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How can I make my money work harder?

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Lindsay is 63 and fed up with low returns on cash. She’s also uncertain about the risk of the stock market.

She has the state pension which is supplemented by a private pension. Lindsay tells us that this felt like a fortune 10 years ago but today it feels a bit less substantial and she needs to make her money work harder.

Lindsay likes the idea of guarantees. She’s wary about losing money. She tells us that she bought some M&S shares a few years ago and to her surprise, they fell in value. How could a staple of the high street go down?

Cash rates are horribly low today – even historically, horribly low! And this isn’t likely to change anytime soon. The stock market is likely to make your money work harder over the long-term but it’s not guaranteed at all.  Having some cash to cover those emergencies is a good idea – usually having 3 – 6 months’ salary in an easy access account is a good idea.

It might be a good idea for Lindsay to allocate a bit of her savings to the investment markets. We explained to Lindsay that when it comes to the stock market, investing in a fund can be a good idea. If you just buy one company, you are super exposed to their fortunes and that can quickly go wrong. This is like a basket of about 50 shares and it just means that all of your eggs are not in one basket. But unlike interest rates on cash, we can’t be certain about what we’re going to get. You can try and get guarantees but these are really expensive and aren’t fool proof.

A Barclays Equity and Gilt Survey in 2015 showed that over a 10 year period, stocks and shares are 90% more likely to do better than cash and over an 18 year period it’s a massive 99%. So for less confident investors, you can look at funds in the stock market if you are investing for the long-term. Timeframes do matter. It’s a bit like the housing market. If the housing market falls by 3% we don’t jump out of our armchairs and put the house on the market. If we don’t plan on selling that year, we ride it out. It’s just because it’s so much easier to buy and sell shares that we get ourselves into trouble by selling when things are low – quite often the worst possible approach.

Finally, Lindsay had also been approached by a ‘windfarm’ with “guarantees of 9% plus.” Aaaaagh big fat flashing red light. No such thing as a free lunch – please do be careful of any spivs bearing gold and promising the earth. If you can target a return of about 5% after fees (over the long-term) then you are doing very well. Any more either involves taking quite a lot of risk or being conned by a wide boy salesman.

As for where to go to buy the investments and funds, think about an “investment supermarket”. For less confident yet traditional Lindsay we like Hargreaves Lansdown or big brand Aviva. Have a look at our platforms page for those options which we think suit Novices. Expect to pay between about £10 and £12 for every £1,000 you invest each year.

Please remember that the stock market just isn’t guaranteed, we can point to likelihoods and probabilities, but I can’t look people in the eyes and promise that they will make money. As we saw after Brexit, things became pretty bouncy and we saw hefty swings. If you’re new to this I do suggest you stick to big, well-known brands. Less chance of falling victim to a con artist.

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