What's the best way to invest money?​

Take savings accounts, for instance. Like other kinds of cash investments, you’ll probably get the big advantage of easy access to your money. That’s a great safety buffer to have in case of an unexpected crisis, so it’s easy to see why these accounts are so popular with people who don’t have a lot of investing experience. There’s also the simple fact that your money’s pretty safe. Depending on how you’ve saved it, and how much you’ve put away, some or all of it might be legally protected by the FSCS, for example.

Here’s the problem, though. Savings accounts really don’t offer much in the way of growth potential. Yes, you might well have a cast-iron guarantee that the actual cash you save won’t be lost. However, high inflation and low interest rates are a really nasty combination that’ll see your actual buying power fall fast.

To give you an example, a study from insurance giant Royal London crunched the numbers on this. They found that people who kept £1,000 of their savings in basic deposit accounts over the previous 10 years actually lost about £100 of their money’s value. By comparison, those who’d carefully invested the same amount of cash in ‘multi-asset funds’ (basically, not putting all their investment eggs in one basket), would have seen their savings grow to over £1,500 instead. Just as shockingly, they also estimate that people sticking their savings purely into cash ISAs have lost out to the tune of over a combined £100 billion in tax-free gains!

The most popular alternative to cash savings would be investing in stocks and shares. Compared to savings accounts and cash ISAs, you’re typically looking at much higher potential growth over time this way. ‘Potential’ is very much the operative word here, of course. The value of stocks and shares will naturally go up and down over time, so the growth you see will vary from year to year, and your investment’s value can still go down in the long term.

Are stocks and shares actually any better than cash savings, then? Actually, yes, in general. The stock market does outperform ‘safer’ cash ISAs and standard savings accounts pretty much across the board. The trick to keeping your returns up and your risk levels down is not to invest everything in any one place. Spreading your money across a range of different stocks and shares is usually what the experts recommend. That way, any losses you make from some of your stocks going down in value can be balanced out by growth in others.

Stocks and shares ISAs are a very different type of investment from the cash versions, and can be a particularly smart investment option if you’re looking at investing under £20,000 in a year (that’s the limit you’re allowed to put into ISAs). The nice thing about stocks and shares ISAs is that, although the returns are likely to be higher than a cash ISA, they’re still free of Capital Gains Tax. Your money can be spread around across a wide range of investments, too. If you’re got a serious saving goal in mind, like putting together a deposit to buy a house, this could be the ideal investment to get you there.

Another variety of investment that’s generally considered good for low-risk growth is the bond. These are a little different from other options, in that you’re basically giving a loan to a government or business. Each bond has an interest rate, which you get (along with your original investment amount) at the end of a set term. Again, the popularity of bonds stems in no small part from their general stability. You know pretty much what you’re signing up to when you dive in. It’s still worth remembering that some bonds carry more risk than others, though. If the company you invest in goes bust, for instance, you could still stand to lose out. However, since you’ll be counted as a ‘creditor’ rather than a shareholder, you’ll have a decent chance of getting at least some of what you’re owed back.

RIFT Round-upWhat it all means:

• Stocks and shares: A way of dividing up the ownership of a company. As an investment, they can go up and down in value.
• Investment portfolio: The overall set of investments you’ve made, including stocks, bonds, etc.
• Index funds: A way of diversifying your portfolio without having to manage all your investments individually.
• ISAs: Savings accounts that pay tax-free interest or returns. Some of them are tied to stocks and shares, others pay fixed or variable interest rates.
• FSCS: The Financial Services Compensation Scheme, which protects you from up to £85,000 of losses if your bank, building society or credit union fail.