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Brits urged to jump ‘emotional barrier’ and invest dwindling cash savings

Written by: Paloma Kubiak
The average Brit has set aside £2,000 for long-term savings but with the ravaging effect of inflation, the money is best invested if they can overcome the ‘emotional barrier’ to moving from cash.

Savers typically have £8,700 in cash of which a quarter – £2,270 – is earmarked for long-term savings, such as retirement.

But if inflation were to continue at the 2017 average of 2.4%, they stand to lose £55 this year alone and £860 over the course of 20 years.

According to BlackRock’s fourth annual Investor Pulse survey which polled 4,000 people in the UK, savers are collectively hoarding over £60bn in cash for long-term savings which stands to be eroded by £1.5bn this year and £20bn in two decades’ time.

If UK savers had invested their £2,270 cash pot in the FTSE All Share over the past 20 years, it would be worth £8,350 today. Even if just a quarter of the pot were to be invested, they would still be better off by £1,525.

Brits also believe their cash savings stand to be worth even less, with three quarters of those polled predicting that inflation is set to rise further over the next year.

As part of the BlackRock research, it found there are broadly three types of cash savers:

The ‘Pinched’ – the most vulnerable group of 16.5 million people in the UK. They have no intention of moving money out of cash into investing as they want quick access to their money, they believe they don’t have enough to invest or because they like to keep a cash safety net. They will be worst hit by the rising cost of living. They are least likely to feel in control of their financial futures and only one in five feel knowledgeable about investing.

The ‘Pausers’ – around eight million fit in this category. They’re committed to staying in cash for now as they don’t believe now is the right time to move more of their money out of cash. This view is largely driven by worries about market volatility and general nervousness about investing. They also value the fact that their cash is protected.

The ‘Planners’ – a group of three million who are most likely to beat the eroding effect of inflation. They’re seriously thinking about moving some of their money out of cash in the next six months. The low savings rates and belief that returns on investing over the long-term are driving this decision. This group is also found to be the most confident about their financial future, they’re more knowledgeable about investing and are willing to take on higher risk for higher returns.

‘Don’t stay in cash as you will lose money’

Jeremy Roberts, head of UK retail sales at BlackRock, says the rest of the nation needs to think this way too otherwise those with savings will see their pot melt away.

“It is encouraging to see that over a quarter of Brits’ savings have been earmarked for long-term savings and investment. However, there is still an emotional barrier that stops us from taking the leap out of cash and into investing.

“All is not lost, but we need to encourage Brits to make a plan when it comes to investing. Our survey shows most people are putting aside money but they are not making it work hard enough for them.”

Claire Finn, head of UK DC pensions at BlackRock, added: “We’re a nation of savers and find cash comfortable to becoming investors. But particularly with inflation and interest rates at current levels, you’re getting less money when in cash.

“If money is set aside for the long term, you can afford to take risk and handle the volatility if you’re putting your cash to work in investing.

“You don’t have to be 100% in the stock market, you can leave it to a professional such as a multi-asset manager or seek advice from a financial adviser. The message is really to get started in investing. Don’t stay in cash as you will lose money.”

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