Maximising your surplus savings

SavingsMarc O’Sullivan, head of investments at Wesleyan, discusses the recovery of the investment market and making the most of your cash savings.

The past year has been tough, to say the least, and as lockdown continues many of us are looking for some light at the end of the tunnel.

The UK’s vaccination rollout is going well, and infection rates of COVID-19 are starting to drop. A Brexit trade deal for goods was finally agreed at the end of 2020, meaning we avoided crashing out of the EU without an agreement. Further to this, there are hopes for a less volatile political climate with Joe Biden becoming President of the US.

In financial terms there is also cautious optimism. This means that for those who have managed to build up a pot of cash savings (one of the more positive side-effects of not being able to go out to eat or shop on the high street), now is a good time to invest wisely for a good return.*

Pandemic impact

When compared to Europe and the US, the UK stock market was hit hard by the pandemic.

From the middle of February to the middle of March 2020, the UK stock market was down by more than 30%. For 2020 as a whole, it was down by about 10%. Whereas some of the overseas markets were up about 15%.

This is because our market is made up of stocks in sectors that were highly impacted by COVID-19. Such as the financial services, tourism and leisure sectors. All of which have been hit hard during the pandemic.

In contrast, the US market has a greater proportion of technology and healthcare stocks. These have performed well during the pandemic.

Taking technology as an example, it’s easy to see why. More people were buying laptops for home schooling, working from home, and purchasing new on-demand TV subscriptions to keep them entertained during lockdowns.

Meanwhile in the UK, with the entire nation unable to eat out, take trips or go on holiday, and the banks feeling cautious about lending, our stock market suffered in the early months of the pandemic and is still catching up.

The UK investment market recovery

After measures were relaxed slightly following the first lockdown, we saw signs of recovery in the UK stock market. This was largely due to transmission and infection rates lowering.

While there have been ups and downs in the market since then, as there always are, recovery has broadly continued. This is partly due to the stabilising effect of those reasons for hope mentioned earlier. This includes vaccines, Brexit and the US election result.

Since March 2020 we’ve been in and out of lockdowns. While death and infection rates are still high they are slowly starting to reduce.

Economically speaking, while unemployment is still on the up and GDP has decreased, we are also seeing lots of cash deposits being saved as most of us in the UK haven’t been able to spend our disposable income in the usual way.

Maximising your savings

If you’ve been able to save more than usual, you might wonder how you can make the most from your pot of cash.

Interest rates have been slashed to their lowest rates in long-term history. So, if you have cash sitting in your bank account that is above and beyond what you need as an emergency savings fund, it is worth asking yourself if the interest on it is keeping up with the rate of inflation.

More often than not, this isn’t the case. Investing it could be more effective in providing long-term returns that help to accelerate your retirement, pay your children’s school fees or simply give you more options in the future.

Of course, all investment comes with a certain level of risk. This risk can vary depending on where you invest your money. Investing in property comes with a different level of risk compared to government bonds. And these have a different level of risk compared to equities, etc.

What is your risk attitude?

One thing you will need to ask yourself is what your risk attitude is. This can depend on how naturally cautious you are as a person. As well as your age, your future plans, the stage of your career and other factors.

Stock markets naturally dip and rise. You need a steady nerve to wait out short-term drops and feel confident that over 10, 20 or even 30 years you will see a worthwhile return.

It’s also worth remembering that you don’t need to invest all your money in one type of asset. You can spread it across different areas depending on your tolerance for risk and your plans for the future.

For example, you don’t need to put all your savings into one type of asset like property. Instead you can distribute it across property, cash, equities or other assets to diversify your investments and risk.

Using an actively managed fund via an investment house could be very helpful for you to achieve your long-term financial goals. Having someone else in charge of managing your money and monitoring the markets every day, in order to proactively react to opportunities, can take a lot of stress and time out of managing your investments while making sure you’re getting a strong return.

Ethical and sustainable investing

Another question you may want to consider when investing money is how ethical and sustainable the companies are that you’re investing in.

More and more people are concerned with making sure the companies they invest in are behaving ethically in terms of their environmental and social impact and the way they are governed.

Again, using a managed investment fund can help with this.

At Wesleyan we invest in companies for the long term. This means our priority is finding sustainable businesses that will still perform well for many decades. We feel they generate the best returns for our customers and are the most financially secure.

Those sustainable companies tend to be the ones that are doing the ‘right thing’. Those that aren’t environmentally or socially sound, or being governed correctly, tend to struggle.

Three considerations before investing

Investments are a great way to make your money work smarter for you. If you’ve found yourself with a surplus of savings and are considering dipping your toe in the market, below are three things to consider:

  • What is your tolerance for risk? Would you be able to stomach a short-term loss for a long-term gain? This will help you to decide where you will feel confident investing your money
  • Look at your existing savings situation and interest rates. Ask yourself if your hard-earned cash could be working harder for you
  • Have a conversation with a financial consultant. Getting your finances in order isn’t always the most exciting way to spend your time. But talking to someone with financial expertise might just shine a light on a new way to earn more from what you already have and make life easier.

Markets are not appropriate for everybody. It is often worth talking to a specialist, such as a Wesleyan financial services consultant. They can help to make sure that you’re suitably matched to what is appropriate for your situation.

If you’re considering your investments or looking to invest, you can book a 30-minute quick start no-obligation chat with a Wesleyan financial services consultant by visiting: Alternatively, call 0800 316 3784.

*Keep in mind that investment values can go down as well as up. So you could get back less than you invest.

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