How to Future-Proof and Get The Most From Your Savings Portfolio

Matt Gibson| Oct 13, 2019

General

More than half of the twenty-somethings in the UK have no savings. More specifically, 53 percent of 22 to 29-year old Brits do not possess a savings account or an ISA, according to a study by the Office for National Statistics (ONS). You do not want to be part of that statistic. 

 

Saving is not just about putting money aside for a rainy day (although that is a good start). It is about investing in your future by providing you with the financial capabilities to start a business, purchase a home, or travel the world when the time comes. 

 

In this article, you will learn how to create a future-proof savings portfolio that will set you on the path towards financial independence.

 

Interest Rates on Savings Accounts Are A Good Start But Won’t Make You Rich

Cash savings accounts are an excellent place to start as they provide a low-risk base for your savings portfolio. Currently, the highest-paying cash ISAs and savings accounts come with interest rates between 1.5% to 5%, with the latter being on the high end (usually offered to new customers who switch provider). 

 

While these types of investment vehicles are stable, low-risk options for savers, they will not help you to build wealth. If you want to potentially end up with a hefty sum at the end of your investment period, you will need to invest in other asset classes. 

 

Diversify Your Savings Portfolio to Build Your Wealth

The solution to the low-interest rate dilemma in the savings account market is to diversify into so-called “risky assets,” such as stocks, corporate bonds, etc. While this means taking on more risk, it also means potentially generating a higher return on investment.

 

Stocks, bonds, and commodities, such as gold, are the standard go-to options for a diversified investment portfolio. Nowadays, we also have a new asset class that has even higher earnings potential than stocks, bonds, and gold. That asset class is crypto. 

 

Cryptocurrencies, such as bitcoin (BTC) and ether (ETH),  have generated astronomical returns. Bitcoin, for example, has generated over 4,000% return on investment over the last five years while the value of ether has skyrocketed by over 14,400% during the same period. 

 

While historical returns are by no means predictors for future returns, they provide you with an insight into the potential of this new digital asset class. Additionally, it is important to note that digital currencies, like bitcoin, are uncorrelated to “traditional” assets and are, therefore, an excellent portfolio diversifier. 

 

How to Build a Savings Portfolio

First, you need to decide how much money you want to put aside each month and how much initial capital you can place into your savings portfolio. Let’s assume, you start with an initial capital of £1,000, and you can put aside £500 each month. 

 

If you want to diversify your risk broadly, you could put the £1,000 into a fixed rate savings account that pays 2%. Additionally, you could add £100 out of your £500 monthly savings into that savings account. This would make up the low-risk bucket of your savings portfolio. 

 

Next, you could place £200 out of the remaining £400 into an investment fund that invests in stocks, bonds, and commodities. Let’s assume this fund generates an annualized ROI of 5%. This would be your medium-risk bucket. 

 

Finally, if you are willing to add more risk to your portfolio and, thereby, potentially generate higher portfolio returns, you could add £100 of bitcoin (BTC) and £100 of ether (ETH) to your monthly savings. This would make up the high-risk bucket of your savings portfolio.

 

In this example, your savings portfolio composition would look as follows: 

 

BTC Comparison

 

*Five-Year Average Annual Return

**Four-Year Average Annual Return

 

Over a ten-year investment period, the initial capital of £1,000.00 would grow to £1,218.99 (assuming full reinvestment). Conversely, the monthly contributions into the diversified basket of low, medium, and high-risk assets would amount to a whopping £178,484,842. 

 

The impressive estimated portfolio value in our example assumes that historical returns would remain constant over the next ten years. That will most likely not be the case. Given how much the cryptoasset markets have matured in the past five years, it is unlikely that the historical returns of the leading digital assets will repeat themselves. 

 

However, many experts believe that the price of bitcoin has the potential to hit $50,000, $100,000 or even $1,000,000 and, when bitcoin rallies, the rest of the market usually follows. 

 

It is, therefore, very possible to continue to see impressive returns in the cryptocurrency markets even if they may not be in the triple digits. 

 

How to Add Crypto to Your Savings Portfolio

The easiest way to continuously add bitcoin and/or ether into your diversified savings portfolio is through Vimba’s automated crypto saving service.

 

We offer a set-it-and-forget-it crypto savings platform where you connect your bank account to your Vimba account to automatically purchase the same amount of crypto at regular, chosen intervals to help you grow your savings over time.

 

Sign up here to saving crypto using Vimba today! 

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