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Don't hide your cash under the mattress - invest it

Don't hide your cash hidden under the mattress - invest it
Don't hide your cash hidden under the mattress - invest it Don't hide your cash hidden under the mattress - invest it

A FIREMAN once told me of a man who, because he didn’t trust the banks, kept his life’s savings under his mattress.

Tragically, when his house was gutted in a fire, his money also went up in smoke.

The fireman had wise words to say: “To a fire, your money is just another accelerant for us to deal with.” Fire is not awed by riches; fire is not intimidated by wealth. Your £20 notes get no more respect from a fire than last month’s newspaper under your bed.

However, having your money in the bank won’t necessarily save it from fire, either. I’m talking about another type of fire raging through your life’s savings, even if you think they are safe in the hands of your trusty bank manager.

I’m referring to the fire of inflation, which might not literally burn up your money, but it does burn up the value of your money. It eats away the spending power that you have.

Today I’m going to show you how you can wrap your money in fireproof insulation, where inflation cannot touch it. You can do all that is possible to allow your savings to grow and gain in value, rather than burning their value away, making them almost worthless.

First, here’s a question: where were you, and what were you up to, on June 9 1982? Can’t remember? I don’t blame you. I can hardly remember last week.

That was the day they brought in the 20p coin. Let’s use that to show how good and bad investment decisions can affect your financial outcomes.

If, like our hapless friend above, you had kept your 20p coin under the mattress since 1982, then your 20p would have lost three quarters of its spending power due to rising prices (aka inflation). Or, looking at it from below, to buy what your 20p would have bought you in 1982, you’d have to spend 83p today. (Also, you’re a minger for sleeping on a 40-year-old mattress.)

If you had invested your 20p in a typical easy access bank account back then, it would be worth 79p today, but still falling short of its target of 83p, and therefore having also lost spending power.

Now comes the killer. This is the best argument there is for our unofficial motto in this office: ‘Don’t save – invest!’

If you had invested your 20p in a FTSE All-Tracker fund in 1982, it would have blossomed like a spring rose to a value of £2.51 today. That’s miles ahead of the 83p, and miles ahead of inflation.

Funds investments can be that insulation we mentioned that will protect your money and grow it ahead of inflation, if you can leave it in there for ten or 15 years. Or – even better – for more.

The value of your money will fluctuate along the way – which is normal, that’s what the stock markets do – which makes a long-term perspective essential.

Now, we love our history in these parts, and history shows that in the end, stock market investments always outperform cash, and by a long way.

However, good independent advice is crucial when choosing funds for your investment plan. Regular reports from the financial research company Tilney Bestinvest show that recently they have identified 119 funds in the UK that have been failing to meet their targets for the past three years – including 15 of the nation’s ‘megafunds’ with over £1bn each in them.

That means investors in those funds are losing money – losing out on growth they would have had, if only they’d had an adviser to pick out better funds for them.

Do you fancy protecting your money from them evil firemen? Give us a ring, before the flames start.

:: Michael Kennedy is an independent financial adviser and pensions specialist and can be contacted on 028 71886005 . Further information on Facebook at Kennedy Independent Financial Advice or at www.mkennedyfinancial.com