DIY Investor Magazine
| Oct 2017
30
KEEPING YOUR MONEY IN A CASH ISA IS
A WASTED OPPORTUNITY; SEE HOW DIY
INVESTING CAN BE PLANE SAILING WITH
SALTYDOGINVESTOR
By Douglas Chadwick
It’s frightening how much of people’s savings is just lying
around doing nothing. Why is this frightening? Because
if you want a comfortable retirement for yourself and
your family, you really should make sure that your money
is actively working for you – not just ‘sitting under the
mattress’.
According to figures from HM Revenue & Customs,
£270 billion is currently held in cash ISAs; with today’s
low interest rates, this money is earning virtually nothing
and, in many cases, is actually losing value.
Research by broker Hargreaves Lansdown has shown
that there’s a further £400 billion lying around in under-
performing ‘dinosaur’ investments such as with-profits
funds.
This is such a huge waste - if your money is in a cash
ISA or an underperformer, consider how much this is
costing you over the long term. It could be tens of thou-
sands of pounds. You have done the difficult bit, which
is to save this nest-egg and place it in an ISA protecting
it from future tax demands. Sadly, you have then sat on
your hands and not done the easy bit, which is to make
it grow in a safe and sensible fashion, while allowing
compound interest to be left to work its magic.
Let’s say you have £25,000 in savings. Just look at the
difference in returns over the next five to twenty years,
depending on whether you put that money in a cash ISA
or invest it conservatively in the stock market.
A cash ISA might give you 1.5% interest; a conservative
stock market investment could give you a 7% return,
and in this example, I’ve then deducted £300 a year for
costs. Here’s the startling difference in results:
As you can see, even after just five years the stock mar-
ket strategy is ahead by over £6,000. And if you keep
the stock market strategy going for 20 years, you could
be up over £50,000 and your savings pot could be more
than double the amount you would have made from a
cash ISA; that’s an enormous difference.
INDUSTRY NOT YOUR FRIEND
Please bear in mind, however, that the financial services
industry is not really motivated to help you out. Why?
Because its members still charge their fees, whether
your wealth increases or not. Your savings pot is your
baby and no-one else’s, and it’s in your hands to turn
the situation around.
Many people quite wrongly see stock market investing in
the same negative light as betting on a horse race. They
are put off by the perception that the risks are high and
the chances of winning are low. But that does not have
to be the case.
