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.
For a long time, cash was easy to overlook. Interest rates were low, returns were modest, and many savers saw their money standing still.
That changed when interest rates rose. Suddenly, cash looked more attractive. You could earn a decent return with relatively little risk, and after years of very low rates, that felt like a welcome shift.
For many people, that still makes sense. Cash can be a good home for emergency savings, short-term goals, or money you may need quick access to.
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When ‘safe’ may not be enough
If your goals are years away, there is a different question to ask. Not just ‘Will my money fall in value?’ but ‘Will it grow enough over time?’
When you plan for the long term, risk is not only about market falls. It also includes inflation, lost growth, and being so cautious that your money may not go as far as you need it to.
The hidden risk of holding cash
When people hear the word ‘risk’, they often think of the negatives. Sudden market drops. Unsettling headlines. The value of investments falling. That’s one type of risk, and it matters. But it’s not the only one.
There is also the risk of your money growing too slowly, and the risk of inflation (prices rising) reducing what it can buy over time. These risks are quieter. They don’t make headlines in the same way. But over time, they can have a real impact on your future wealth.
Why higher rates don’t tell the full story
Higher interest rates have been good news for savers. Cash has paid more than many expected, for longer than many expected too.
That can make it tempting to hold more in cash. If your balance is growing and doesn’t move around, it can feel like the safer choice. But comfort and long-term results aren’t always the same.
What matters is not just whether your savings are growing, but whether they keep up with the cost of living. If inflation is higher than the rate you earn on your cash, your money may be rising in pounds and pence while losing value in real terms.
How inflation can slowly drain your wealth
Inflation works quietly. It slowly chips away at what your money can buy.
So over time, the same amount of money covers less. Everyday costs rise, and future goals become more expensive. For example, if your savings earn 2.5% interest but prices rise by 3%, your money is actually losing value in real terms.
This matters even more over longer periods. If you’re saving for retirement or investing for goals that are still years away, inflation can become one of the biggest risks you face.
Cash may protect the number on your statement, but not the spending power behind it.
Stability comes with a trade-off
There is nothing wrong with being cautious. But there’s a difference between caution and missing out on growth. It’s all about taking the right kind of risk for you and your goals.
Cash and lower-risk investments tend to be more stable, but they often offer lower returns. Shares and other growth investments can fluctuate more in the short term, but they have historically offered greater potential for long-term growth, though this is not guaranteed.
This is the trade-off. Lower risk usually means lower potential return. Higher risk can mean more growth, but with more ups and downs along the way.
How it works in practice
Shares are at the higher end of the risk spectrum. But greater risk can lead to potentially greater returns. A balanced portfolio should include a mix of all these assets, rewarding investors for staying invested and riding out market ups and downs.
This example is for illustrative purposes only. In reality, investments go up and down, and charges apply. Past performance is not a reliable indicator of future returns.
It’s not about taking more risk than you need to
This is the key point. Rather than asking which option feels safest right now, it may be more helpful to ask ‘What does my money need to achieve, and what level of risk gives me the best chance of achieving it?’
For short-term needs, the answer may well be cash. But for long-term goals, it often means investing and accepting some ups and downs in the pursuit of greater growth.
For most people, it’s a balance - holding some cash for flexibility and security, while investing the rest in a diversified way that reflects their goals and time horizon. The goal is not to avoid risk but to make it work for you.
Read: What risks come with investing? The basics
Read: How to build a portfolio - with examples
Read: 4 signs you’re holding too much cash in retirement
Important information: investors should note that the views expressed may no longer be current and may have already been acted upon. Please be aware that past performance is not a reliable guide indicator of future returns. 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 one of Fidelity’s advisers or an authorised financial adviser of your choice.
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