How unrealistic growth expectations could really put your wealth at risk

The Office for National Statistics recently revealed that inflation reached  5.1% in November 2021, up from 4.2% the month before. It’s not surprising, then, that research by Aegon shows more people are investing their money to seek better growth than the interest rates typically being offered for savings.

As investing may offer greater long-term growth potential than cash, including it in your financial strategy as a way of inflation-proofing your money can make sense. If you want to learn more about how investments might help prevent your wealth from dropping in real terms because of inflation, read our recent blog.

That said, Aegon’s research also offers a word of warning regarding the level of growth some investors now expect, especially as it may make them vulnerable to scams. Read on to discover more about the study’s findings, why it’s vital to have a realistic expectation of growth, and how a financial planner could help.

More than half of adults have moved into investing

According to the pension provider, 54% of adults have moved money into investments because of the low rates offered for cash savings. One in ten of those questioned said they’ve put all their extra savings into investments, while the remaining 44% said they had invested some of their money.

Of those questioned, most decided to invest when interest on savings fell to below 2%, with just under 40% investing when rates dropped to less than 1%.

Some investors may be unrealistic about returns

One of the biggest threats, the research revealed, was some investors expecting unrealistic growth rates.

Aegon found it was only when investments promised a return of 10% a year or more that alarm bells rang, and investors worried that the offer could be a potential scam.

Researchers found that, when faced with a promise of higher returns, 59% of those questioned said they would research the investment further before investing. If you find yourself in this position, always check the Financial Conduct Authority’s (FCA) warning list to see if the company you’re speaking to is on it. If it’s not, check against the FCA register to ensure legitimacy.

Worryingly though, 5% said they would be less concerned about safety and instead would look at the investments offering the best return. This is an extremely high-risk strategy, and if you’re one of the 5%, you may want to consider speaking with a financial planner for the following reasons.

Expecting unrealistic growth levels could cost you dear

Another risk you could face with unrealistic growth expectations is the level of risk your money might be exposed to.

This is because your money will typically be exposed to a greater proportion of high-risk asset classes such as stocks and shares, to achieve higher growth rates. The thing is, while these asset classes typically provide the potential for greater levels of growth, they’re also at more risk of significant drops in value when the market takes a downturn.

This might mean you receive less than you invested when you access the investment.

Depending on your financial circumstances, making a loss on your investments could put you in a financially vulnerable position.

Another risk you could face if you only look at returns is scams. This is because unscrupulous criminals often offer high returns to attract people to their bogus schemes. If you see an investment that offers higher than normal growth potential, always treat it with extreme caution.

Scam investments could result in you being charged excessively high fees that eat away at your investment, or your money being stolen by criminals. Remember, if the returns being offered seem too good to be true, they probably are!

A financial planner could help

A planner could help you understand how much potential growth you should expect from your investments. Furthermore, they will look at your circumstances, goals and financial position more holistically, and ensure the level of risk you’re exposing your money to is appropriate for you.

This could help provide potentially better returns than cash savings, while reducing the possibility of you receiving less than you invested. It will help ensure your financial strategy is more realistic and achievable.

Get in touch

If you’re interested in using investments to inflation-proof your money and would like to discuss realistic growth levels, please email hello@ardentuk.com or call us on 01904 655 330.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

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By talking about your current situation and listening to your aims, we create a personalised plan that will put you on a path to achieving your aspirations.

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