A trust for investments might be a better option for your money

In light of inflation eating away at tens of billions of pounds in savings, British citizens might be better off investing their money in an investment trust

According to the Association of Investment Companies (AIC), during the past ten years, the average investment trust has produced higher returns than cash in each of the ten-year periods.

It may be wiser to begin investing rather than cashing out your savings, and investment trusts may be a particularly dependable way to get your money working.

Yorkshire Building Society data shows that approximately 46 billion pounds are sitting in cash ISAs that pay interest of 0.5 percent or less. The real value of these savings is being depleted at an alarming rate, with inflation reaching 31.8 percent in July and August.

The average investment trust beat cash over each of the ten distinct 10-year periods during this time, according to the AIC's analysis of Morningstar data dating back to 1996.

Additionally, it discovered that the average investment trust beat savings accounts in 84 percent of three-year periods, 95 percent of five-year periods, and 100 percent of ten-year periods.

Source: Morningstar/The AIC.

According to AIC research director Nick Britton, "the average investment trust has outperformed cash in every ten-year period since 1996." Even though the best ten-year return for cash was 39 percent, the worst ten-year return for trusts during that time was 55 percent, while the best was 217 percent.

Britton emphasized that the past does not necessarily predict the future and that the likelihood of investment trusts outperforming cash decreases over shorter time periods. Over the previous 30 years, investment trusts have outperformed cash in two of three one-year periods.

He continued, "Those who can invest for at least five years, and preferably ten or longer, should consider investment trusts."

Putting money into stocks instead of cash.

Holding your savings in cash has the drawback of producing a fixed return even though it will be predictable. Increases in inflation can rapidly begin to reduce the cash savings' long-term value.

Contrarily, investing in the stock market raises your risk in the short run but increases your chances of earning returns above inflation in the long run. This is because, despite its volatility, the global stock market generally grows over time and at a rate that outpaces inflation.

According to Britton, "stock market investing is often viewed as risky, but over the long term, it has protected savings from inflation a lot more effectively than cash."

It's crucial to have a cash reserve to cover unforeseen expenses, and since cash is predictable, this is the ideal place to keep it. You don't want to be forced to take money out of your investments during a market downturn.

Claire Exley, head of financial advice and guidance at Nutmeg, stated that the amount of emergency cash you need to save will vary depending on your unique situation. Consider your fixed expenses, whether you have dependents, and how simple it would be for you to find another job if necessary. As a general rule, we advise having three to six months' worth of essential spending saved in an easily accessible account.

Beyond this, though, it is worthwhile to think about investing in the stock market.

Exley stated, "Investing will typically allow your money to work harder than it would in cash savings." "We know from history that investments yield higher returns than cash savings over the long run.

Why purchase an investment trust?

Compared to other types of investment funds, an investment trust has some advantages; however, it should be remembered that every investment should be made with your unique objectives and situation in mind.

They have a set number of shares that trade regardless of changes in the value of the assets they own (their net asset value, or NAV) because they are closed-ended funds.

Investment trusts are therefore a better option for long-term, illiquid investments like infrastructure projects, even though they may trade below their NAV. In contrast to open-ended fund managers, investment trust managers will never have to sell their assets at a loss to satisfy redemption requests from investors.

Investment trusts have the ability to reserve up to 15% of their capital annually, unlike other fund types, and can also borrow money to increase their returns (a process known as gearing).

This enables them to maintain and even out dividend payments in hard times, potentially increasing their income reliability. Anyone thinking about making the move from cash to investments may find this income stability comforting.

Our explainer on the best investment trusts for beginners is a great place to start if you're new to investing trusts and need some motivation.