What are the risks of investing in Cash ISAs?
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I have been putting money aside in a building society deposit ISA for several years, which is now worth £100,000. I’m aware that I could get better returns with a proper investment ISA but I’m worried about losing money on what I’ve put in. It seems to me that I’d be taking a huge risk if I changed to an ISA that would lose value if the stock exchange goes down. What do you think?
Matthew Hinchliffe of Smith & Pinching responds:
Cash savings are currently struggling to keep pace with inflation, so your Cash ISA savings may be losing value in real terms. It is certainly true that an investment portfolio will bring an element of risk into the mix, but it is possible to manage the amount of risk that you are taking.
Firstly, it’s important to understand that different investments carry different levels of risk. When building an investment portfolio – including investments inside an ISA or a pension – the investment funds and products in which you put your money should be suitable for you. It should only involve the amount of risk with which you are comfortable. While the element of risk will never completely go away, it is possible to invest with very little risk.
Having said that, it is true that higher levels of risk often come with the potential to bring a greater level of reward. The trick is to get the balance right so that you stand a chance of reaching your investment targets without moving beyond your comfort zone.
As independent financial advisers, we help you understand your risk profile through a series of questionnaires and discussions. We will also look at your aims and objectives for the money you are investing and look at the feasibility of getting to where you want to be. We can then match and recommend investments to you as an individual.
It’s important to appreciate that investing is all about the longer term, and you must be prepared to ride out short-term falls in the market if you are to make gains on equity investments. If you need to access your investments at a particular point in time, there is a risk that you could be withdrawing your money at a time when markets are low.
I strongly recommend that you take independent financial advice about how to invest your money in a way that provides you with the returns you need both in the short and the long term.
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Any opinions expressed in this article do not constitute advice. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.
For more information, please visit www.smith-pinching.co.uk