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.
Speak to most people and a holiday, a haircut and a hot meal they haven’t had to cook themselves, will probably come up somewhere towards the top of their post-lockdown wish list. No surprise then that the very first weekend of the beginning of the end of the third lockdown in England saw shoppers, drinkers and revellers living it up and spending like there’s no tomorrow.
One positive impact of the pandemic is a rise in so-called ‘accidental savings’; all those ‘must haves’ that we used to spend on without a second thought, but couldn’t when the world was in lockdown.
Such has been the impact of trimming our spending that it is likely that you stand to come out of the pandemic with a little more spare cash than you went into it.
And new research from Fidelity International shows that the lockdown savings can be substantial. All in all, women have in fact made the most lockdown savings of the two, with the 35% of women surveyed who made cutbacks to their spending since the first lockdown in March 2020, building up net average savings of £2,381. Male savers have accrued around £1,116.
All those haircuts you couldn’t have, all those meals out that have had to be postponed and yes, all those coffees that you would usually have bought out of habit on your way into work, are likely to have had a positive impact on your spending.
Our research shows that women have saved £352 on average for haircuts and £289 on average on clothes. Men have saved a little less on these particular outgoings - £37 on haircuts and £123 on clothes.
Women are much more likely to splurge on shop-bought coffee and lunches - they saved £71 on coffee over the past year compared to £11 for men, and £108 on shop bought lunches compared to £63 for men.
In the UK, figures from the Office for Budget Responsibility show that UK households deposited £148 billion in the first three quarters of 2020, over £100 billion more than the £45 billion accumulated in the preceding three quarters.
This isn’t a UK phenomenon though. There is a tidal wave of pent-up spending that will sweep around the world as lockdowns ease. According to credit rating agency Moody’s consumers around the world have stockpiled an extra $5.4 trillion of savings since the coronavirus pandemic began and are becoming increasingly confident about the economic outlook.
The roaring 2020s?
Moody’s estimates that households around the globe will have accumulated savings equivalent to more than 6% of global gross domestic product by the end of the first quarter of this year.
And that paves the way for a strong rebound in spending as businesses reopen. All the sectors that have suffered the worst impact of the lockdowns - from pubs and restaurants to shops, hairdressers and beauty salons, gyms and the entire leisure sector - stand to see a significant, and much-needed, boost as the economy reopens.
Businesses need us to get spending - and those home haircuts need some professional help, let’s be honest - but using some of those lockdown savings you have accrued to get invested and reap some reward from all those bleak months in lockdown, is a once in a generation chance to turn the negatives of the past year into something positive for yourself and your family’s future.
Here’s how to do it:
1. Make investing a positive habit
Adopting a regular savings habit is a good way to stay on track with your goals, and it has the additional benefit of taking advantage of the ups and downs in the market too. When markets fall you automatically benefit by getting more shares or units for your money. This is known as ‘cost averaging’ because it can considerably lower the average price you pay for your investments. And, if you buy when prices are low, you reap all the rewards when they rise again.
2. Don’t put all your eggs in one basket
Having a mix of assets from shares and funds to bonds and cash, across different sectors and geographies is the best way to ensure that one spell of volatility doesn’t take your entire portfolio down with it. After all, none of us knows what is around the corner. Spreading your assets means sharing the risks and that is an essential for any investor.
3. Take an income or go for a snowball effect, it’s up to you
Company dividends are generally based on company performance; whether profits have grown, not whether the FTSE 100 is the flavour of the day. An additional benefit of opting for dividend-payers is that more often than not these also tend to be solid, global brands that typically operate globally, generating profits from a range of products and services across the globe, adding some additional diversification to your portfolio too.
If you don’t need the cash now, then reinvesting your returns and letting them grow and generate their own returns can transform your portfolio. This phenomenon, known as compounding and allegedly referred to as the eighth wonder of the world by Albert Einstein, has a powerful snowball effect and can substantially increase your total returns.
More on regular saving
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. Investors should note that the views expressed may no longer be current and may have already been acted upon. 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 a Fidelity adviser or an authorised financial adviser of your choice.
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