Opinion: savings rates are so rubbish that NOT investing is the riskier move

Opinion: savings rates are so rubbish that NOT investing is the riskier move

The financial regulator is right to be concerned at the rise in riskier investing, but ignoring investing entirely is a far bigger risk.

John Fitzsimons

Investing and pensions

John Fitzsimons
Updated on 17 April 2022

There’s no escaping the fact that investing is a riskier business than simply sticking your money in a cash savings account.

Markets go up and down, and that means that while some investments will see you make money, others may mean that you lose some cash.

There’s been plenty of chat about how risky investment is, particularly the risk associated with certain assets beyond the traditional stocks and shares.

But ultimately it may be that ignoring investing altogether is a riskier move than backing some form of asset.

Are young people gambling with their cash?

The Financial Conduct Authority (FCA), the main financial regulator, has made it clear that it’s concerned about how some investors ‒ young people in particular ‒ are investing their cash.

Last year it published some interesting research around self-directed investors, those people who choose for themselves where to put their money rather than tasking a financial adviser with making those decisions.

What was clear from that research is that self-directed investors tend to have a lot of confidence about what they are doing, and where they are putting their money, even if their actual understanding of investing itself is pretty limited.

For example, it found that almost half (45%) do not view ‘losing some money’ as a potential risk with investing, which let’s face it is a pretty fundamental downside to any investment, whether that’s stocks and shares or something more exotic.

What’s more, while younger people are increasingly drawn to those exotic investments ‒ especially cryptocurrencies ‒ the FCA recognised that the type of people trying investment apps is becoming more diverse, with self-directed investors skewing more female, younger and more likely to be from a BAME background than the ‘traditional’ investor set.

The fear of missing out

I’m not sure, at 38, whether I count as a ‘young’ investor anymore, but I can certainly attest to the power of FOMO, or the fear of missing out.

My own personal mantra when it comes to investing is not to invest in anything I don’t really understand, and when it comes to cryptocurrencies, try as I might I just don’t really get it.

In normal times, that’s been good enough.

But I’d be lying if I said I hadn’t been tempted to finally bite the bullet and get into Bitcoin, Ethereum or goodness know what cryptocurrency over the last few months, having seen the jumps in the apparent value of them.

I’ve found myself thinking about it in much the same way I might a (large) gamble. I’ll just stick £100 or so in, if it all goes wrong that’s not a disaster, but just think of the possible gains!

That’s not exactly how I approach investing in an ISA though, where it’s a bit more measured.

An awful lot of younger people, unable to spend their money in the usual ways over the last year, may have seen those jumps in Bitcoin value, tweets about it from 'influencers', and thought "Stuff it, I'll have a go".

And that could just as easily be a costly mistake as a killer decision.

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Time to ride it out

It’s absolutely right for the FCA to highlight the fact that some investors, particularly those who are new to it, may not fully understand the risks involved in what they are doing.

Clearly, it’s very important that anyone investing ‒ no matter what they are putting their money into ‒ understands that there is a chance they will lose their money.

But let’s be frank, if ever there is a time when putting a few quid into a potentially risky asset makes sense, it’s when you are young.

After all, if it’s a disaster then you have plenty of time to repair the damage before you need that cash in your later years.

It’s far scarier for those nearing retirement to turn their backs on stocks and shares, and embrace something like crypto, than someone in their early 20s who fancies trying their hand at investing.

It’s also incredibly positive that more young people are even thinking about investing, even if they are nowhere near as on top of the pros and cons as they should be.

All too often people only realise that they should be putting some money aside when it’s too late, when they reach their 40s and realise they haven’t actually saved any money for later life, with the investment markets and pensions remaining a complete mystery.

It has to be a positive that for the current generation of young people, there is less of a social stigma around thinking about your money and investing.

Don't stick to cash

Because the reality now is that ignoring investments entirely, and opting to stick with cash savings, is a much bigger risk.

Sure, you won’t lose any money, but have you seen the interest rates on offer? You have no chance of beating inflation, meaning the value of the money you put aside is slowly eroded away.

Having some money in cash is sensible, so long as you can easily access it in a time of need.

But beyond that, it’s clearly a good idea to put some serious thought into investing. Just be aware of the limits of your own knowledge ‒ if you aren’t particularly hot on the markets, then sticking to tracker funds rather than backing a crypto because someone famous tweeted about it is a better course of action. 

What do you think? Have you decided to start investing, or increase your investments, in the last year due to low savings rates? Let us know your thoughts in the comments section below.

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