Many happy returns for brave savers

SAVERS need to have almost all of their money in high-risk investments in order to generate just a 2 per cent return, according to consultant LCP.

It said anyone looking to grow a nest egg at 2 per cent a year after paying for advice, investment managers and brokerage platforms needs to have 95 per cent of their money in a mix of global shares, emerging market equities and debt, infrastructure, property and junk bonds.

LCP’S analysis of investments and their returns over the past 20 plus years found that in 2001, an investor could put all of their money in UK Government bonds or IOUS and earn a 2.5 per cent return after fees and charges. That compares to CPI inflation at the time of 1.6 per cent.

However, by 2011 to achieve a net 2 per cent the amount of money you could put into safe bonds had fallen to 50 per cent, with the rest in higher risk investments. Ultra-low interest rates and quantitative easing have decimated the returns from safe asset classes such as cash and the bonds from major industrialised nations.

Jennifer Davidson, associate consultant at LCP, said: “The last two decades has seen a collapse in the rate of return across a wide range of investments. Anyone seeking to replicate past returns may now have to take on far more risk than they may be comfortable with.”

She advised savers to make their money work harder and smarter, by looking to reduce what they pay to their fund managers and investment providers and consider cheap index funds, which track the performance of specific stock markets.