With the world shutting down in 2020, most recreational and entertainment-related activities came to a halt. With malls and restaurants being closed, everybody was at home, spending less than usual. This led to an increase in savings in the households belonging to high-net-worth individuals. About 42 per cent of the people employed in the high-income group saved much more during the pandemic than they ever did, raising the excess lockdown savings in Europe to 180 billion pounds.
With so much saved and resting in the bank, it is wise to invest the amount in order to increase wealth. Our article will discuss why it is necessary to start investing your lockdown savings if you do not want your money to lose its real value in the future.
Where can you put the money you saved during the lockdown?
Since the pandemic, most individuals from the high-net worth group have accumulated extra cash by not spending it on recreational and entertainment services. 41 per cent of these people had planned to spend this on vacations and home improvements, whereas 27 per cent of the same wanted to invest the extra lockdown savings. However, 18 per cent of the group still wants to keep the amount as cash.
People should be worried about the impact of inflation on their accumulated wealth and take decisions accordingly. The current British inflation rate is at 3.2%, and the BoE base rate is only 0.1 per cent, with cash savings being highly devalued at the rate of 3.1 per cent per year. So, unless you want to devalue your saved money, the smart move is to invest.
Leaving cash sitting in the bank will lead to your money losing its value. This means for every 1000 pounds that you saved in the last ten years, it now only accounts for 877 due to inflation. It’s incredible how much value your current money will lose over time!
Protecting lockdown savings against inflation
The situation is not as bad as it seems. You can still take measures to protect your lockdown savings against inflation and save it from losing its value. Unless you are planning to spend your entire lockdown savings, it is best to increase and enhance your investment portfolio or retirement schemes that will give you a way to build wealth incrementally and protect the funds against any inflation losses. Investing in diversified portfolios will give you much better results over ten years than letting your savings sit in your bank account without any futuristic objective.
Top 3 things you can do with your lockdown savings as an investment that benefits your future and present.
Emergency corpus
It is always advised to have an emergency corpus in hand for the rough times. Especially after going through such an uncertain economic situation, it only makes sense to increase your emergency corpus or make one if you do not have it already. We advise creating a six-month fund with your lockdown savings for those who do not have an emergency corpus. People who already have it build a corpus by adding money to sustain for six more months.
Health and life insurance
The next thing you can do with the extra cash is get health and life insurance. However, if you already have one or both, we advise you to enhance the policies for better returns later, especially with health insurance.
Mutual funds
The markets are in a considerably decent position right now, and investing in mutual funds is something we highly recommend. Depending on your risk appetite, you can choose from debt funds to equity funds. Mutual funds give you way higher returns than banks, sometimes as much as 35 per cent per year or more. You can also split your amount to invest in mutual funds and SIPS (systematic investment plans) if you want to accumulate funds for later and protect your cash against inflation. This will also help collect funds for an important event later or for your children, in case you want them to have some part of the savings.
Conclusion
Now is the right time to invest your lockdown savings instead of having them lay around for no good reason. The bank interest rates are at their lowest, and it is only sensible to get the funds out of there to invest them in some better place that actually gives good returns. Also, the inflation being at a not-so-great level means that if you keep your funds just like savings, they will lose their value over time, making you poorer, and a wise individual wants anything but that!
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