A colleague told me she needed to make a confession. She had invested in bitcoin. What! I was flabbergasted. Sensible, in her fifties and living in Devon with her Aga and her animals, she is not the obvious person to be invested in crytpocurrency.
Her reason was her beloved horses. The vet’s bills were huge, and their pre-existing conditions were adding up. Recently they had become effectively uninsurable — either the policies available were crazily expensive or insurers refused to cover them at all.
And so she bought £200 of bitcoin as a possible route to paying a year’s worth of vet’s bills. She gave the money to her nephew, who like all self-respecting millennials, has started dabbling in crypto. He has invested it, on her behalf. She told him to tell her either if it got up to £500 or was down to £50. Otherwise she didn’t care. She gave the money to him two weeks ago and hasn’t heard a peep since.
My colleague is fully aware that this is a high-risk bet, but it’s not a crazy one. She can afford to lose the £200 and if the gods of crypto smile on her she may make enough to pay her vet’s bills for a year.
The moral of the story is that not all risk is reckless or foolish. Putting your life savings or house deposit in bitcoin is immensely foolish, but taking a punt with money that you can afford to lose isn’t.
Advertisement
But it’s also true that not everything that comes with no risk is advisable.
Take cash savings. You have removed all risk by not putting your money in the stock market, so you will never lose it, so long as you have no more than £85,000 in any one institution (the limit the government will refund you if a bank goes bust). But what you’re left with is the certainty of a terrible rate. Your security comes at a price, and the returns won’t pay for a hoof to be clipped, let alone for the horse to be scanned.
● A beginner’s guide to Isas: the seven ways to save
● It may be time to ditch the US and snap up British stocks
● Patience pays dividends in the end — and it’s sweeter when there’s no tax
We have a problem with cash. It’s not that we hold too little of it, it’s that we have too much. While £48.7 billion was paid into cash Isas, where it will have earned a pittance, in 2019-20 according to HMRC, just under half that — £24.2 billion — was put into a stocks and shares Isas.
Holding your savings in cash has been unwise since the 2008 financial crash when savings rates became so low. If a bank offers anything over 1 per cent they trumpet it with a press release.
Advertisement
In August 2007, you could get 6.1 per cent from Alliance & Leicester — now the average easy access rate is 0.26 per cent.
Some analysts expect inflation to hit 10 per cent this year, which is scary for anyone, but particularly for those whose money is stored in cash.
Food prices, petrol prices, and energy bills are all going one way, while our salaries are going down, in real terms
While we’ve passed the point at which you can sensibly invest to wipe out the effect of inflation, you can at least mitigate it.
And if you have your money in a cash savings account then you are taking a pea shooter to a gun fight. Even with the markets slightly all over the place lately, a return of 4 per cent to 5 per cent should still be achievable over the long-term, which means your situation won’t be half as bad as if you weren’t invested.
Advertisement
A cash account is by far most ungrateful home for your money. The credit crunch meant the government provided enormous amounts of money to banks and building societies so that they could continue lending. A byproduct of this was that they no longer had to rely on savers’ money to fund their lending. And so they dropped their rates to historic lows.
You should, of course, have between three and six months of living expenses in a savings account that is easy to access, but beyond that find a home that works harder for your money.
No one is suggesting that you should turn to crypto — unless you have expensive horses and spare cash to burn too — but a FTSE 100 tracker is a good place for your money right now. You’re likely to experience slow, unspectacular growth that way. Nothing to scare the horses, but returns that will most certainly exceed what the ungrateful savings market is offering.
