Long Term Savers See Cash Eroded by Inflation

Despite plans to save for the long term, Britons are choosing to hoard cash - guarateed to lose value - over investing in the stock market

Emma Wall 11 July, 2017 | 2:26PM
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Emma Wall: Hello and welcome to Morningstar. I'm Emma Wall and I am joined today by Jeremy Roberts, Head of U.K. Retail for BlackRock, to discuss BlackRock's latest investor pulse survey.

Hello Jeremy.

Jeremy Roberts: Hello.

Wall: So, let's start with the good news, because there is some good news this year. What is that?

Roberts: The good news is that people have started to think about their long term financial futures and have told us that they are allocating some of their cash 25% for the long term. So that is good news they are starting to have a plan. But we think there is more work to do.

Wall: And that is admirable. That shouldn’t go unadmired, because we all have present bias when it comes to money. And so, deciding that actually to put 25% aside for the long term is a good thing. However, the way that they are allocating that money is not perhaps the best use of it, is it?

Roberts: No, so they have told us that 40% of their money they need for the day-to-day, for bills, for emergencies for rainy day today. We get that and that’s absolutely right. But they have told us that 25% of it is set aside our call to action is please have a think about that not being in cash. Because cash is being eroded by inflation every single day and inflation today is at 2.9% which is a bit of problem.

Wall: Why do you think people still have this sort of emotional barrier, a mental block when it comes to taking long term money out of cash which they see as a safe haven and putting into something like the stock market.

Roberts: It's about comfort. When times are uncertain and let's be honest with everything that’s gone on in the last 12 months, people regress to what's comfortable. And what's comfortable is cash but again we just want to say 2.9% inflation cash paying you nothing in terms of interest rates.

So, you need to get that money working for you. Let me give you an example. So, £2,270 is what people have on average that they have set aside for long term. That money over last 20 years if it had been invested in the stock market will be worth £8,350.

Wall: And that’s just a capital lumpsum of the beginning that’s not even adding to it over time.

Roberts: Absolutely right. And we haven’t cheery picked that 20 years. That 20 years includes the financial crisis, includes the dotcom boom and bust. So investing over the long time it works.

Wall: And so then to those people who are scared to make that leap out of cash into perhaps the stock market. What's the one call to action you'd give them?

Roberts: So, we've identified three different groups of people. We've called them the pinched, who have just – they just have a real emotional barrier about getting out of cash for the reasons we've talked about, nervous about the markets et cetera. We found that there are a group called the posers, now these are the people who understand inflation.

Who understand the benefits of investing in the long term, but just are nervous right now. Then the planners are the people who have said to us, yes we understand it. We want to make an investment, we just haven’t gone about and done it yet. So, if all those three people, sets of people we just want to say, just make that one further step into securing a longer term financial future for you.

Wall: Because if you don’t act now inflation will continue to erode your cash and leave you with negative returns over the long term.

Roberts: It will.

Wall: Jeremy, thank you very much.

Roberts: Thank you.

Wall: This is Emma Wall from Morningstar. Thank you for watching. 

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Emma Wall  is former Senior International Editor for Morningstar

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