Should you save cash or invest?

Cash saving Vs Investing

The choice between holding cash in a bank account and investing could have a big impact on your future wealth. Moreover, these two ways of holding and accumulating wealth are very different:

There has been a large difference in returns in the past

Over the 7 year period, from January 2010 to December 2016, holding cash would have produced very different returns compared with investing in shares or bonds.

You do need to bear in mind that the past performance of investments is not a reliable indicator of their future performance. But here is what would have happened if you had started with £10,000 in January 2010:

Total returns over the 7 year period

If you started with £10,000 in January 2010, here’s how much it would have been worth by December 2016:

Vs

While this is what happened in the 7 year period between January 2010 and December 2016, other time periods may have produced different results, and the returns from holding cash could have been higher than the returns from investing.

For example, in 2008, around the time of the global financial crisis, stock markets produced mostly significant losses, some of them falling spectacularly. The investments of those who invested before the market collapse suffered considerable losses in value. Some investments may have recovered after that but for others the loss will be permanent.

Of course, no one knows how investments and deposits will perform in the future. And past performance is not a reliable indicator of future returns. The value of investments can fall as well as rise and you may get back less than you invest.

Annual returns over the last 5 years

Here are the annual returns per year for cash, bonds and shares over the last five years:

Should you save or invest?

Anything that covers the running of your account, but doesn’t directly relate to transactions, is covered within a single monthly payment.