Could unrealistic expectations leave you susceptible to investment scams?

Category: News

A recent Aegon report suggests that low savings rates and high inflation is changing the way UK savers hold their wealth. Findings show that 54% of Brits have made at least a partial move from cash to investments as a result of the current economic climate.

The report goes on to suggest that unrealistic expectations around returns could see investors become susceptible to investment scams.

So, what has prompted the move to investments, what returns can you expect, and what are the investment fraud red flags to look out for?

Keep reading to find out.

The dangers of a low interest rate, high inflation climate

Between 11 and 19 March 2020, the Bank of England’s (BoE’s) base rate dropped twice, reaching a historic low of 0.1%. With the base rate low, the interest you receive on your cash savings reduces too.

This is nothing new for savers. Rates have been poor since the 2008 global financial crisis. And while an emergency fund held in cash is useful and ensures your funds are easily accessible should they be needed, holding too much money in a cash account with a low rate can become an issue.

This has been especially true during 2021 as inflation has risen rapidly. Despite a BoE target of just 2%, inflation reached 4.2% in October and could exceed 5% in the first few months of 2022.

While your cash savings are growing slowly, the cost of living is rising quickly, and your cash funds are effectively losing value in real terms.

The issue has become such a worry for the industry that it is now the subject of a campaign by the FCA. The regulator hopes to encourage a fifth of savers holding more than £10,000 in cash to turn to investments instead. This reduction could increase UK investment by as much as £17 billion.

Investment is a long-term proposition, and your annual returns are likely to be mixed

Back in October we looked at five ways to get your finances shipshape this autumn and suggested investing in the stock market was a good option for many.

You must understand the level of risk you are comfortable with and have a long-term goal in mind. You’ll also need to ensure your expectations are realistic.

History shows that the general trend of the markets is an upward one. The IG research we quoted in October confirms that the FTSE 100 produced an annualised return of 7.75% between 1984 and 2019. But it is important to remember that this is an average and not all years will produce good returns.

The 35-year period we’re looking at included the Iraq War and the 2008 global financial crisis. The largest annual price return during this time was 35.1% in 1989 and the lowest (in 2008) was -31.3%.

It is important to stay calm, stay patient, and stay invested.

Investment scams are on the rise so remain wary of investment “promises”

The Aegon report also looked at investor attitudes to returns. It found that the majority of investors only became sceptical of a scam once an investment promised a return of 10% or more a year.

The risk inherent in investment – that the value of funds can fall as well as rise – makes it clear that investment “promises” should be an immediate red flag. But it’s also crucial that you research any investment opportunity fully and speak to us before you decide.

Here are some other red flags to watch out for:

  • Any unsolicited approach, whether via text message, email, or telephone call
  • Any discussion where the answers given to your questions aren’t clear
  • There is an attempt to coerce you into making a rushed decision
  • The caller won’t allow you to call them back, or will only provide a mobile phone number
  • Any mention of “guaranteed” high returns, especially if you are told the investment is “low risk”
  • The company is based overseas and so not subject to FCA regulation.

If you are at all suspicious of a contact you receive, hang up the phone and don’t reply to any emails,  text messages, or click on any links. Check out the FCA’s ScamSmart site for further information.

Get in touch

If you’d like advice on managing your investments, or any aspect of your financial plans, please get in touch. Email or call 020 8941 9779.

Please don’t hesitate to share this article with your friends and family, or anyone else who you think might benefit.

Please note:

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.