Cash can be comforting. It’s familiar, it’s accessible, and it’s tangible. But while cash savings can be part of a well-balanced financial plan, they’re not always the best-performing asset.

Data shows that many UK adults are reluctant to depart from cash. In an update reported by MoneyWeek, the Financial Conduct Authority (FCA) reported that 61% of adults with £10,000 or more in investible assets are holding at least three-quarters in cash. 1 in 5 adults have cash savings of £25,000 or more, and around 1 in 10 have savings exceeding £50,000.

The regulator warned that holding such a large proportion of assets in cash could mean UK adults are missing out on the longer-term returns potentially available from investing, even when savings interest rates are high.

Read on to find out alternative options to cash, how to begin moving into other investments, and the times cash might be a more appropriate choice.

Global economic uncertainty saw more investors turning to cash, but history tells us markets do rally

Part of the appeal of cash currently can be attributed to market volatility that spooked investors in the early months of 2025, with President Trump’s tariff announcements causing widespread uncertainty.

According to a May 2025 report from MoneyAge, this caused a rise in the number of DIY investors – those who manage their own portfolio – turning to cash. Between February and April, 56% increased their exposure to cash, a 10% increase compared to investors who switched to cash after the 2024 Autumn Budget.

It’s understandable for you to want your wealth kept safe, and for global turbulence to drive you to think about cashing in. But history tells us that volatility is to be expected. While we can’t rely on past performance as an indicator for the future, we can also see that markets bounced back quickly from events such as the 2008 financial crisis, the pandemic, and the beginning of the conflict in Ukraine.

The below graph from NatWest covering the period between 2003 and 2023 highlights this, showing the return on global equities (shares), bonds, and cash at critical points in history. Although cash remains relatively level, the eventual returns from bonds and equities would have been higher.

Rising inflation could have a negative effect on your purchasing power

Inflation is always another key consideration with cash savings. Unless your savings interest rate is consistently above the rate of inflation, the real value of your money could remain the same, or even go down.

Ultimately, this could dent your purchasing power in the long term.

Consider this example. You have £100, which can buy £100 of goods and services today. If you save your money in a bank account with 1% interest, you’ll have £101 next year. But if inflation is 5%, those same goods and services will cost £105 next year. With £101, the money in the bank would no longer be enough to buy it – it has lost value in real terms.

Historically, shares and bonds have always outperformed cash. According to Vanguard, data from 1901 to 2024 shows that average annual returns after inflation were:

• 5.34% for global shares
• 1.36% for bonds
• 0.89% for cash.

So, you can see the argument for investing at least some of your wealth, helping it keep pace with the rising cost of living.

Considering your goals and risk approach can help design a suitable investment portfolio for you

Shifting some of your cash savings into investments could help you see better returns. But before you do this, the first thing to consider is your goals. For example, are you hoping to receive an income from your investments, or are you investing for long-term growth?

This can help you determine the right place for your wealth. You also need to consider your approach to risk: do you want a low-risk option that will pay out less, or a higher-risk alternative with potentially higher returns?

Talking with a financial planner can help you establish your own financial strategy, based on your aspirations, risk tolerance, and preferences. They can work with you to build a diverse portfolio, meaning that if you see losses in one area, these could be mitigated in others.

Some of the most common types of investments you could consider include:

• Stocks and shares. These are a stake in a company, and are traded on a stock exchange. The price of shares can go up or down.
• Bonds. Investing in a bond means you’re effectively lending money to a company or government, which they pay back at a fixed rate of interest. They’re a more stable investment than shares, but can be negatively impacted by interest rate fluctuations.
• Funds. Here, your money is invested along with other people’s to buy a range of assets, which can include shares and bonds, helping to diversify your investments. As they’re also spread across different markets and sectors, poor performance in one area can be offset by others.

There are other investment options, too, which a financial planner can talk through with you.

Cash is a good option for short-term goals and as an emergency fund

None of this is to say that cash is obsolete. Far from it, cash can be an important part of a well-balanced financial plan.

It’s a good idea to have a cash reserve in place as an “emergency fund”, which could be three to six months’ worth of your essential outgoings.

It can also make sense to save for short-term goals and purchases in cash savings. For example, if you’re saving for a holiday in a year’s time, you need to know that you’ve saved enough, without risk, and that it will be accessible when you need it.

Get in touch

Talk to us about how to strike the right asset balance, including cash, for your wealth portfolio.

Please note:

This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

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.

With so many headlines about tourists taking over popular holiday spots and governments introducing restrictions, such as tourist taxes and bans on new hotels or souvenir shops, you might find it harder than ever to decide where to travel next.

Luckily, Europe is filled with amazing places you can visit to get the authentic experience of that country without fighting your way through crowds of tourists.

Read on to discover our top 10 hidden European gems for the perfect spring break.

1. Naxos, Greece

If you’ve always wanted to visit Santorini but don’t want your holiday interrupted by tourists queueing for the perfect picture, you might want to head to Naxos instead.

This beautiful island boasts ancient ruins and traditional white-washed buildings that draw people to Santorini without the huge crowds. Discover the island’s fascinating history by visiting the Temple of Apollo, or relax on the long stretches of sandy beaches.

2. Berat, Albania

Berat is often referred to as the “City of a Thousand Windows” because of the incredible stack of Ottoman houses on the side of Berat Hill.

Visit the Bogovë Nature Park and Lake Komani to experience the gorgeous natural landscape and secluded waterfall, or climb to the top of Berat Hill to explore the incredible 13th-century castle.

3. Valencia, Spain

This stunning port city sits on the same coastline as Barcelona, so you can enjoy the gorgeous beaches and incredible architecture without battling your way through a crowd.

Explore the rich history of Valencia through an interactive museum, explore one of the many walking trails through the beautiful landscape, or soak up the sun on the beach.

What’s more, research concluded that Valencia is the most affordable city in Europe for a pint of beer!

4. Kotor, Montenegro

If you were considering visiting Croatia, you might want to pop next door to Montenegro instead.

With the same picturesque Mediterranean coastline and sunny weather, Montenegro has the same rugged mountains and enchanting medieval villages while being less crowded than more popular destinations like Dubrovnik.

Visit the Venetian fortifications in Kotor for a taste of history or take a dip in the stunning Bay of Kotor if you’d prefer to relax.

5. Graz, Austria

If you’re looking for a sustainable city break, Graz is the place to go. Although it’s Austria’s second biggest city, it’s often overlooked.

Surrounded by the Styrian countryside, the city takes fresh produce, vegetarian dishes, and creative recipes to a new level that will deliver the best of Austrian cuisine.

6. Wroclaw, Poland

With the Czech Republic introducing increasing restrictions on tourists in Prague after they started taking over entire zones of the city, you can avoid the hordes and get a similar experience by visiting Wroclaw instead.

Explore the dazzling Gothic architecture and the picturesque Oder River in the daytime, and visit Speakeasy-type bars and fine-dining restaurants to make the most of the city’s electrifying nightlife.

7. Porto Santo, Portugal

Madeira is currently enjoying its moment in the spotlight, but a smaller island only a three-hour ferry ride away remains one of the best European beach escapes.

Porto Santo is more beach than island, with a nine-kilometre stretch of sand backed by rolling hills and lush greenery. Relax in the sun, or venture out into the wilderness along the island’s many hiking routes.

8. Ghent, Belgium

If you’re looking for the same fascinating architecture and local culture as Amsterdam without having to pay extra for tourist tax, why not head to Ghent in Belgium instead?

Filled with quirky bars and an amazing pedestrianised city centre for you to explore, Ghent boasts a medieval castle and Michelin-starred restaurants, so there’s something for everyone to enjoy.

9. The Frosinone Valley, Italy

Halfway between Rome and Naples, the Frosinone Valley is often no more than a stop for travellers. However, it hides the incredible Abbey of Montecassino and the Valle di Comino, where some of Europe’s deadliest battles have taken place.

But if you’d prefer to search for postcard-perfect views, Frosinone is also the place for you. Sip award-winning cabernet in the vineyards or head to San Donato Val di Comino for incredible mountain views.

10. León, Spain

There are so many popular cities in Spain. However, León is another that escapes most people’s notice.

Home to one of Gaudi’s designs, the architecture is the city’s main attraction. Casa Botines, one of his only works outside Catalonia, makes it the perfect place to visit if you want to experience history without the hustle and bustle of Barcelona or Madrid.

Using allowances and exemptions could reduce your overall tax bill and help you get more out of your money. On 5 April 2025, the current tax year will end, and many tax-efficient allowances and exemptions will reset. So, here are five that you may want to consider using before the 2025/26 tax year starts.

1. ISA allowance

ISAs provide a popular way to tax-efficiently save and invest. Indeed, the latest government figures show in 2022/23, 12.4 million ISAs were subscribed to with around £71.6 billion being collectively added to accounts.

For the 2024/25 tax year, you can add up to £20,000 to ISAs. If you hold money in a Cash ISA, the interest you receive wouldn’t be liable for Income Tax. Similarly, if you invest through a Stocks and Shares ISA, any returns generated aren’t liable for Capital Gains Tax (CGT).

If you don’t use your ISA allowance before the tax year ends, you’ll lose it. So, it could be worthwhile reviewing your saving and investing goals now.

Before you place money into an ISA, it’s often a good idea to consider your goal. For short-term goals, a Cash ISA might be suitable for your needs. On the other hand, if you’re putting money away for a goal that’s more than five years away, you may want to consider if you could benefit from investing.

In addition, if you’re aged between 18 and 39, you could open a Lifetime ISA (LISA). In the 2024/25 tax year, you can add up to £4,000 to a LISA and receive a 25% government bonus. The £4,000 LISA allowance counts towards your overall £20,000 ISA allowance.

However, if you withdraw money from a LISA before the age of 60 for a purpose other than buying your first home, you’d pay a 25% penalty. As a result, a LISA is often most suitable for those saving to get on the property ladder.

2. Dividend Allowance

If you’re a business owner or hold shares in some companies, you might receive dividends.

You don’t pay tax on dividends that fall within your Personal Allowance, which is £12,570 in 2024/25. In addition, you can receive up to £500 in dividends before Dividend Tax is due under your Dividend Allowance. So, dividends could offer a valuable way to boost your income without increasing your tax liability.

You cannot carry forward unused Dividend Allowance.

Even if your dividends could exceed the allowance, the tax rate you pay could be lower than receiving a comparable amount that was liable for Income Tax. The rate of Dividend Tax you pay depends on your Income Tax band. In 2024/25, the rates are:

• Basic rate: 8.75%
• Higher rate: 33.75%
• Additional rate: 39.35%

So, making dividends part of your financial plan could reduce your overall tax bill even if you’re liable for Dividend Tax.

3. Capital Gains Tax Annual Exempt Amount

Chancellor Rachel Reeves made several changes to CGT in the Autumn Budget, including increasing the main rates. Consequently, you could find your tax liability is higher than expected when you make a profit when you dispose of some assets.

Indeed, the Office for Budget Responsibility estimates CGT could raise £15.2 billion in 2024/25, which may then increase to £23.5 billion in 2028/29.

From 30 October 2024, the standard rates of CGT are:

• 24% if you’re a higher- or additional-rate taxpayer
• 18% if you’re a basic-rate taxpayer and the gains fall within the basic-rate Income Tax band.

Importantly, the Annual Exempt Amount means you can make profits of up to £3,000 in 2024/25 before CGT is due. So, if you plan to dispose of assets, timing the decision to make use of this exemption could be valuable.

You cannot carry forward the Annual Exempt Amount into the new tax year if you don’t use it.

4. Pension Annual Allowance

Pensions provide a tax-efficient way to save for your retirement as contributions benefit from tax relief and the interest or investment returns generated are tax-free.

In 2024/25, the Pension Annual Allowance is £60,000 – this is the amount you can tax-efficiently add to your pension in a single tax year, so you might also need to consider employer contributions and those made by other third parties. However, you can only claim tax relief on up to 100% of your annual earnings, or £2,880 if you’re a non-taxpayer.

There are two reasons why your Annual Allowance may be lower.

• If your adjusted income is more than £260,000 and your threshold income is more than £200,000, the allowance will taper. For every £2 your income exceeds the adjusted income threshold, your Annual Allowance will fall by £1. The tapering stops at £360,000, so everyone retains an allowance of £10,000.
• If you’ve already flexibly accessed your pension, the Money Purchase Annual Allowance may affect you. This reduces the amount you can tax-efficiently add to your pension to £10,000.

You can carry your Annual Allowance forward for up to three tax years. So, you have until 5 April 2025 to use any unused allowance from 2021/22.

5. Inheritance Tax annual exemption

Government figures suggest Inheritance Tax (IHT) bills are on the rise. Indeed, IHT tax receipts between April 2024 and October 2024 were £5 billion – around £500 million higher than the same period last year.

If your estate could be liable for IHT when you die, passing on wealth during your lifetime could be a valuable way to reduce a potential bill.

However, not all gifts are considered immediately outside of your estate for IHT purposes. Some may be included in your estate for up to seven years, which are known as “potentially exempt transfers”.

So, using allowances and exemptions that enable you to pass gifts to your loved ones without worrying about IHT might be an important part of your estate plan.

In 2024/25, the annual exemption means you can pass on £3,000 without worrying about IHT. You can carry forward your annual gifting exemption from the previous tax year, so you could gift up to £6,000 in a single tax year and have it fall immediately outside your estate.

There are often other allowances or ways you could reduce your estate’s potential IHT bill. Please contact us to talk about steps you may take. 

Get in touch to discuss your end-of-year tax plan

If you’d like to talk about which allowances and exemptions you may want to use to reduce your tax bill in 2024/25, please get in touch. We’ll work with you to help you understand which steps could be right for your circumstances and aspirations.

Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients 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.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts. 

The Financial Conduct Authority does not regulate tax planning, Inheritance Tax planning, or estate planning.

Retirement is an exciting milestone, with more free time to dedicate to the things you enjoy. Yet, it can also be a daunting time, especially when it comes to managing your finances.

Flexi-access drawdown is a popular way to access your pension savings as it provides flexibility and means you’re in control of your income. However, it also means you’re responsible for ensuring you don’t run out of money.

With the pressure of managing pension withdrawals, it’s perhaps unsurprising that a study in IFA Magazine found that almost half of retirees are worried about spending too much too soon.

Indeed, statistics from the Financial Conduct Authority indicate some retirees could be withdrawing money from their pension at an unsustainable rate.

For example, more than 30% of people accessing a pension with a value between £100,000 and £249,000 in 2023/24, withdrew at least 8% of their pension. Some of these people may have other pensions or assets they could use to fund retirement, but others could find they face a shortfall in the future because they’re accessing their pension at an unsustainable rate.

One of the challenges of managing pension withdrawals is that some factors are outside of your control.

The known unknowns of retirement

When you’re planning your retirement income, you’re likely to need to consider known unknown factors – you know they will affect your retirement plan in some way, but accurately predicting exactly how they’ll affect you at the start of retirement isn’t possible. 

The list of known unknowns might be lengthy and some won’t affect all retirees. However, there are three key variables that most retirees could benefit from considering when calculating their sustainable pension withdrawal rate.

1. Life expectancy

If you knew how long your pension needed to provide an income, you could simply break it down into even blocks and rest assured that you wouldn’t run out.

In reality, you don’t know how long your pension needs to last. The average life expectancy could provide a useful indicator, but it’s far from certain.

According to the Office for National Statistics, a 65-year-old man has an average life expectancy of 85. However, he also has a 1 in 4 chance of reaching 92 and around 1 in 10 will celebrate their 96th birthday. For a 65-year-old woman, the average life expectancy is 87, with a 1 in 4 chance of reaching 94 and around 10% will celebrate their 98th birthday.

So, if you based pension withdrawals on the average life expectancy, there’s a chance that you could outlive your pension by a decade or more.

As a result, erring on the side of caution when calculating how long you’ll spend in retirement could be useful. A retirement plan could help you balance long-term financial security with enjoying your early years of retirement.

2. Inflation

The income you’ll need to maintain your lifestyle during retirement is unlikely to be static. Instead, inflation will usually mean your income will need to increase each year.

The Bank of England (BoE) has an annual inflation target of 2%. While this might seem like it’ll have little effect on your income needs, over decades it could add up. In addition, the recent period of high inflation has highlighted that the cost of goods and services can rise at a faster pace.

According to the BoE, if you retired in 2018 with an annual income of £40,000, just five years later your income will need to have increased to almost £50,000 just to provide you with the same spending power.

Failing to consider the effect inflation might have on your needs and wealth could derail your plans.

Indeed, an IFA Magazine report suggests the number of retirees searching for a job increased by 16% in 2024 when compared to a year earlier due to rising living costs.

3. Investment performance

One of the potential benefits of choosing flexi-access drawdown is that your pension will usually remain invested. This provides an opportunity for your pension to generate investment returns.

However, it’s not always straightforward. The performance of your investments could have a direct effect on the sustainable withdrawal rate.

For instance, during a downturn, you’d need to sell a greater proportion of your pension investments to achieve the same income. This could mean you deplete your pension quicker than expected and leave a potential shortfall in the future.

When weighing up the effect of investment performance, you might need to consider questions like:

• What are my expected investment returns?
• What is an appropriate level of risk for me in retirement?
• How should I manage pension withdrawals if the value of my pension falls?

Regular reviews could help you assess investment performance and make adjustments to your retirement income when appropriate. 

Other unexpected factors could affect your retirement finances too

It’s not just these three known unknowns of retirement that could affect your finances, either. Other variables outside of your control might affect your income needs too, from emergency repairs to your home to care costs later in life.

When creating a retirement plan, adding a buffer and carrying out regular reviews could help you manage your finances and feel confident about the future.

Get in touch to talk about creating a sustainable retirement income

Contact us to talk about your retirement plans and how you might manage financial variables, including known unknowns. A retirement plan could give you confidence in your finances and mean you can focus on enjoying the next chapter of your life.

Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts. 

When creating an estate plan, there might be people you want to pass wealth to but they’re not in a position to manage their finances. Using a trust could provide a way to leave a vulnerable loved one assets and feel confident they’ll be effectively managed.

Trusts aren’t used as commonly as other ways to pass on wealth, such as gifting or leaving an inheritance directly. In fact, according to government figures, there were only around 733,000 trusts and estates registered on the Trust Registration Service as of March 2024. Yet, in some circumstances, a trust could present a valuable option.

There are many reasons why you might consider someone vulnerable or not want to pass on assets directly to them. You might consider using a trust if you want to pass on wealth to:

• A child
• A person at risk of financial abuse
• Someone who has made poor financial decisions in the past
• An adult who has a disability that affects their ability to manage finances.

A trust may allow you to improve the financial security of loved ones without them being responsible for managing assets.

A trust means someone you choose can manage assets on behalf of beneficiaries

A trust is a legal arrangement that you (the settlor) set up where assets are managed by a person or people (the trustee) for the benefit of one or multiple other people (the beneficiary).

So, while the beneficiary may benefit from the assets, it’s the trustee who will manage them. As the settlor, you can set out how and when you want the assets, and any income they generate, to be used.

For instance, if you want to pass on wealth to your grandchild, you might name their parents as trustees. You could state money may be withdrawn from the trust to cover educational costs and, once the child turns 25, they can withdraw and take control of the remaining assets.

Or, if you want to provide for a disabled adult, you might create a trust that states the trustee is to provide the beneficiary with a regular income for the rest of their life.

Crucially, as the settlor, you can set the terms of the trust so that it suits your goals.

You should note that there are several different types of trust and, once set up, it can be difficult or impossible to reverse the decisions you’ve made. So, seeking professional legal advice if you think a trust could be an option for you may be valuable.

3 important questions to consider if you’re thinking of using a trust

Before you set up a trust, it’s important to consider if it’s the right option for you. Here are three essential questions that may help you start to weigh up the pros and cons.

1. Who would act as the trustee?

Choosing someone to act as a trustee can be difficult, so you might want to consider who you’d ask.

You want a person you can trust to act in line with your wishes and in the best interest of the beneficiaries. However, you may also want to think about the skills they have – are they comfortable handling finances? Are they organised enough to manage the trust effectively?

You can choose more than one trustee, and set out whether you’d like them to make decisions together. You may also choose a professional to act as a trustee, such as a solicitor or financial planner, who would charge a fee for their services.

2. What would be the aim of the trust?

Thinking about the reasons for creating a trust is essential, as it might affect the type of trust that’s right for you and the terms you set out.

For example, a trust that’s simply holding assets until a certain date could be very different from one you want to use to preserve family wealth for future generations.

In some cases, you might find that an alternative option is better suited to your needs.

Let’s say you want to set money aside for your grandchild to access when they turn 18. A Junior ISA (JISA) allows you to save or invest up to £9,000 in 2024/25 tax-efficiently on behalf of a child. The money held in a JISA is locked away until they reach adulthood. So, it might be more appropriate and avoid the complexity a trust may add.

3. How much control would you give the trustee?

If you have a clearly defined idea about how you want the trust to operate, you might choose to set out exactly when the assets can be used. Alternatively, you may give more control to your trustee and allow them to use their judgment.

There isn’t a right or wrong answer, so focusing on what’s important to you is key.

When setting out terms or restrictions, you may want to spend some time weighing up different scenarios and the effect they might have.

For instance, if you want the trust to provide a defined income, you might want to consider:

• How the trustee should adjust the income for inflation
• Whether they can withdraw a lump sum in certain circumstances
• If there is a point you want the beneficiaries to take control of the assets.

Rigid restrictions could have unintended consequences.

Let’s say your loved one has an opportunity to purchase a property. Withdrawing a lump sum to act as a deposit could mean their day-to-day costs fall and provide greater security when compared to renting, but restrictions might mean this isn’t possible. Or if they face a medical emergency, accessing the wealth held in a trust could enable them to receive treatment quicker or provide more options.

Contact us to talk about your estate plan

A trust is often just a small part of an effective estate plan. If you’d like to discuss how you might pass on wealth to loved ones in a way that aligns with your goals and considers your wider financial plan, please get in touch.

Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

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.

The Financial Conduct Authority does not regulate estate planning, tax planning, or trusts.

Following the stocks and shares that have experienced impressive returns can seem like fun and a way to make the most out of your investments.

Yet, a study indicates that following the crowd and investing in companies that are being hyped in the press or among investors could mean you miss out on growth opportunities from other sources.

Top stocks rarely perform well for two consecutive years

Research carried out by Schroders looked at the top 10 performing stocks on the US stock market each year.

Interestingly, in 12 of the past 18 years, not a single stock that was in the top 10 also made it into the top 10 in the following year. Of the other six years, in five of them, only a single company managed to maintain its strong position.

Even staying in the top 100 is rare – an average of 15 companies each year managed to be in the top 100 for two consecutive years. The odds of making it back onto the list in a couple of years are similarly low.

You might be surprised to learn that companies that performed well are more likely to be among the worst-performing stocks a year later.

The research noted that a similar trend can be seen in other markets. In the UK, 11 out of 18 years saw the average top 10 performers move to the bottom half of the performance distribution the next year.

So, if you’ve been hearing about how well a particular stock has been performing, automatically investing in it might not be the right thing to do. It could expose you to more investment volatility than is appropriate for you.

There’s also a risk that companies that are hyped might be overvalued.

The Magnificent Seven is a group of influential technology companies – Apple, Microsoft, Nvidia, Alphabet, Amazon, Meta Platforms, and Tesla – on the US stock market that has made impressive gains over the last year. However, Schroders found collectively they are twice as expensive as the rest of the market in terms of a multiple of the next 12 months of earnings.

Some companies will deliver these expectations, but others won’t, and identifying which ones will meet targets can be difficult.

3 investing lessons you can learn from the volatility of the top stocks

1. Don’t fall for hype

It can be tempting to invest in a company that’s experienced impressive growth recently. But the Schroders study highlights how these companies can experience a fall just as much as others, and perhaps more severely.

Chasing the “hot” stocks could result in higher costs and lower returns than if you opted for investments that were consistently delivering average returns.

That’s not to say you should avoid investing in popular stocks. Indeed, many investment funds will hold investments in the Magnificent Seven. What’s important is assessing if it’s the right option for you and focusing on long-term gains, rather than short-term rises.

2. Accept the investment market can be volatile

As the research highlights, volatility is part of investing.

As an investor, accepting this can be difficult – you understandably don’t want to see the value of your investments fall. Yet, for most investors, sticking to their long-term plan, even when markets dip, makes financial sense if you take a long-term view.

Historically, markets have delivered growth when you look at performance over a longer time frame, including after sharp drops like those experienced during the pandemic in 2020.

While returns cannot be guaranteed and past performance is not a reliable indicator of future performance, history suggests holding investments and waiting out volatility may be the right course of action for you.

Volatility is why it’s often recommended that you invest with a minimum time frame of five years. This provides time for the ups and downs of the market to smooth out and, hopefully, deliver investment returns.

3. Ensure your investments are diversified

If you invested in just one company that was in the top 10 performing stocks, the research suggests the value could fall within the next year. However, if you spread your investment across multiple stocks, you could reduce the risk of this happening.

Diversifying your investments means investing in a range of assets, sectors, and geographical locations. When one area of your investments experiences a drop, a rise in another could offset this.

This is how investment funds work. A fund would pool your money with that of other investors and then invest in a wide range of assets in line with the fund’s risk profile. So, if you want to diversify your investments, a fund could be a good solution for you.

Invest in a way that reflects your goals and circumstances

If you have any questions about how to invest in a way that’s appropriate for your goals and circumstances, we’re here to help. We can offer ongoing support to ensure your investments continue to reflect your needs. Please contact us to speak to one of our team.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

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.