Cash is King ~ NOT!
I am amazed how many times a chirpy Betfair ad pops up in the TV advert breaks these days. They show us how gambling could make us happier, healthier people with whiter teeth. Most investment groups have given up on TV advertising because it’s hard to be jolly after 30 seconds of dire warnings about how investing could ruin your life. It’s easier to peddle gambling than it is to talk about investing.
Cash is NOT King
We live in a world when the regulator’s (understandable) fear of people getting burned by investments has contributed to a cash-heavy environment where many consumers are perfectly wrong rather than approximately right. Yes, cash won’t give you any nasty shocks, but it’s not going to get you very far either. People agonise and procrastinate over when and what to buy in the stock market when actually just getting going with a low-cost simple fund approach is very likely better than twiddling your thumbs in cash for years.
Last week the FCA published a report which looked into retirement savings and particularly drawdown. This is just a pension where you keep your money invested in the stock market and take out chunks of money as income when you need it.
Trouble is, lots of people are hitting 55, taking the 25% of tax-free cash you can take from your pension, and just converting to a drawdown pension with whoever they happen to have the account with. Paying more than they need to. And about one-third of people are leaving it all in cash. This is awful! This is like eating some cucumber to prepare for an 8 hour road race. Cash is no longer King. And especially not for the long-term.
Are you cash heavy?
As financial planners, we suggest 3-6 months’ of essential expenditure need in easy access cash. And then it’s down to timeframes. If you’re saving for something with a 2-3 year window, don’t go near shares. If you are saving for a baby and have a cash Junior ISA for the next 18 years, that isn’t very sensible. How much cash are you sitting on? The average cash balance in DIY portfolios is over 12%. This is high. Is that strategy? Or apathy? Or “waiting for the crash?” People who try to time the market will always lose out!
When inflation is higher than cash deposit rates, the actual value or purchasing power of our money goes down. This means that what we can buy in 10 years for £100, will be a lot less than we can buy now. Over 10 years the stock market is likely (although not guaranteed) to beat inflation, which means we our £100 invested can buy more.
Arguably you should keep enough in cash for emergencies, then if you need income from your investments you should keep 1-3 years worth of cash, then EVERYTHING else should be properly invested for the long term.
If you are unsure of the amount of cash you need to have available, call us for a friendly chat so that you are maximising your chances of a happy and secure future.