Ask Jenny Ross: I want to put some savings in crypto and stocks. Where do I start?
Answer: It’s very sensible to seek alternative opportunities to grow your money at a time when savings rates are being dwarfed by inflation, which means your money is actually losing value in real terms.
By venturing away from cash, you’re giving yourself a much better chance of seeing inflation-beating returns over the long-term – but of course, investing also comes with the risk that you’ll end up with less than you started with.
As a rule of thumb, you should first aim to build up a cash buffer of three-six months’ worth of emergency savings, as well as enough to cover planned expenses in the short term. Any remaining money you won’t need access to in the next five or so years you should consider investing.
But I’d strongly caution against starting with cryptocurrency, which continues to grow in popularity but is hugely volatile. Bitcoin, the best known cryptocurrency, has been known to lose 30 per cent of its value in a single day.
Another reason to be wary is that cryptocurrencies aren’t regulated by the Financial Conduct Authority (FCA) in the same way as investment platforms or banks are. This means that you won’t be able to turn to the Financial Ombudsman Service if you have a dispute with your provider, or to the Financial Services Compensation Scheme (FSCS) if your provider goes out of business.
Then there’s the threat of scams, which have soared in recent years. Online platforms and social media websites are flooded with dodgy cryptocurrency adverts, which often feature fake "endorsements” from celebrities. In November, Santander said its customers report around £1 million of losses from cryptocurrency scams each month, and that cases had risen by 25 per cent in just four months.
While cryptocurrency-related scams are particularly prevalent, criminals are on the lookout for any opportunity to trick prospective investors. Last week the FCA said it had seen reported investment scams rise by a third in the space of a year.
These often start with search engine ads for eye-catching ‘opportunities’ that send you to comparison sites that list plausible investments or websites that appear to be for genuine, reputable firms.
It’s crucial to know who you’re really dealing with. Check if a firm is authorised by the FCA by checking the Financial Services Register (fca.org.uk/register). The FCA also keeps a ‘warning list’ of firms it knows are operating without permission or are running scams.
As an inexperienced investor, speaking to an independent financial adviser could be really beneficial – they’re authorised to recommend specific investments that are appropriate for your risk appetite and financial goals. But the costs involved mean this isn’t an option for everyone.
Investment platforms have helped to make investing more accessible and affordable for DIY investors. These are websites or apps where you can buy and sell a huge range of different investments, and they often have extensive information and analysis to help guide your decisions (you can see Which?’s platform reviews at which.co.uk/platforms). You can choose to hold your investments in one or several different types of accounts, including a stocks and shares Isa, which allows you to invest up to £20,000 tax-free a year.
Your focus should be on building a well-balanced portfolio of investments that fits your risk appetite – don’t put all your eggs in one basket. Platforms often publish recommended fund lists, which can be a useful starting point in narrowing down your options.
Unlike cash savings accounts, you can’t pick investments based on a headline rate. There’s no way of knowing what your investments will be worth in future, but make sure you pay attention to the fees you’ll pay to hold them.
If you don’t feel confident building a portfolio for yourself, consider using a platform that offers ready-made portfolios based on your risk appetite, which is established using your answers to a questionnaire.
Jenny Ross is the editor of Which? Money
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