The Motley Fool

46% of Brits could be making a huge retirement savings mistake

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Chalk outline of two arrows pointing in opposite directions
Image source: Getty Images.

According to HMRC statistics, at the end of the 2016/17 financial year, Britons had a total of £585bn saved across adult ISAs. However, of this figure, a huge 46% was saved in Cash ISAs, despite the abysmal interest rates of around 1% offered by these products. That’s a worrying statistic, in my view.

I’ve said it before, and I’ll say it again, cash is a lousy long-term investment. Sure, it is useful when saving for short-term goals, but when it comes to saving for retirement and generating wealth over the long term, cash won’t get you very far at all. In fact, if you hold money in cash over the long term, your wealth is likely to actually go backwards.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Inflation: the silent wealth destroyer

When saving for retirement, it’s important to consider the impact that inflation will have on your savings over the long term.

Inflation refers to the general increase in prices over time. Often, it tends to run at around 2% to 3% per year, although the Bank of England has a target rate of 2%. Currently, the rate of inflation is 2.4%, meaning that the price of goods and services is 2.4% higher than it was a year ago. Yes, you already know that but it’s worth repeating and thinking about. While not noticeable on an everyday basis, inflation of just 2% to 3% can have a large, negative impact on your wealth over time, because it reduces your spending power in the future.

For example, let’s say you have £10,000 saved and want to go shopping today to buy a new TV, new furniture, a new computer and some new clothes. With £10,000 saved, your spending power is, you guessed it, £10,000. However, if you let that money sit in a bank account earning no interest for 10 years, and inflation is 2% per year, at the end of the decade, your spending power will be reduced to around £8,170 in today’s money. In other words, you’ll be able to afford almost 20% less stuff, simply because inflation eroded your purchasing power.

This example illustrates why cash is such a lousy long-term investment, and why it’s so important to have your money working for you, and growing at a rate above inflation. To combat inflation, invest in growth assets.

A superior ISA

If you want to grow your wealth at a rate above inflation, consider a Stocks & Shares ISA over a Cash ISA, as it’s a far superior investment vehicle. It has the same main advantage in that its a tax-free account, yet unlike a Cash version, it lets you invest in a range of growth assets, such as shares, funds and ETFs.

For example, through a Stocks & Shares ISA you could invest in a FTSE 100 tracker. Over the last three years, FTSE 100 trackers have returned around 25%, although past performance is no guarantee of future performance. You could also invest in a top mutual fund such as Nick Train’s Global Equity fund, which has returned around 80% over the last three years. Or perhaps you could look at investing in a portfolio of individual shares yourself?

Either way, the chances are, over the long-term, growth assets will outperform cash, and are likely to protect your wealth from inflation. Ultimately, investing in growth assets could help you retire earlier.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.