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Investing cash in difficult economic times

Do not be afraid of investing your cash, even when there is so much economic turmoil. Investing cash delivers the best returns the longer you can keep your money locked away.

Most investment opportunities will discuss risk. Risk is another way of looking at the return on your money. Obviously, the highest risk will provide the largest return on your money. However, you want to invest in such a way that this risk is managed.

Cash, in itself, is a safe asset but one that depreciate over time due to inflation. Ideally, you want to invest in ways that beat inflation and increases the value of the capital you invest. Investing your cash in property is usually a safe bet. Property prices generally go up over the long term. If you are able to rent out the property you purchase, then you will also get a regular income. You can also buy equities or commodities. Prices vary but tend to give a good return over the longer term.

If you invested £1,000 in equities 50 years ago it would return £16,000 today, compared to just £3,000 for cash or bonds. Of course, past performance is no guarantee of future performance. It does highlight that investing for the future is not a short term measure.

Most people do not want to invest over 50 years. Over a shorter period, shares have given a better return than cash. Over a 5-year period shares have beaten the return on cash 75% of the time. Over 10 and 20 years, shares have beaten cash over 90% of the time. However, in volatile economic times it is best to invest in periods over five years as you may risk losing money than gaining any.

Most people want to invest to protect themselves in case of a financial emergency, like being made redundant. The figure most quoted to have invested is about three to six months’ worth of salary, especially if you have insurance that does not pay out within the first 30 to 90 days of being made redundant.

Limit your risks by saving over a range of different investment types. Stick some money in savings, some in stocks and shares and some in equities and bonds.

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