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Bite-sized investment wisdom: Five reasons to invest

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21/07/2014
Having gone to the trouble of building a nest egg, the last thing many savers want to do is take any risks with that money. However, there are compelling reasons to pull that money out of a bank account and put it into stock and bond markets. Here are just five…
Bite-sized investment wisdom: Five reasons to invest

1) Cash pays you nothing – interest rates are low and, despite talk of higher rates, the current consensus by economists is that interest rates will still be as low as 3 per cent in 15 years’ time. Investors waiting for the day when they can make a steady 5 per cent per year in a bank account are likely to be disappointed. In many cases, savings account rates are lower than inflation, so people are losing money in real terms.

2) Inflation protection – Buying assets with some inflation protection is crucial if the purchasing power of savings is to be retained over time. Inflation-linked bonds, the stock market and commercial property all provide some degree of protection from inflation.

3) The potential for a high and growing income – in the days when bank accounts paid 5% a high income was easy to achieve. Now investors have to work a bit harder, but it is still possible to generate through a combination of investment in bonds, dividend-paying shares and commercial property portfolios. Also, generating income from different sources also provides some sensible diversification benefits.

4) You support the UK economy – shareholders are an important source of funding for companies, and by investing in companies you help them grow. This provides employment, tax revenues and helps support the economy as a whole.

5) You might make some money – with all the caveats about how stock market investments can go down as well as up (they can), it is easy to forget that they can up as well as down. The average UK collective fund (as measured by the IMA UK All Companies sector) is up 92.7 per cent over the past five years. There are no guarantees that this will be repeated, but stockmarkets have historically beaten cash over most time periods.

So now all you need to do is a little swotting up…

 

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