Investment Advice

Money does not bring happiness, but a lack of money surely contributes to the reverse. 

Your hard earned money should be managed carefully. If you think of money in work or time terms this will make it easier to understand. Money that grows with basic rate tax taken at source will automatically lose 20%. In work terms that’s like taking Monday off with no reduction in pay (i.e. 20% of the week). 

Your money is yours so manage it well and enjoy Monday off!

Why invest at all?
Let us assume, for example, that a building society pays 4.75%. Net of 20% tax this is 3.8% If we assume inflation is currently running at c3.4% per annum, that is real growth of 0.4% (1). So the buying power of a sum of money is considerably reduced.

We can either accept that or ensure we do not take any more than 0.4% income form our money. Alternatively we have to invest in real assets to minimise the impact of inflation on our money and provide extra buying power.

We chose the period from 1986 until 2006 to highlight one of the worst periods in time for fluctuation as well as the end result.

Consider the fluctuation in the following graph but finally look at how time as eroded that fluctuation and also look at the final return over and above inflation:  (Click the image to view larger) 

Cash returned just 1% in total over and above inflation over that period of time. This simply means that your money will have had just 1% more buying power.

The FTSE all share over the same period produced 746% more buying power, or 37.3% per year. As you can see, there where numerous fluctuations but time smoothed out the risk.

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