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At first glance, anyone with a few coins in the bank might think it’s smart to put them in a savings account. Interest rates are high, after all. Most banks offer 4%-5% per annum. Current forecasts expect that kind of range for at least the next decade as well. Savings accounts are also guaranteed, without the risk of losing money. Best of all, our country’s ISAs offer complete protection from taxes on any income earned on them.
What does that look like in practice? Well, let’s take an investor who is left with £2,000. Apply 4.5% per annum to it and let it work. What do we conclude? Over a fixed investment period, say 30 years, we would have £7,490, some distance above the actual value. That may sound appealing to many people.
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Not as good as he is
But let’s back up for a second. Statistics like these cannot ignore inflation. They often do so because it is difficult to deal with inflation every year. But even minus the Bank of England’s 2% inflation target – well below where we’ve been, mind you – the end result is an inflation-adjusted figure of £4,195. That doesn’t look so good to me. Not after 30 years anyway.
This is why I invest in the stock market; with a high rate of return. Yes, it is very dangerous. Yes, I can lose money. Crashes like 2008 will happen along the way. And I still have to factor in inflation with anything I do. But when the historical record of British businesses on the FTSE 250 more than 10% per year since 1993? I am willing to accept that risk. In those terms, taking into account inflation, my £2,000 turns into £20,125. Those numbers mean this is something I believe any investor, £2,000 or otherwise, should consider.
One FTSE 250 stock that I own, and another that I hope will deliver similar returns in the coming years JD Wetherspoons (LSE: JDW). The pub chain is ubiquitous as it is cheap, and a reputation for low prices on beer will support sales going forward, especially if cost of living problems intensify.
Get up and get up
Shares have taken their biggest haircut since Covid, down 63% from their highs. That is partly down to higher supply costs, higher energy costs and higher labor costs. The new budget will not help those matters either. But these issues are ones that Wetherspoons will be in a better position to deal with than their competitors I feel, many of whom are single or family run. If it goes down a lot I will look to increase my position.
In the long run, I see this as a company that will continue to operate. With an ISA full of high quality stocks like this one, I hope to see my net worth go up and up. With a little luck along the way, I hope to withdraw a decent income at the end of it. I expect it will be more than I can get from a savings account, in any case.
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