As the new year commenced, the UK’s benchmark index demonstrated notable momentum.
The FTSE 100, tracking the performance of the 100 largest companies listed on the London Stock Exchange, surpassed 10,000 points for the first time since its inception in 1984. This milestone buoyed investor sentiment and pleased the Chancellor, who has expressed interest in encouraging a shift from cash savings to investments. The index saw gains exceeding one-fifth in 2025.
However, against the backdrop of persistent cost-of-living challenges for many and concerns about potential overvaluation in certain sectors, the FTSE’s success raises the question of whether it is indeed an opportune moment to encourage novice investors.
Individuals have access to a diverse range of investment avenues, facilitated by various user-friendly apps and platforms.
It is crucial to acknowledge that investment values are subject to fluctuation. An initial investment of £100 carries no guarantee of retaining its value over any period, be it a month, a year, or a decade.
Nonetheless, long-term investments generally offer the potential for substantial returns, as evidenced by the FTSE 100’s upward trajectory. Furthermore, shareholders may receive dividends, which can be taken as income or reinvested.
Conventional wisdom has long advocated for a long-term investment horizon, suggesting that patience can yield significantly greater returns compared to traditional savings accounts.
In contrast, cash savings provide a more stable and secure option. While interest rates vary among providers, savers have clarity regarding expected returns. Savings rates have remained relatively robust recently, but a general downward trend in interest rates is anticipated.
Savings accounts are commonly used for setting aside funds for emergencies, vacations, weddings, or vehicle purchases, primarily due to the ease and speed of withdrawals.
“It is imperative for everyone to maintain savings, providing accessibility when needed,” advises Anna Bowes, a savings expert at financial advisory firm The Private Office (TPO).
“This prevents the need to liquidate investments at unfavorable times.”
Advocates for investing concur that savings are an essential component of sound personal finance for all individuals.
“Individuals embarking on their financial journey should prioritize establishing a cash buffer for unforeseen circumstances before venturing into investments,” advises Jema Arnold, a voluntary non-executive director at the UK Individual Shareholders Society (ShareSoc).
According to data from the Financial Conduct Authority (FCA), the regulatory body, one in ten individuals possess no cash savings, while an additional 21% have less than £1,000 available for emergencies.
However, Arnold and others emphasize that cash savings are not without their own risks. Over time, the purchasing power of savings can be diminished by rising living costs, unless the interest rate exceeds inflation.
Human decision-making involves continuous assessments of risk and reward. We weigh the risk of crossing a street against the reward of reaching the other side, and so forth.
In the realm of finance, those with a greater aversion to risk tend to favor savings, while others gravitate toward investments. It is also beneficial to have funds that one can afford to potentially lose.
It is noteworthy that a significant portion of the population already has pension funds invested, often managed professionally, with limited direct involvement from the individual.
The FCA suggests that approximately seven million adults in the UK holding £10,000 or more in cash savings could potentially achieve higher returns through investment.
Chancellor Rachel Reeves has advocated for increased risk-taking among consumers, citing the clear benefits of long-term investing for both individuals and the UK economy.
She is implementing adjustments to the rules governing tax-free ISAs (Individual Savings Accounts) in a move aimed at incentivizing investment, although it has been met with debate.
Furthermore, an advertising campaign (funded by the investment industry) is anticipated in the coming months, designed to encourage consideration of investment opportunities.
This initiative will serve as a modern iteration of the “Tell Sid” campaign from the 1980s, which successfully encouraged public investment in the newly privatized British Gas.
However, the suitability of such a campaign at this juncture remains a topic of discussion. The original “Tell Sid” campaign led to many individuals investing in British Gas for relatively quick profits.
Investing now carries the potential for short-term value fluctuations.
Numerous commentators have posited the existence of an impending AI tech bubble, suggesting that the valuations of companies heavily involved in artificial intelligence may be overinflated and at risk of a significant correction, potentially leading to losses for investors.
This concern is not limited to commentators. The Bank of England has cautioned against a potential “sharp correction” in the value of major technology companies. Jamie Dimon, the chief executive of US bank JP Morgan, has expressed worries, and Google CEO Sundar Pichai acknowledged the presence of “irrationality” in the current AI boom during an interview with the BBC.
The reality is that the timing and likelihood of such a scenario remain uncertain.
Given these uncertainties, individuals may seek guidance, and regulators have proposed measures to enable banks to offer assistance.
Currently, professional financial advice can be costly, making it inaccessible to those without substantial sums to invest.
Financial influencers have emerged on social media to address this gap. However, some have been accused of promoting questionable financial schemes and high-risk trading strategies with promises of rapid wealth accumulation, often without proper authorization or adequate disclosure of associated risks.
Some first-time investors have turned to AI for investment recommendations, while others are susceptible to fraudulent schemes promising unrealistically high returns.
According to an FCA survey, nearly one in five individuals rely on family, friends, or social media for assistance with financial decision-making.
Starting in April, registered banks and other financial institutions will be permitted to offer targeted support, ideally free of charge. This support will fall short of personalized advice, which remains the purview of authorized financial advisors for a fee. However, it will allow institutions to provide investment and pension recommendations to customers based on the observed actions of similar demographic groups.
This represents a significant shift in financial guidance, but, as with investments themselves, its success is not guaranteed.
Rising electricity costs have emerged as a key cost-of-living concern, pushing families further into debt.
Debt charities say that calls have risen compared with last year as people are urged to seek help.
The rain and high winds experienced during stormy weather can damage homes and cause power outages.
An increasing number of people cannot afford to heat their homes in winter, says a charity boss.
Paying parents directly for some childcare costs gives “flexibility”, says a Jersey minister.