I would never even think of investing in a Cash ISA or bank savings account. The interest rates are just way too low. I think the best way to build my long-term wealth is to invest in UK shares. I have a great opportunity to buy them today, given that stock prices have fallen so sharply in the stock market crash.
By investing in top shares inside a tax-free Stocks and Shares ISA allowance, I can build long-term wealth for the future. If I keep topping up my holdings, year after year, I could retire rich. But not everyone seems to realise this.
New research shows that Britons are sitting on the biggest ever pile of cash in history. It is one of the quirks of the lockdown that people are saving money rather than spending it going out. Normally, I would say great, that is sensible.
Your cash pile is a waste of money
One problem is that it is bad for the economy. We need people to spend their money, to keep other people in work. Another problem is that you now get next to nothing on cash these days. Leaving money sitting in the bank rather than buying UK shares is a big mistake.
New figures from Janus Henderson Investment Trusts show that lockdown and recession fears have pushed household cash balances up £77bn in first half of the year. Savers now have a mind-bending £1.5trn stashed away in the bank, the biggest cash pile on record. That money would work harder in UK shares.
Everybody should have some cash in an easy-access account, for emergencies. Financial experts recommend the equivalent of six months’ salary, to see you through redundancy or illness. Yet the research shows that almost £1.2trn of this cash mountain is not needed to meet household contingencies and is sitting unproductively earning minimal interest.
I’m choosing UK shares over cash
By leaving money in unproductive cash, as opposed to productive UK shares, Janus calculates that savers have missed out on £38bn of income over the last year. That is equivalent to £1,350 for every household.
Of course, 2020 has been a bumpy year for stock markets and UK shares, and I can see why some people have run for the safety of cash. However, the time to buy UK shares is during a crash like this one, as we cal all can pick up our favourite companies at much cheaper valuations.
History shows that markets always recover after a few years, and those who bought at the bottom can benefit.
Dividends may have been slashed, but the Link Group still predicts UK shares will yield on average 3.6% next year, which is way more than I will get on cash. Plus I will get capital growth on top if markets bounce back when we finally have the pandemic licked.
If we get a successful vaccine, UK shares could fly. Of course, the recovery could take much longer, and Brexit could mess things up too. That’s why I think investors should only buy shares for a minimum term of five years, and ideally much longer than that.
I would rather buy bargain-priced stocks today than add to the nation’s cash pile!
I could start with this one.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.