Somebody doesn't like us

by Ed Bowsher on 26 June 2009  |  1 comment
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One of our readers really doesn't like us.

This article comment got me going this morning.

For starters, the poster calls himself 'ihatelovemoney'. One tries to be sanguine about these things, but I doubt that many people would like to get criticism like that.

But, more importantly, the comment got me going because I think it's completely wrong. The comment comes on the bottom of our article: Avoid these scandalous savings accounts! by Jane Baker.

Jane makes several excellent points about why products such as guaranteed equity bonds are best avoided. But 'ihatelovemoney' disagrees. He says:

"Dont go and put your money in a building society and try and keep up with inflation. NOW THATS A WASTE OF TIME."

I disagree. If you want 100% safety for your money, then 'keeping up with inflation' is a reasonable return in my book. But, right now, you can beat inflation with an easy access savings account. Birmingham Midshires' Telephone Extra account currently pays 3.15% which is well ahead of inflation.

If you don't want to take a risk with your cash, the simple approach is best.

So: Stick your money in a savings account. Don't buy and product which you don't understand. Don't buy any product which has the words 'guaranteed' or 'capital protected' in the name. Don't put more than £50,000 with any one banking group.  

Now I understand that you may want a bigger return, yet, at the same time, you may be worried about the risks attached to stock market investment. And yes, stock markets are risky. What's more, they've performed very badly over the last ten years.

But that recent poor performance means that shares look cheap to me and I think that there's a strong chance that shares will do better over the next decade. So if you buy units in an index tracker for a ten-year period, I believe the risks are lower than you might think.

One possible approach would be to split your money between a savings account and an index tracker fund. You could put 75% of your money in a savings account, and 25% in a tracker. So even if the stock market halved from here, you'd still have 87.5% of your total cash. And you would, of course, have received interest on your savings, and received dividends from your shares. You would never have received any dividend income if you had put your money in a guaranteed equity bond.

I think that's a sensible, fairly low-risk approach.

Perhaps I'll go and change my lovemoney.com moniker. Right now, it's 'Edbowsher' which is slightly dull. 'ihateguaranteedequitybonds' might be more fun.

Check out more of my blog posts.

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