Putting your money to work
We all need to keep a certain amount of money in the bank to cover day-to-day living and regular outgoings such as mortgage repayments, as well as having something in reserve for any unplanned spending. It is reassuring to know that there is a financial cushion there, but it may not pay to keep too much sitting idly in a bank account.
There is always the danger that, over the long term, the spending power of cash in the bank will be eroded by inflation if that takes off again, especially if interest rates do not keep pace with it. One way to fight inflation is to invest money you do not need at present in assets with the potential to grow in value and also provide income in the meantime.
Stocks and shares, also known as equities, are an important form of investment. These fluctuate in value day by day and usually pay dividends to shareholders. With values and dividends not guaranteed, stocks and shares are not for the short term and to mitigate risk it is best to spread such investment across a mix of companies.
Various pooled investments such as unit trusts and open-ended investment companies enable you to invest indirectly in a selection of shares. Using such vehicles means your investment portfolio may be spread across market sectors and global regions and may also include other asset classes such as property and fixed interest securities.
New ISAs provide a tax-efficient way to invest; also, an annual tax-free dividend allowance of £5,000 is effective from April 2016. It is important to select investments that suit your finances and goals, so advice from an expert is important.