Determining where to invest your money in the current economic climate can be challenging. Traditional options such as the stock market, property, and savings accounts may carry increased risks. For example, house prices have declined by 3.8% in the past year, the largest drop in 14 years. The stock market has also seen a 3.5% decrease. To gain insights into the best investment option for the next five years, we consulted experts in savings, investing, and property.
While saving accounts now offer decent interest rates, inflation rates have outpaced these savings rates for nearly two and a half years. Inflation currently stands at 6.8% in the 12-month period ending in July, which means that the real value of savings is diminishing. It’s important to explore inflation-fighting savings rates to mitigate this issue.
During uncertain times, investing in gold is often seen as a safe haven and a strategy to combat inflation. However, it is important to note that the gold price is not guaranteed to increase. In fact, between the 1980s and early 2000s, the value of gold remained flat. The decision of where to invest is crucial, especially considering that someone buying and selling gold during this time frame may have seen a decrease in both nominal and real terms.
Those with a long-term view can have more confidence in the potential payoff of investing in the stock market or buying property, but the suitability of these options depends on one’s time horizon. So we asked experts about their preferred investment choice for the next five years.
David Henry, an investment manager at Quilter Cheviot, believes that stocks are the best option. He highlights that over five-year periods starting from 1985, stocks outperformed cash returns 74% of the time. This historical trend presents compelling odds and disproves the common belief that property is the most successful investment. Mortgage debt and infrequent property valuation contribute to skewed perspectives on property value. Furthermore, increasing interest rates in the post-financial crisis world pose challenges for property as an asset class.
Rob Bence, co-founder of Property Hub and Portfolio, favors property investment, considering the slight drop in property prices over the past year. Rental prices have risen, and the use of mortgages can enhance returns while inflation erodes the debt.
James Blower, founder of savings website The Savings Guru, recommends fixed rate bonds due to their current overpricing. He believes that they will perform best in the next few years, which he predicts will be tough for many people. However, he advises keeping some money in an easy-access savings account for emergencies.
Andrew Hagger, personal finance expert and founder of MoneyComms, also suggests opting for fixed rate savings accounts that offer between 5% and 6% returns. He believes this is a safe bet, especially with projections indicating a potential decrease in inflation. This could result in a net positive return next year.
Sarah Coles, head of personal finance at Hargreaves Lansdown, reveals that she holds cash reserves for emergencies and planned expenditures. She would choose to invest in a diverse portfolio using funds. If she had no emergency fund, an easy-access savings account would be her preference, and if she needed a specific sum in exactly five years, she might consider fixed rate savings. She emphasizes the importance of not sticking to an asset that no longer suits one’s needs.
Charlie Lamdin, founder of BestAgent, suggests investing in gold or silver. He believes that savings rates of 6% will be neutralized by inflation and foresees a significant stock market correction within the next three to five years due to mounting corporate debts. Lamdin suggests that the era of attractive returns from the property market is over unless one is involved in property renovation or cash-buying professional landlordship.
In conclusion, considering the insights from experts, it seems that the stock market, fixed rate savings, and property are the preferred investment options for the next five years, depending on one’s risk tolerance, time horizon, and investment goals. Each option has its own advantages and potential drawbacks, so thorough research and consideration are essential to make informed decisions.
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