Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
The damage to health and finances from the Covid-19 pandemic has not fallen evenly.
It has been devastating for many while leaving others relatively unscathed and, cruelly, it has often been those already vulnerable who have been worst hit.
In the jobs market, whole sectors have been forced to effectively cease trading leaving anyone employed within them dependent on the safety net of furlough. Meanwhile, a great many others have been able to work perfectly adequately at home in industries that have not been harmed - and may have been helped - by lockdown.
This imbalance can be seen in the results of new research from Fidelity which looks at people’s saving and spending this year. It showed that some 60% of people have had to raid their savings during the past six months in order to cover day-to-day spending, with an average £843 being withdrawn across the period.1
Meanwhile, many others have found themselves better off at the end of 2020 with more than quarter of people - 26% - confirming that they have increased their saving this year. And not by small amounts either - the average amount saved by those able to put more aside was £1,649.
Another finding was that younger people have been most exposed, with the proportion of those in their 20s raiding savings as high as 78%. At the other end of the age range, among those who have been able to save money, it is older people who have put aside the most with savings for those in their 60s averaging £1,909.
The research shows the vital support that some cash savings can provide if there is a sudden worsening of your circumstances, for example if your earnings fall for any reason. With so many having to dip into savings this year, it is inevitable that many others without savings to start with will have fallen into debt.
That’s why having a pot of emergency cash on hand is a fundamental first step towards achieving financial security. Ideally, you will have enough money saved to cover your essential outgoings - like rent or mortgage, bills and food - long enough that you can recover. Between three and six months is often advised.
If you have that in place, the task then becomes to boost your long-term savings. That might mean extra amounts saved into cash accounts but, for those happy to risk losses in the hope of a higher return than from cash, investments can also be considered.
If you’ve found that you’re spending less in lockdown and have a little extra left over each month, now is the time to plan so that you lock in those savings. Funnelling them into tax-efficient ISAs or pensions - via your workplace scheme if you have one or a SIPP (Self-invested Personal Pension) - means that any gains you make will be free of tax.
By locking in savings from 2020 it’s just possible that a difficult year might bring some benefit in the long-term.
1 - Fidelity International, November 2020. The survey is based on a sample of 3,000 UK adults during October 2020.
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
How gold let me down... and other investing mistakes this year
What happened when I tried to broaden my portfolio?
The investment lessons to learn from the China and energy crises
Current events offer cautionary tales for investors looking to preserve wealth