Why savers need a little risk to reap rewards

any perceived return. Indeed, most banks did not pass on to savers the full quarter per cent November increase to 0.5 per cent and some have even cut their rates.

With cash savings, the only options available to improve returns are either through fixed rate or regular savings accounts.

Usually fixed rates are higher than easy access. However, if normal savings rates were to increase during the period you would be unable to exit and switch to a better payer.

For regular savings, in return for guaranteeing a set level of income to your savings provider each month, they similarly will usually pay you a higher interest rate.

However, Anna Bowes, director of independent savings advice website, Savings Champion, noted: “The actual interest rate earned over the year is approximately half as the majority of the money is deposited for less than 12 months.”

Fear of large losses has meant investors missing out on potential gains through stock market exposure.

A recent Tilney Investment Management survey of 1,254 UK adults, with savings and invest- ments, found that 43 per cent said their preferred savings approach over more than five years was cash. Twenty-nine per cent said they would never make an investment where there was a risk of losses.

Psychological research shows that the dissatisfaction associated with losing money far outweighs the pleasure of making it.

But a balanced portfolio run for the long term generally overcomes these sort of fears, smoothing ups and downs.

Premier Asset Management, in promoting their Premier Multi-Asset Distribution Fund 2017, said holding a mix of assets was key, ensuring that “income and growth are not reliant on the performance of any one asset class, fund or fund manager”.

Financial columnist Ian Cowie acknowledges: “The value of diversification across different companies, sectors and countries, is that all assets do not go up or down at the same moment.

“Destroying capital from time to time is an inevitable part of trying to make money on the stock market.”

Shaun Port, chief investment officer at online investment manager Nutmeg, stated: “If you held a portfolio of 50 per cent UK stocks and 50 per cent government bonds at the peak of equity markets in 2008, you would have lost 20 per cent during the worst of the financial crisis.

“Crucially, you would have recovered those losses less than a year later.”

The reality is that without some risk there is little prospect of reward.

Yet extra risk need not be massive – for example those who have amassed large holdings of Cash ISAs could consider transferring a proportion into a stocks and shares ISA.

Diversification and professional active management can complement rainy day/emergency cash savings.

Ultimately it is not timing the markets but the time in the markets which is important. None of us have a crystal ball. Trevor Law is managing director of Eastcote Wealth Management, chartered financial planners,

based in Solihull. Email: tlaw@eastcotewealth.co.uk

The views expressed in this article should not be construed as financial advice