Savers - a call to arms!

Cleaver

PasturesNew wrote: »

And "invested in something that protects it", to be honest, savings/investing really make my head spin and I get confused and have no idea. So I keep it in cash. Even opening savings accounts and using them is challenging to me.

I know I've used analogy after analogy on this thread, but I'm going to use another one.

We needed a fence putting up, but I'm rubbish at that type of thing and have no real interest in learning. So I paid someone who is good at it to do it for me. IIRC you're a whizzy guru with Google adterms and web searching so people who aren't good at that pay you to do it for them. Same type example.

To take this back your money situation Pastures, you say yourself that you're not good at knowing what to do with your money, so why don't you pay an IFA to do it on your behalf?

Cleaver

Graham_Devon wrote: »

I'm not sure that you can invest in any product that protects your capital better than a savings account does anyway.

If your capital is protected then you're not really investing. You're saving.

Savings accounts are pretty much the only product that protects your capital, at least in terms of the real amount of capital. At the moment they don't protect your capital against inflation.

Graham_Devon wrote: »

All investment products carry risk, which is usually (always?) larger than a savings account. So not really sure what is meant when saying it should be "invested" in something that protects it.

I think you're confusing guaranteeing a capital amount (i.e. I give a bank £100 and, whatever happens, I can get that £100 back at some point) and setting up a portfolio that you think will match or beat inflation over a long period of time.

Let's say inflation is running at 3%. My savings account pays 2%. I have £100 that I have to either save or invest. I have loads of choices, but there's two main ones.

1) Let's say all I'm bothered about is getting the capital back. In that case I just stick the £100 in the savings account. At the end of the year my £100 is now worth £101.61. So if all I wanted to do is guarantee my capital, I've done that. But inflation is running at 3%, so my £100 actually buys me less at the end of the year than it did at the start, so my savings are being eroded by inflation. The risk I've taken with this is that I don't beat inflation.

2) I decide that I want to at least match or beat inflation. To do this I have to take a risk with my money. I don't want to lose it all, so I put £50 in the savings account that pays 2%. I split the remaning £50 between a variety of equity funds that I think will rise above 3% on average over the year. Hopefully at the end of whatever investment period I've beaten inflation.

So both those options come with risks and benefits. The first one has a risk that I lose my money to inflation, but with the benefit that I get back at least as much as I put in and probably a little bit more. The second sees the risk that I could get back way less than I put in, but comes with the benefit that I could get back a lot more than I put in and beat inflation many times over.

Obviously at one end of a spectrum you have all your money in cash and at the other you still all your money on one risky stock. I think most people would be a bit mad to take either of these options (aside from a few specialist cases), so you have a wide range of savings and investments to match your risk level, objectives and age.

In summary, the only way to protect your money against inflation if savings accounts are paying less than inflation is to invest your money. That doesn't mean that there aren't risks attached to trying to achieve that protection though.

Cleaver

By the way Graham, are you still in XTR? I bought back in last week at 3.4p only to see it rocket up to 4.5p this week. I've decided it's my lucky share, as that's twice now I've bought and for seemingly no logical reason it sees massive rises. Might sell tomorrow as it's bound to retrace if there's no real news backing up these rises.

Now, XEL on the other hand still sits there despite all the seemingly obvious signs that it should be soaring. I reckon the board of directors could release an RNS stating that they've found a way to sh*t pure gold bricks and the share price would still shrug its shoulders and hover around 350 - 380.

Graham_Devon

Cleaver wrote: »

By the way Graham, are you still in XTR? I bought back in last week at 3.4p only to see it rocket up to 4.5p this week. I've decided it's my lucky share, as that's twice now I've bought and for seemingly no logical reason it sees massive rises. Might sell tomorrow as it's bound to retrace if there's no real news backing up these rises.

Now, XEL on the other hand still sits there despite all the seemingly obvious signs that it should be storing. I reckon the board of directors could release an RNS stating that they've found a way to sh*t pure gold bricks and the share price would still shrug its shoulders and hover around 350 - 380.

No, got out of XTR, took some profits, tied them up elsewhere. Saw that they had gone up, not sure really what it's based on, so expect them to fall away again, though obviously good if you have profited again!

I watched my profits fall and fall, while waiting on a forever "imminent" RNS, which is still imminent and has been for nigh on 3 months now. Jumped elsewhere, and lost loads

All my shares are now down bar one, including FTSE100 companies, some by over 30%. Been a bad time in the mining sector. EMED still holding up for me, but that's falling away too. Pretty much tied up in them all now, and can't move without losses, so decided to just leave them all and see if patience does indeed pay off.

XEL sounds like one of my shares. Whenever they release a positive RNS, people pile out as it wasn't positive enough to send the share price up 130% in a day!

PasturesNew

Cleaver wrote: »

so why don't you pay an IFA to do it on your behalf?

Because I don't trust them. They're smarmy, greasy sales people.

I went to Barclays a couple of years back, right before the stock market was about to take a dive - and the guy was trying to talk me into buying shares and I said "This is house money; don't you think the market's about to dive?" and he stopped trying to sell me something.

I don't understand them, I don't trust them. And I have no money to "invest", it's for a house. Invest = risk. I don't want risk. I want to know how much I have and that I can instantly use it to buy a house if I want.

Cleaver

PasturesNew wrote: »

Because I don't trust them. They're smarmy, greasy sales people.

I don't reckon they all are. And meeting with them costs nothing (as far as I'm aware). Go and have a cuppa with some and see if you like 'em, as your gut instinct is probably correct.

PasturesNew wrote: »

I went to Barclays a couple of years back, right before the stock market was about to take a dive - and the guy was trying to talk me into buying shares and I said "This is house money; don't you think the market's about to dive?" and he stopped trying to sell me something.

I don't understand them, I don't trust them.

You're right not to trust someone at Barclays, because they couldn't be further from an IFA. A good IFA will be someone you trust and get on with and will be able to offer you a massive range (whole of market) choices, as that's the independent aspect, in that they are not tied to any company or product.

A person employed by Barclays is just there to sell you Barclays products, so they are the opposite of independant. The IFA will have access to literally thousands and thousands of financial options from around the globe and will have an opinion which are right for you. The bloke at Barclays is just on commission to flog you Barclays stuff. So there's a massive, massive difference there.

Don't get me wrong, some IFAs will flog you products that they good commission from, but at least it isn't a nailed on certainty like it is with the bloke at Barclays.

PasturesNew wrote: »

And I have no money to "invest", it's for a house. Invest = risk. I don't want risk. I want to know how much I have and that I can instantly use it to buy a house if I want.

Sounds like cash savings is right for you then Pastures.

But don't think of it as 'invest = risk', 'save=no risk'. You have plenty of risk with savings, the main one being that your capital is eroded by inflation. Another risk with savings is that you make far, far less than you could have done by investing or doing something else with your money. That doesn't make investing somehow superior or the right direction to take, I'm just saying that there are risks and benefits associated with both saving and investing.

LydiaJ

Cleaver wrote: »

You have plenty of risk with savings, the main one being that your capital is eroded by inflation.

True, although since Pastures has already allocated this money specifically for buying a house, its value to her can only be eroded by HPI rather than general price inflation.

julieq

CloudCuckooLand wrote: »

Do we? We let people walk away from all manner of debts.

Please remind me of the responsibility we place on borrowers.

I am struggling to think of 1.

Meanwhile some people get to repeat their mistakes... http://forums.moneysavingexpert.com/showpost.php?p=41220124&postcount=1

Rates of default are priced into loan rates. Overwhelmingly, borrowers do not default. You're falling into the trap of looking at a small but highly visible problem and extrapolating it into a general case.

As far as savers go, they are financial parasites in the true sense of the word, expecting above inflation returns for sitting on a pile of cash - there is frankly less reason for this to happen than there is for houses to increase in prices, given that a house has a utility value far greater than a pile of cash.

Someone at some point has to take risks, and given that the "prudent" are calling for the banking industry to be prevented from risk taking, it's not surprising that it's difficult to generate savings income.

So I have no sympathy for savers either, any more than I have sympathy for public sector workers demanding a job for life at my expense. Both groups may well think they have a case for getting what they have always got, at some point those paying are entitled to ask what they're getting for their money.

DervProf

I've said this before, but it's worth repeating, I think.

Forget cash for the moment. Let's "you scratch my back, I'll scratch yours".

I do a job for someone, but we decide not to exchange cash - we'll do the equivalent work in terms of time/difficulty.

I do 4 hours work, and repaint his fence. He agrees that at some time in the future, he'll return the favour. Meanwhile, inflation takes off, and the cost of living rises by 20%. I have "saved" my 4 hours work for a couple of years, and now decide I need my gardening done. I call the chap who's fence I painted, and he comes round and does 4 hours gardening. Happy days, a fair deal.

When I deposit money in my savings account, I am effectively banking x hour's work. The bank may well decide to lend my money to someone who hasn't yet done xx(and maybe a lot more x's) hour's work, but promisies to do so. The bank might take my money and lend it to that person, but the bank has to pay it's staff, cover itself (and myself) against bad payers, make a profit etc, and also has to reward me for using my money (yes, I know, fractional reserve and all that - I'm trying to keep this simple).

Now, I'm not trying to make a profit on my saved hours work, I'd just like to get the same hours back that I deposited. What's so parasitic about that ?

ILW

What colour did you paint his fence?