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Should you be thinking about investing your lockdown savings?

22 September 2021 in Inflation , Wealth planning, Investing

We recently surveyed 1,006 high-net worth individuals, in conjunction with YouGov, which revealed the majority (61%) have more cash in the bank as a result of the COVID-19 pandemic[i]. Our findings are supported by a recent report from the ONS which revealed 42% of high-income employed households saved more during the pandemic, and the Office for Budget Responsibility (OBR) estimates that excess lockdown savings could rise to £180bn by mid-2021.

This article considers what people are planning to do with their lockdown savings - and why leaving extra pandemic cash in the bank may lead to it losing value in real terms over time. If you are wondering what to do with your extra lockdown savings, read on for more information or contact your investment manager to discuss your investment options.

What to do with your lockdown savings?

In our recent research with YouGov, 61% of high-net worth individuals said they have built up extra cash as a result of the pandemic, which they would ordinarily have spent.

Of those people, many (41%) said they planned to spend this extra cash on things like holidays and home improvements, while 27% planned to invest this extra money and 18% planned to keep it in cash.

Women were less likely than men to plan to invest their lockdown savings at only 22%, vs. 31% of men.

If you don’t plan to spend your extra pandemic cash immediately, what should you be thinking about if you want to save or invest your money?

What are the risks of leaving lockdown cash savings in the bank?

In our same survey, 44% of high-net worth individuals said they were worried about the impact of inflation on their wealth. This is not surprising - with inflation currently at 3.2% and the Bank of England base rate at 0.1%, cash savings are being devalued in real terms at a rate of 3.1% per year once inflation is taken into account.

Leaving cash in the bank at the mercy of inflation is likely to lead to a loss on the value of your extra pandemic cash. In fact, had you saved £1,000 in a bank account 10 years ago[1], the real value of that money would now be £877, due to inflation eroding its value over the period.

How can you protect your lockdown savings against inflation?

If you don’t plan to spend your extra pandemic cash, topping up your investment portfolio or retirement pot could provide a way to build your wealth and protect against inflation. 

Let’s look at the real return of £1,000 cash (earning interest at the prevailing Bank of England base rate) over the ten years to June 2021 vs. the return of some of CGWM's diversified investment portfolios over the exact same period.

The graph below shows the performance of three of Canaccord Genuity Wealth Management’s largest and most popular model investment portfolios, covering risk profiles 4, 5 and 6, alongside cash over the same ten years. Bespoke portfolios will have delivered a different return as they are tailored for a client’s individual situation.

 

 

Past performance is not a reliable indicator of future performance.

A £1,000 initial investment has grown to £1,590 – a 59% gain - in a risk profile 6 model portfolio, taking into account inflation at the prevailing rate. The return is also net of management fees.

All our model portfolios outperformed cash over the same period, so investing in our diversified portfolios clearly gave a much better return over the ten years than cash savings, protecting our investors’ wealth from inflation.

While past performance is not a reliable indicator of future performance, if you have extra cash in the bank following the pandemic, you may want to consider whether leaving it in the bank is a sensible option.

If you’ve got cash in the bank and want to talk about whether investing it could be right for you, contact your investment manager for a discussion.

Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested.

What is a risk profile?

In an investment context, risk is a measure of the extent by which investment returns may deviate from expectations. As it is impossible to predict future events with any certainty, all investment involves risk.

At CGWM, we recognise that all investors have different attitudes towards, and tolerance of, investment risk. We have created nine different risk profiles to help us discuss and agree the appropriate level of risk for each client's individual circumstances. Our risk profiles are numbered from one to nine, with nine being the highest risk and one the lowest. Generally, the greater the risk, the greater the potential return – but also the greater the possible loss. See our risk framework brochure for details. 

Find this useful? Read more about inflation: 

Get in touch to speak to a professional wealth adviser and see how we can help protect your wealth from inflation with confidence.

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The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific person or entity.

Charts are for illustrative purposes only and should not be relied upon for any other reason. Information is correct as at date of publication.

The information contained herein is based on materials and sources deemed to be reliable; however, Canaccord Genuity Wealth Management makes no representation or warranty, either express or implied, to the accuracy, completeness or reliability of this information.

[1] All figures, unless otherwise stated, are from YouGov PLC. Total sample size was 1006 high-net worth individuals. Fieldwork was undertaken between 6th - 25th August 2021.  The survey was carried out online.

[2] Calculated using the prevailing Bank of England base rate and consumer price index. Figures calculated to 30 June 2021.

Photo of David Goodfellow

David Goodfellow

Head of UK Financial Planning

David specialises in financial planning and tax driven investment planning. He has over 15 years' experience in advising on and investing in VCTs, EISs and tax driven property structures, and is part of the CGWM Advice and Solutions Committee. He is a member of the Personal Finance Society and The Chartered Insurance Institute.


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Speak to one of our investment experts

To discuss your investment needs, book a complimentary, no-obligation consultation.

Request a consultation

IMPORTANT: Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. Past performance is not a reliable indicator of future performance.