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Would you risk the stock market for £400,000?

Would you risk the stock market for £400,000?

Category: Investments

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

It's becoming increasingly difficult to secure decent returns on cash savings these days, yet we all know that investing in cash is the safest option. But would you risk that level of security for the chance of a £400,000 profit? It certainly sounds tempting, and as figures from Fidelity International show, it may be worth the risk for those with the right appetite.

30-year returns

Fidelity's analysis looked at how average funds have fared over the last 30 years, and the results may surprise you. For example, if you invested £10,000 in an average UK savings account in 1986, their calculations show that your pot would now be worth £28,196.

This sounds like a pretty decent return, until you see what could have happened had you invested that same £10,000 in the stock market: if you'd have put it in the FTSE All Share your pot would now be worth £121,466, while if you'd invested in the FTSE 100 you'd have £126,867, and those who invested in the FTSE 250 would now have an impressive £265,035.

But the returns could be even greater had you invested in an actively-managed investment fund rather than simply following a UK index. For example, £10,000 in the Fidelity Special Situations Fund in 1986 would be worth £401,868 today, while the same amount invested in the BlackRock Continental European fund would now be worth a whopping £427,181 – nearly £400,000 more than if the money had been held in an average cash savings account over the same 30-year period.

How's that for a payoff?

"If anyone is unsure about the benefits of investing in the stock market over stashing cash under the mattress, especially over the long term, then our calculations highlight just how rewarding investing can be," said Tom Stevenson of Fidelity International. "On a 30-year time horizon – a realistic investing timescale for many people – simply investing, holding on and reinvesting dividend income can lead to really impressive returns."

The calculations also show that you don't need to be investing ridiculous sums of money to be able to benefit from stock market investment, and if you choose your funds wisely, the effects of compound interest really can see your returns snowball –all from just £10,000.

Be prepared

Of course, you need to make sure that you've got that kind of money to play with, and that you wouldn't lose everything should the funds not perform as well as you'd hoped. There's no guarantee when it comes to investing and there's a very real chance that you could end up with less than you put in, but remember that if you see it as a longer term investment, there's a better chance of being able to ride out any volatility in the market.

However, while investing in the stock market could pay dividends for those who are prepared for the extra level of risk, it certainly won't be right for everyone. Cash is still king for many – understandably so – and there are still ways that you can beat the odds and secure great returns.

Indeed, recent research from money expert Paul Lewis found that cash could actually beat the stock market if you play it right. The key is active money management: if you always aim to open the top-paying savings account and are ready to switch to the next one once your fixed rate deal comes to an end, you could soon see your savings snowball.

Or, for those who are looking for something in the middle, opting for a stocks & shares cash ISA could be a solution. These come with more risk than investing in cash but less than if you invested in the stock market outright, and if you opt for a fund that comes with a capital guarantee (these are few and far between, but they are out there), you can at least be sure you won't lose money.

What next?

The prospect of an extra £400,000 may sound appealing, but you need to be confident that stock market investment is right for you. Make sure to seek financial advice before you take the plunge, and if you're in any way unsure, opt for a best buy savings account instead.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.