Saltydog: Keeping your money in a cash Isa is a wasted opportunity

It’s frightening how much of people’s savings is just lying around doing nothing. Why is this frightening? Because if you want a comfortable retirement for yourself and your family, you really should make sure that your money is actively working for you – not just ‘sitting under the mattress’.

According to figures from HM Revenue & Customs, £270 billion is currently held in cash Isas. With today’s low interest rates, this money is earning virtually nothing and, in many cases, is actually losing value. Research by broker Hargreaves Lansdown has shown that there’s a further £400 billion lying around in underperforming ‘dinosaur’ investments such as with-profits funds.

This is such a huge waste. If your money is in a cash Isa or an underperformer, consider how much this is costing you over the long term. It could be tens of thousands of pounds. You have done the difficult bit, which is to save this nest-egg and place it in an Isa protecting it from future tax demands. Sadly, you have then sat on your hands and not done the easy bit, which is to make it grow in a safe and sensible fashion, while allowing compound interest to be left to work its magic.

Let’s say you have £25,000 in savings. Just look at the difference in returns over the next five to 20 years, depending on whether you put that money in a cash Isa or invest it conservatively in the stock market. A cash Isa might give you 1.5 per cent interest. A conservative stock market investment could give you a 7 per cent return, and in this example, I’ve then deducted £300 a year for costs. Here’s the startling difference in results:

As you can see, even after just five years the stock market strategy is ahead by over £6,000. And if you keep the stock market strategy going for 20 years, you could be up over £50,000 and your savings pot could be more than double the amount you would have made from a cash Isa. That’s an enormous difference.

Industry not your friend

Please bear in mind, however, that the financial services industry is not really motivated to help you out. Why? Because its members still charge their fees, whether your wealth increases or not. Your savings pot is your baby and no-one else’s, and it’s in your hands to turn the situation around.

Many people quite wrongly see stockmarket investing in the same negative light as betting on a horse race. They are put off by the perception that the risks are high and the chances of winning are low. But that does not have to be the case.

As the graph shows, the cautious Saltydog Tugboat portfolio has by and large avoided the five major stock market falls over the past six years, and yet still produces an average annual return of more than 7 per cent.

Not everybody will have the ability or temperament to run their own investment portfolio, but there are many who could if they tried. Today, DIY investing is possible for anybody with a computer and access to the internet. The arrival of fund supermarkets has made it cheap, quick and easy.

-How to invest a windfall: a beginner's guide

To be a successful momentum investor, following strong performance, you need continuous up-to-date accurate information, and it is vital that decisions should not be based on rumour, speculation and hearsay. The Saltydog Investor was developed to assist people in making these initial steps. We are enthusiastic advocates of active fund momentum investing, and issue weekly unbiased performance numbers to use for decision-making.

We invest in funds, and advocate that investment decisions should be based on selecting the Investment Association sector fi rst and the fund second. When a sector is performing well, like a rising tide it will fl oat all the funds in that sector. A momentum strategy has energy and strength to produce the growth that we are looking to achieve. 

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