Financial Technology

I’d forget cash savings accounts and put regular money in this investment instead

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Although interest rates have gone up a bit from their lows, cash savings accounts still look like a poor investment.

I did a quick search and couldn’t find any type of savings account paying as much as 4%. And in most cases, the rates were a fair way lower.

However, asset allocation is still a thing. And I want to have my money spread between asset classes. Therefore, one of my biggest investments is the property that I own and live in. And that takes care of my allocation to real estate.

But I’m reluctant to keep too much cash. Instead, there’s just enough in savings accounts for my immediate needs and for emergencies.

The outperforming asset class

When it comes to investing though, I’d prefer to put regular money into a Stocks and Shares ISA. Over the long haul, the returns from shares have outpaced all other major classes of asset. Although gold as an investment has been giving stocks some stiff competition over the past couple of decades.

Nevertheless, stocks and shares still have the edge over the very long term. And they’ve outperformed property, bonds, cash savings and commodities. 

But, of course, not every share will go on to perform well. So it’s important for investors to be selective about which businesses they choose. 

One method of aiming for decent returns on stocks involves focusing on shareholder dividends. Over time, a big part of the overall gains from the stock market tend to come from dividends.

And there are several stable businesses paying worthwhile dividends right now. For example, I like the look of British American Tobacco, which is yielding above 7%, as I write. And energy company National Grid has a yield above 5%.

But they’re not the only ones. I’m also keen on financial technology and trading platform provider IG Group with its yield over 5%. And supermarket chain J Sainsbury ticks the boxes for me with its yield near 5%.

Stable, cash-generating businesses

I reckon all those businesses have stable, cash-generating operations ideal for supporting a progressive dividend policy. And that means if I held them in my Stocks and Shares ISA the overall yield may grow over time. However, positive outcomes are never certain because any business can run into difficulties from time to time. It’s even possible to lose money on the stocks.

Nevertheless, If I had spare cash to invest now, I’d be inclined to consider them for my portfolio. My goal would be to reinvest all the dividends to keep the process of compounding going. And, over time, the value of my investments may grow. But that kind of outcome isn’t certain.

However, buying dividend stocks isn’t the only way I’d invest within my ISA. One method of mitigating single-company risk is by investing in managed and tracker funds. So I’d choose a range of trackers and some carefully chosen funds representing different investment strategies. My aim with that part of the portfolio would be to match the performance of the general stock market.

There are always risks involved with share-based investments. But the potential returns may beat cash in the bank.

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