Could investing help your money work harder?

Could investing help your money work harder?

Do you have some savings goals that are more than five years away – like helping your kids through university or going on an around-the-world trip? Then putting some of your cash into investments could be worth giving real consideration.

Here are some of the reasons why…

1. Your money could grow more

What’s the main reason that people invest? Simple. To make more money than they typically would though a savings account.

Historically, over the medium to long term (think 5-10 years or more), investing in the stock market has typically generated greater returns than leaving your money in a savings account for the same length of time. 

Of course, past performance can’t tell you what will happen in future – and you should be aware that investments can fall as well as rise in value, meaning you can get back less than you paid in. But if you do it wisely and for the long term, investing your money could deliver greater returns.

2. Benefit from the effect of ‘compound returns’

As a rule of thumb, the longer you can leave your money invested, the better. And one of the reasons for this is that the longer it’s invested, the more it could benefit from something called ‘compound returns’ – once named “the eighth wonder of the world” by a certain Albert Einstein.

Here’s the concept…

Let’s say you’ve invested your money, and that your investments have done quite well. So after the first year, you’ve earned a return on your initial investment. In the second year, any returns you earned would be on both your initial investment and last year’s returns. 

To help you understand just how powerful the effect can be, here’s an example. If you invested £100 a month and it grew at 5% a year, after 10 years you’d have over £15,400 – and more than £3,490 of this would be made up of compound returns alone.

Little wonder our friend Albert was such a big fan.

Note: the figures above don’t take inflation into account, which would reduce the spending power of these amounts over time.

3. Shelter your money from the taxman

If you invest your money through a stocks and shares ISA, your money will be sheltered from tax.

What this means is that if you invest through an ISA, you won’t have to pay income tax or capital gains tax on any returns you make, unlike with some other forms of investment. Good news all round (except for the taxman).

Please bear in mind that this information is based on our current understanding of tax rules, which are subject to change. Your exact tax treatment will depend on your individual circumstances. And at the start of each new tax year on 6th April you receive an ISA allowance – the maximum amount you can pay in during the year.

4. And it’s more convenient than ever

From managing your bank account to shopping for clothes, just about everything has become easier and more convenient in the internet age. And the same goes for investing money.

Several companies (ourselves included) now enable you to invest your money online – whether it’s through a stocks and shares ISA or an investment account. Much like internet banking, you can make transactions or see how much money you have through an easily accessible, online account.

Is investing right for you?

Before making any sort of investment, you should always consider whether you’re able to commit your money for the medium to long term. You should also make sure you’re fully aware and accepting of any risks involved, such as the fact that the value of investments can go down as well as up, and you may get back less than you invested.

This article is not intended to give advice or a personal recommendation. If you’d like a personalised recommendation based on your circumstances, you should seek financial advice. You can find a financial adviser in your area at www.unbiased.co.uk

Thinking of investing? For more information about our investment products – including the Aviva Stocks & Shares ISA and the Aviva Investment Account – visit our investments page.

 

BR01167 04/2016

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