Savings rates are plummeting and bonds can’t beat inflation: so why are so many afraid of investing?
Savers are missing out on better returns due to a fear of investing that’s “out of touch with reality”, an online investment firm has claimed.
Invest.com polled 2,000 UK residents and found that investing in equities is considered the riskiest of all types of investments, followed by crowdfunding and peer-to-peer lending.
At the other end of the scale, bonds are seen as the safest home for cash despite the fact that returns on many Government bonds have fallen well below inflation.
Bonds and savings "won’t beat inflation"
Commenting on the findings, Ophir Gertner, co-founder of invest.com, says: “It is alarming to see such a high level of aversion to equities, which historically perform well over the long term, especially in an environment where savings accounts don’t even come close to keeping up with inflation.”
The survey findings tie are similar to those of a recent poll we ran here on loveMONEY.
More than 500 readers responded to a question asking them what they are doing in order to earn a better rate on their savings, to which 42% responded they are happy to accept paltry rates as savings accounts are a safer option.
It's OK to fear risk
Now, there’s an obvious counter-argument to make here: being risk averse is not a bad thing, especially for those who are further in their career or nearing retirement.
For these groups, holding more cash and safer, low-risk investments like bonds is a sensible strategy.
At all stages in life, a balanced portfolio should contain a mix of investments, bonds and cash.
But the point remains that a misplaced fear of investments can harm returns in the long term – and that holding cash is not without its own significant downsides.
As Gertner at invest.com points out: “Many people fail to understand that leaving money sitting in a savings account is not a risk-free option, especially now with interest rates at their lowest level since the Bank of England was formed 300 years ago.”
With inflation starting to rise again, many people run the risk of their cash earning less in interest and being outpaced by the rising cost of living.
If you're thinking about investing your money, we've got some guides that can help you understand more about the potential risks and rewards. Have a read of our Beginner's guide to stocks and shares ISAs and our Beginner's guide to investment platforms.
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