Your Finances - Liberty Partnership

INTEREST RATES... Not what they used to be

BY MATTHEW BIGGS – FINANCIAL PLANNER

As I approach my thirtieth birthday this September, I have decided to reflect on the past thirty years, and I think it is fair to say the world is a very different place from what it was in 1990!

The early ’90s was an incredible time for many reasons - some great music, the end of the Cold War, and the emergence of a new generation of tech companies that we all now wish we had purchased some shares in! Interest rates were on the up and, by the end of 1990, the Bank of England base interest rate was nearly 15% - completely unthinkable today! This was great for savers but clearly not so good for those who had a mortgage during those days and, as a borrower, things were pretty painful! In the current climate of low interest rates, we see the reverse of those days in the early ’90s cycle - great for borrowers but, for savers, almost impossible to find sensible levels of return at the bank or building society. So, where is the alternative in these days of fear and uncertainty? How are you going to generate sensible returns to see you through your retirement years, children’s schooling or that holiday of a lifetime? One option you may wish to consider is to invest some of your capital. In the example below, you can see what would have happened if you had invested £10,000 between January 1st 2010 and July 1st 2020. The blue line (A) has been invested in the average ‘balanced’ risk portfolio. The green line (B) is a fixed interest rate of 1.5% (the average of the past ten years) and the red line (C) is the Retail Performance Index (RPI), a measure of UK inflation:

By the start of July 2020, the blue line (A) in now valued at £18,566.02, the green line (B) is valued at £11,691.50 and the red line (C) is valued at £13,426.61. This shows that if you had chosen to save in a vehicle that offered a fixed interest rate of 1.5% over the past ten years, your money would have actually fallen in real term value of £1,784.66, whereas it would have gained £6,054.74 in real term value were it invested over the same ten year period (basically, if your money is below the red line (C) you’re losing money, not making money!).

So, perhaps now is time to consider your own planning. With our help, you will be able to understand if making an investment is right for you.

If you would like to discuss the advantages and disadvantages of investing your money over the medium to long term, then please contact our office to arrange a FREE initial consultation with one of our highly experienced and friendly financial planners.

Past performance can in no way be seen as a guide to likely future performance; investment values can fall as well as rise; when investing, capital will be placed at risk.