This seems to be the world that Chancellor Rachel Reeves wants to build over here. And across the last few weeks, rumours have been abound that the Treasury was going to cut or scrap the cash Isa limits to encourage more people to put their money into the stock market.
Let me start by saying that I’ve not got a massive problem with the idea that more people are supported to invest in the stock market. It probably is true that some consumers are a little too risk averse, or don’t understand the potential of long-term investment.
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It asserted that consumers can earn an impressive 9 per cent a year by investing in stock markets compared to just 1.5 per cent in cash savings – the kind of claims that any fund manager would be fined by the FCA (Financial Conduct Authority) for making in their financial promotions.
Over the last 20 years, the annualised return of the FTSE 100 is about 6.8 per cent – some way short of the Treasury’s big number. Cash saving returns have admittedly been much lower over that period because we have had an extended period of very low interest rates following the financial crisis.
Plus, there are still cash accounts out there today offering returns of close to 5 per cent.
Amongst the raft of announcements in the Mansion House speech was a promise to work with industry to launch a new public advertising campaign to promote investing. Let’s hope it is not as gung ho as the Treasury has been with its projections this week.
There seems to be some insinuation that by getting people investing, everyone will have more. But there won’t be the money for most households to save, let alone invest, unless real incomes start to rise again.
The Government wants asset managers and pension funds to invest more of their money into the UK – which most big providers agreed to do in the Mansion House Accord signed earlier this year.
And what about you? Should you be investing if you have some cash to spare? Well, sure. As long as you have enough cash savings to cover three months of expenses. And as long as you’re making adequate contributions to your pensions. And as long as what you’re saving for is at least 5 and preferably 10 years away, so you can ride out any market volatility.
That simply is not going to be most people. If that is you – then jump right in. For the rest of us, keep grafting and working to earn a bit more so you can build up the cash buffer.
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