Investing can be one of the best ways to grow your wealth and reduce the impact inflation will have on your finances over time.
According to figures compiled by financial data provider Morningstar, over the 20 years to the end of July 2023, £1 invested in the UK stock market for 20 years would be worth over £2.20, while £1 left in cash for 20 years would have a purchasing power of 86p today. Bonds performed better than cash, but only just. After a tough year for bonds in 2022, an investment in bonds would have maintained purchasing power value.
Over the longer term, the data offers the same conclusion. Over the last 119 years, UK stocks have made annualised returns of +4.9% over and above inflation. However, it is important to remember, past performance is not a reliable indicator of future returns and should not be relied upon.
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So, the evidence is clear: investing can be one of the best ways to grow wealth over the long term. However, investing can be made further effective in boosting wealth when combined with sensible financial planning.
The real world
In the real world, most people shouldn’t invest all of their money and hope to achieve the returns outlined above. That would assume you invest everything, never withdraw any money, never pay any taxes, and your income is more than enough to cover all other costs and living expenses. Life is uncertain, and has a habit of throwing curve balls. You can only have true financial security if you’re prepared for these curve balls and can take the challenges of life in your stride.
This is where the value of a financial planner or wealth manager cannot be understated. Financial planning professionals, such as the Investec Wealth and Investment (UK) team, will work with you to determine your life goals, your plans for your retirement, and the wealth you want to pass on to your children and grandchildren. From there, work with an investment manager to construct a plan and portfolio to achieve the outcome you want.
There are multiple benefits to this approach. You have peace of mind from entrusting dedicated teams of people with professional qualifications, investment experience, a proven track record and the regulatory approval to carry out investment management duties on your behalf. These dedicated professionals manage money daily and consistently review the landscape to ensure you’re making the most of tax allowances and investment opportunities.
What’s more, the Investec Wealth & Investment (UK) team can take all of the emotion out of your investment decisions and ensure common investment mistakes don’t occur while helping diversify your portfolio. Depending on your objectives, personal circumstances and risk appetite, this might include investing in a range of higher risk, sophisticated alternative investments, such as private equity and venture capital trusts that are typically not available on transaction-only fund platforms.
Mistiming cost
Wealth management and financial planning involve far more work than vanilla investing, and there is a cost to this additional effort.
In fact, Morningstar has found self investors suffered a 1.7% annual return shortfall due to mistiming their investments into and withdrawals from the same funds. The cost of this mistiming could be as much as £100,000 for a £250,000 portfolio over the space of a decade. One of the roles of an investment manager is to use their experience to help you navigate the markets and avoid these simple errors.
For more information, speak to one of our experts: 0808 164 1234 or visit investecwin.co.uk.
Disclaimer
The value of investments and the income derived from them can go down as well as up and you could get back less than you originally invested. Your capital is at risk. This article does not offer advice and the content and information about potential investments and services are designed for general use, and so cannot be considered personal to your circumstances or your financial position.
