Invest for the Future launched this week. It’s a government-backed, financial services industry funded campaign to make Britain a nation of retail investors. The advert features Savvy the Squirrel, and the catchy tagline, “Take the next step. Invest.”
We are, as a nation, on the whole, very good at saving. If Britons had a favourite asset class, it would be cash. (Insert a my-favourite-asset-class-is-actually-gold joke here).
But while cash has an important role to play in improving your financial resilience, and balanced with stocks and bonds, can help with derisking your portfolio whilst approaching or in retirement. If you’re trying to build wealth, cash is not the way to do it.
This article isn’t personal advice. Remember, unlike the security offered by cash, investments and any income from them rise and fall in value, so you could get back less than you invest. If you’re not sure if an investment’s right for you, ask for financial advice.
Comparing cash growth to investment growth
Our analysis using the Bank of England base rate shows that if you had contributed £1,000 to an average savings account and held it over a 5-, 10-, 20-, and 30-year period, your savings would have earned you £1,180, £1,205, £1,439, and £2,430, respectively.
However, if that money had been put in a global index – we have used the MSCI All Country World Index (ACWI) here as an example – that money would have grown to £1,521, £2,679, £3,904, and £6,007. And when dividends from those stocks were reinvested, also called the total return, the impact would have been even bigger at £1,684, £3,350, £6,357 and £11,779.
The figures for an investment of £10,000 over the same time periods are even more stark. If you had started with £10,000 over a 5-, 10-, 20-, and 30-year period in savings, you would have earned £11,798, £12,054, £14,389 and £24,330, respectively. However, if that money had been put in the MSCI ACWI the returns were £15,212, £26,792, £39,045 and £60,074, respectively.
These numbers jump even higher when the dividends were reinvested – going from £16,841 over five years, to £117,786 over 30 years, where the total return is almost double that of the capital return alone. But remember, past performance is not a guide to future returns, and these figures are excluding dealing and management fees associated with holding funds. These figures will also be different depending on the investments held.
A common misconception is that people aren’t investing because they don’t have enough money to do so. Research from the regulator the Financial Conduct Authority revealed that 61% of people with more than £10,000 in investible assets held it, or at least three quarters of it as cash.
Fair enough you may think. That’s a rainy-day pot. But research from Barclays in 2024 also tells us that UK savers had over £960bn sitting in cash, more than £610bn than they need for their emergency savings. And this gap grew between 2022 and 2024 with a more than a 30% increase.
Why are Britons not investing?
So, if it’s not a lack of readies holding those people back from investing, what is the reason?
Misperception perhaps – an idea that investing is not for ‘normal’ people, fear of getting it wrong, or perhaps complexity. Thinking it’s the wrong time, or they’re not the right person.
There are simple solutions though – ready-made portfolios, low-cost Exchange Traded Funds (ETFs) that track indexes. Or for those with a better understanding of portfolio construction, there’s our Wealth Shortlist of funds for you to select from.
It’s completely understandable that many people might lack confidence or don’t think that investing is for them. But if you really want to make your money work harder, so you can reach your financial goals – or rather your life goals – history has shown that typically, investing literally pays.
Early bird catches the worm
Maybe you’re already alive to the benefits of investing over cash but are instead worried about timing. With global markets experiencing uncomfortable levels of volatility, stoked by fears about inflation and economic growth, it may seem like an illogical time to be talking about putting your money to work. But the point of investing is not the now, it’s about the long term.
The timescales outlined above captured periods of uncertainty and underperformance. War in Ukraine, a pandemic, the cost-of-living crisis, trade and tariff tensions, oil price shocks and Donald Trump in the White House – twice. And that’s just the last 10 years. Let alone the challenges and headwinds of the past three decades, which is a perfectly reasonable timeframe if you’re investing in a pension for retirement.
The current period in the tax year is often called Early Bird in our industry. It’s those first few weeks after the new tax year starts on 6 April. You get all those juicy new allowances – ISA and Self-Invested Personal Pension (SIPP) but also Junior ISA, Junior SIPP, Lifetime ISA – wrappers for your money which maximise returns through tax efficiency under current tax rules. But tax rules can change, and benefits depend on your circumstances.
Studies show the earlier you get started in the tax year, the better. Like wrens, robins and their breakfast.
So, if you parked your cash in wrappers at the end of the tax year, or have cash to contribute to this year’s allowance, consider doing as Savvy the Squirrel does and take the next (logical) step.
31/03/2025 To 31/03/2026 | 31/03/2024 To 31/03/2025 | 31/03/2023 To 31/03/2024 | 31/03/2022 To 31/03/2023 | 31/03/2021 To 31/03/2022 | |
|---|---|---|---|---|---|
MSCI AC World CR GBP | 15.84% | 3.31% | 18.58% | -3.21% | 10.74% |
MSCI AC World TR GBP | 17.97% | 5.33% | 21.18% | -0.93% | 12.89% |