Where’s the best place for your money?

8 things to consider….

If you are looking to the future and wondering where to put your money to maximise your returns, the chances are that three options will come to mind; save it, buy some property, or invest it. Whilst there is no straight-forward answer, there are some considerations that are useful to keep in mind.

• It’s not just your money, it’s your circumstances.

Nobody can advise you where’s best to put your money without first finding out about you and your circumstances. It’s very easy to list the pros and cons of placing money in savings, property, or investment however this is unlikely to meet your needs and ultimately your objectives.

• Cover your emergency.

The first thing to establish is ensuring you have sufficient funds set aside in the case of emergency, to be able to cover essential monthly expenditure. This could be for 6-12months for example.

•  Plan your horizon.

It’s imperative to think about the real purpose of your money and when you will need it. We believe it’s extremely important to identify the time horizons of your money and then plan accordingly. This is the key driver of our horizon planning service.

• Inflation can erode value.

Low interest rates and rising inflation means that any savings or cash held, over and above your emergency fund, is at real risk of being eroded in terms or its purchasing power.

• Don’t stash the cash.

According to the FCA, millions of UK savers could be missing out on wealth creation by holding too much cash. Their aim is to reduce the number of people who could be missing out on possible investment earnings by 20% by 2025. Not only that, but the financial watchdog aims to reduce the number of people who invest in higher-risk products and the amount of money consumers lose to investment scams.

• Take a reality check on premium bonds.

People tend to stick to what they’re comfortable with and/or have experience in, such as premium bonds, fixed-term savings accounts.

However, thought should be given to the real rate of return on the investment – for instance, your premium bonds may issue £25 or even £50 prizes throughout the course of a year which gives the illusion of winning money but when taking account of the overall investment, it’s likely to be giving you less than 1% return, unless of course, you are one of the lucky few that wins big. Interestingly, the chance of winning the million-pound jackpot is 1 in 34 billion.

• Property may not be a solid foundation.

Property is another interesting point for discussion – The Office of National Statistics published data in March 2021, showing that average house prices in the UK increased by 10.2% in the year to March 2021, although this increase may have slowed somewhat since the Stamp Duty thresholds have reverted to what they were before 8 July 2020.

A common thought is, ‘you can’t go wrong with property’ however property is an illiquid investment. There’s also a chance of vacant periods with no rental income coming in, property damage and its now less lucrative as the government has restricted the amount of Income Tax (to basic rate) which landlords can get on residential property finance costs (such as mortgage interest). Furthermore, there may be capital gains tax to pay when you sell any property which isn’t your main residence.

• Personalise your portfolio to keep control.

When people think of investing money, it can seem daunting and risky especially if you don’t have the time or inclination of knowing the stock market well. By constructing a portfolio around the income you require and your future expenditure plans, you can retain an element of control and grow your investment simultaneously.

Investment in tax wrappers such as ISAs or pensions provides diversification, thus spreading risk; and takes advantage of available allowances and reliefs. You should be aware that the value of an investment can go down as well as up, and no guarantees as to the future performance.