up to 25% is usually tax free, the rest is taxed as income. Tax rules can change and the benefits will depend on personal circumstances.

Reason 3 – I gained knowledge

Even if you’ve decided that you do want to invest, it’s easy to get put off by all the jargon, or not knowing where to start.

I dipped my toe into investing by picking my first fund because I liked the name. I then realised that probably wasn’t the best way of doing things. So I looked at HL’s Wealth Shortlist – a shortlist of funds picked by our analysts, designed to help investors build well-balanced and diversified portfolios.

I knew that I was slightly risk-averse and instead of buying individual shares in a single company, which is higher-risk, I chose funds. That way I could leave the day to day management to the experts, but at the same time pick which areas I wanted to invest in. I regularly review these to make sure the funds continue to meet my tolerance for risk, goals and aspirations.

Diversifying came next.

There's no rule which says that you have to have a balanced, diversified portfolio. However, different areas, investing styles, and types of investments can perform differently at different times. If you choose funds that all invest in the same way, you'll probably only be right some of the time.

The value of some of your holdings will likely fall at some point. But holding a well-thought-out portfolio that includes lots of different types of investments reduces the impact of any one area performing poorly. It means you’re more diversified.

I also learnt not to be scared of market dips.

When there’s a dip in the stock market, funds or stocks, some argue this is the best time to invest. Effectively the price shares and funds drops, meaning you could get more for your money.

I changed my mentality of thinking of ‘dips’ as losing money, to thinking of them as potential opportunities for higher gains when stock markets rise again over the long term.

How to build an investment portfolio

Reason 4 – I wanted to be more confident reaching my long-term goals

I knew there was a risk my investments would fall as well as rise. But I also learnt that, unlike investing, there was almost no chance that my cash would rise.

It all has to do with inflation.

Inflation’s a measure of how much prices have gone up over time. It’s the rate cash becomes less valuable – £1 this year will get you further than £1 next year.

Unless your cash savings account has an interest rate that exceeds inflation, you’re effectively losing money. This is because your ‘buying power’ reduces.

It’s ok to take a bit of a hit from inflation on your short-term cash savings as it gives you the security that investing isn’t able to – especially as inflation is currently only 0.4%. But over the long term, it can add up and have a serious impact on how much your money’s worth in the future.

The Bank of England have a target for inflation of 2%. While it’s nowhere near that now, it could be in the future. And any cash savings products will have a hard time beating that.

Investing in a diversified portfolio for the long term on the other hand, will likely struggle less.

Over a number of years, even through the ups and downs, your money has a better chance to grow, meet, and even overtake, inflation.

Here’s an example.

If you invested £100 a month over a 20-year period, assuming a 5% growth rate and charges of 1.25% (medium expected growth rate), you could potentially grow your money to £35,415. If you waited a year to start investing, that value would drop by almost £2,500. If you just saved your £100 a month in an account paying no interest, after 20 years you’d only have saved £24,000. This is just an example, past performance is not a guide to the future and your performance will vary depending on the underlying investments.

The idea of investing in stocks and shares is that over a longer period of time, your money takes advantage of the potentially higher returns. It’s about weathering the storms to help reach those goals.

Financial advice helped me, and it could help you

If you feel like you want a little more help with planning your finances and investing, you could always ask for advice. Not only will they be able to help you with one-off advice when it comes to your goals, you’ll only pay for the advice you need.

If you’re wondering if advice is right for you, and what the cost of advice would be, you can speak to our Advisory Helpdesk. They’re there to answer your initial questions, although they won’t give you any personalised advice. If you decide advice is right for you, they can pass your details onto one of our advisers who can then speak to you about your personal circumstances.

What did you think of this article?

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Editor's choice – our weekly email

Sign up to receive the week's top investment stories from Hargreaves Lansdown. Including:

  • Latest comment on economies and markets
  • Expert investment research
  • Financial planning tips
Sign up

Related articles

Category: Funds

Global stock market and funds sector review – an improved but uneven outlook

As the global economy continues to recover from the impact of Covid-19, we look at how different regions around the globe have been coping, and how global funds and stock markets have performed.

Henry Ince

21 Jul 2021 10 min read

Category: Investing and saving

Which ISA could be right for you?

Decide how to make the most of your ISA allowance by learning more about the different types of ISAs available.

CJ Hill

21 Jul 2021 4 min read

Category: Investing and saving

What do our ISA choices say about us?

More people added money to their ISA in the 2019/20 tax year compared to the year before. We look at what we can learn from the latest set of HMRC statistics.

CJ Hill

21 Jul 2021 5 min read

Category: Investing and saving

‘60/40’ balanced portfolio – what is it and should investors consider it for the future?

We take a closer look at the ‘60/40’ portfolio split, what it means for investors and if investors should consider it for the future.

Tom Mills

20 Jul 2021 6 min read