Why invest in shares not just cash?

It's true that putting money in shares and other types of investments is more risky than investing in cash and events over 2008 and early 2009 have gone a long way to showing this. However, historically, over the medium to long term, the returns from shares have been better than cash.

Past performance is no guide to the future. Your investment may go down as well as up and you may not get back the full amount of your original investment.

Performance of shares

According to the Office for National Statistics (Financial Statistics) and M&G data, from the launch of the FTSE All-Share Index in April 1962 to February 2010, shares have beaten cash in:

77.9% of all 5-year periods
92.3% of all 10-year periods
100% of all 15-year periods
100% of all 20-year periods

And from April 1962 to February 2010 the annualised growth returns have been:

FTSE All-Share 10.6% a year
Building Society 5.6% a year
Inflation 6.0% a year

So if you're thinking about building a portfolio of savings and investments over the longer term you might consider investing a portion of your money in shares depending on your attitude to risk.

Spread the risk

You could also try to lessen the risk by spreading your money across a range of assets, combining different types of investments:

• Shares
• Fixed Interest - corporate and government bonds
• Property
• Investment Bonds
• Cash

Remember, simply investing in cash also has risks. For instance inflation may erode the generally lower returns you would tend to get from a savings account.

If you're not sure how you could be investing your money, we would recommend you speak to a financial adviser who can help you with your options. A financial adviser may charge you for this.

Important

Investing in the stock market may mean you become liable for tax. To find out more about this read our section on investment and taxation.

A stock market investment is not like a bank or building society deposit account. It may return less than has been invested, whereas a bank or building society deposit account would normally return all your capital. You should consider keeping any money, which might be needed in the short term, in a bank or building society deposit account. This is generally secure and readily accessible.

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