When you’re investing (or even saving) money with a specific goal in mind, you’re creating what is called a “Nest Egg.” The term can be used to describe anything from a jam jar of rainy-day savings to a stash of cash for your child’s future.
The term has actually been around since the 17th century. Believed to have originated from a poultry farm tactic of putting fake and real eggs in hens’ nests, the trick would encourage hens to lay more eggs, often resulting in better income for the farmers.
How much risk should you take?
Traditionally, a Nest Egg refers to “funds that have accumulated over a considerable time.” The ultimate goal of a Nest Egg is preserving capital. Volatile markets which threateningly loom over your final figure might not be the most suitable nesting spot. If the clue is in the name, then Nest Eggs should protect and gently encourage growth.
Or should they? Isn’t it logical is to assume that Nest Egg savings should be pumped into high-risk investments with volatile markets? If time is on your side, don’t you have a greater chance of compensating for any losses? An article published in the Telegraph says so, suggesting its wiser to take more risk. If you’re building a Nest Egg for your child’s future over the course of 18 years, you’re “likely to earn more from equities than cash.”
So, what’s the right way to create a Nest Egg for your child’s future?
The secret is there is no right way. Risk is a very personal thing. Don’t force yourself into an investment plan that’s too precarious for your liking. If you think you’ll have to be calming your nerves over short-term losses, chances are, it isn’t worth it. Make it personal; tailor it to your risk attitude.
If you’re a parent hoping to build a Nest Egg for your child’s future, you can also find comfort in the fact that time is on your side. Saving small amounts over a long period of time can add up surprisingly well, even without the help of interest. If you started on day one and dropped £100 a month into a piggy bank, you could give your child £24,000 on their 20th birthday. Sounds impressive, right?
Cash-based savings have their perks, like liquidity and very low risk, but chances are, your money won’t be doing much work for you. In fact, it might actually be doing itself harm. Here’s how.
During times of inflation, cash loses purchasing power; you won’t technically be losing any money, but it won’t be able to buy you as much. Let’s take a look at the above example again and factor in inflation. Historically, the ongoing rate of inflation has averaged at around 3%. If that continued, £100 today would only be worth £55.37 in 20 years. In theory, £24,000 today could only buy you £13,288 worth of stuff in 20 years. Slightly less impressive, right?
Inflation can seem scary. And it’s a bizarre reality which, unfortunately, might be one of your biggest threats. It can force your money to sink, not swim. But, the good news is, you might be able to avoid it, and/or benefit from it.
How can you benefit from inflation?
With your long-term goal of creating a Nest Egg for your child’s future, there are ways to stop inflation from eroding away your hard earned savings. One simple trick is to take the high road, i.e. look out for investments which offer returns above the rate of inflation.
Another simple trick is to invest in a “real” asset. “Real” assets can be used, touched and seen, like houses. They have what is called “intrinsic value.” Assets that lack intrinsic value are known as “nominal” assets: their only intrinsic value is the paper that they’re issued on, like fixed-income bonds.
Real assets won’t just help you avoid the dangers of inflation, but they can actually help you profit from it. Property investment, for example, has the power to help you do this in two ways. Firstly, when prices rise, the resale value of a property rises too. Your savings can track the UK housing market. Secondly, tenanted buy-to-let property investments generate income. When things become more expensive during inflation, the cost of renting rises, too. According to Investopedia, this will enable “the income generated by an investment property to keep pace with the general rise in prices across the economy.”
But we understand that property investment can be expensive, time-consuming and a bit of a headache. That’s where we come in. You only need £10 to invest in any of our opportunities. And once you’ve done that, you can call yourself a landlord, but we’ll do all the hard work.
Hopefully, our platform can help you create the most effective Nest Egg for your child’s future.
Written by Jenna Kamal
Disclaimer and Legals
Property Moose does not provide any advice in relation to investments and you must rely on your own due diligence before investing. Please remember that property prices can go down as well as up and that all figures, rates and yields are projections only and should not be relied on. If in doubt, please seek the advice of a financial adviser. Your capital is at risk if you invest. This post has been approved as a financial promotion by Resolution Compliance Limited.
Property Moose is a trading name of Crowd Fin Limited which is an Appointed Representative of Resolution Compliance Limited which is authorised and regulated by the Financial Conduct Authority (no: 574048).
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