Why Financial Advice is Vital

Last month was the tenth anniversary of the start of the regime of ultra low interest rates when the Bank of England cut the base rate from 1.0% to 0.5% in March 2009.  Since then the wisdom of leaving a large proportion of your assets in cash has been severely compromised.

Before the financial crisis the interest you earned from a bank or building society deposit account more than kept pace with inflation; so your spending power in the future would not diminish.

In 2007 you could earn nearly 5 per cent annual interest by just leaving your cash in a building society account.  And although inflation was 4.3 per cent back then; at least you were just about preserving your spending power.

Life was even easier in the 1980s. In 1986 you could earn nearly 10 per cent a year from your building society account while inflation was running 3.4 per cent.  A golden age for high street savers that has long gone. There was no need to need to worry about the stock market if you are virtually guaranteed a real return of over 6 per cent.

But today, leaving your money in the bank is about as sensible as using CB radio to keep in touch with your friends.

The financial crisis has heralded a regime of low interest rates that has lasted much longer than the majority of economists had predicted… which is not saying much actually.

If you had deposited £10,000 in a bank or building society account five years ago earning 0.25% a year, left it there; making no further deposits or withdrawals; the sum total in your account now would £10,125.  With these returns it really makes sense to look elsewhere and seek financial advice.

Here is what you would have made if you had put your money elsewhere:

If you were of a more cautious disposition and invested 80% of your £10,000 in government bonds both domestic and overseas and the remaining 20% in UK and foreign equities; your capital sum would have grown to about £12,900 in five years.

Now for the more adventurous; an 80% investment in global stock markets including the UK and a 20% investment in sovereign government bonds would have enabled your £10,000 sum to grow to nearly £16,000 over 5 years.

Further if you were really adventurous and invested in the US stock market you would have around £20,313 in your broking account after 5 years.

Now obviously these alternatives are more risky than leaving cash in the bank but the days of leaving your money at the high street in the expectation of preserving your spending power are over. The financial crisis has made it vital that you widen the scope of your investments after seeking the appropriate advice

Brian Durrant