Risk is inherent to investing. In general, the biggest concern most people have when investing is that you could lose all of your money.
But what are the risks when no financial loss is possible?
Moreover, what are the risks you face when it is your spending, not your savings, that generates your investments?
Understanding some of the risks that Save investors face
First things first: with your Save investment, in the event that your chosen strategy were to make a negative return over a 12-month period, you simply wouldn’t earn a return for that particular month’s investment. In other words, your investment return for that period would be zero. A negative return where you were to lose money would not be possible.
Beyond the risk of a zero return, risks still exist that you need to be aware of.
Inflation risk
Inflation will impact the return you make in real terms. Inflation impacts all investment returns. For example, if inflation is 2% for the year:
- If your investment grows by 5%, then you will have made a real return of 3%.
- If your investment grows by 1%, then you will have made a real return of -1%, which is a loss in real terms.
Under most circumstances, leaving your money in savings will likely leave you more exposed to the impact of inflation than if you invest because most checking bank accounts aren’t currently expected to pay you interest that is greater than inflation. As the price of goods and services in the US rises over time, your purchasing power will therefore diminish. Save, however, combines bank account features with investing to potentially give you a better chance of beating inflation and maintaining your purchasing power. To learn more about this go to ‘A New Way to Maintain your Purchasing Power’.
Fluctuation of your monthly returns
The average annual return is currently 3.00%*. This is what we’d expect you to earn on average over a 12-month period.
However, the return you receive each month from your Save investment will fluctuate in line with the performance of your chosen investment strategy.
- If your chosen investment strategy generates a return of 5.00% over a 12-month period, you will be paid 4.41%, after Save have taken their management fee**.
- If your chosen investment strategy generates a return of 2.00% over a 12-month period, you will be paid 1.41%, after Save have taken their management fee**.
- If your chosen investment strategy generates a negative return, you simply won’t earn a return for that month, and neither do Save. Save won’t change you a management fee if they don’t make you a return for that 12-month period.
Your return potential isn’t capped, but it is not guaranteed and will vary month to month.
Opportunity cost
For the opportunity of an investment-linked return, by using your Save Debit Invest Card, you are giving up receiving other potential reward cards available to you.
There are other reward cards available that will pay you a fixed return. However, the fixed return is smaller than the average annual return of your Save Debit Invest Card. For example:
- Citi Double Cash Card pays a fixed 2.00%
- Discover Cashback Debit pays a fixed 1.00%
- Chase Freedom pays a fixed 1.50%
To have the chance of earning, on average, a higher return of 3.00% you are giving up a smaller guaranteed return. This is the trade-off you make when you become an investor.
Save have re-written the rule book of risk
While you can’t remove every risk with your Save investment, it’s important to remember;
- In the event of a zero return, if you have been using your Save Debit Invest Card on a frequent monthly basis, there is always next month’s potential return.
- Save won’t charge you a fee if you don’t make you any money on your investment.
Apply for your Save Debit Invest Card HERE today.
*Average annual returns are based on hypothetical back-tested performance. Hypothetical back-tested performance is no guarantee of future performance and actual results will vary. Returns are subject to change daily. Minimum return will always be at least 0%. The return figures shown are for informational purposes only and are not actual customer returns. For more detailed information please see Hypothetical Back-testing.
**Any investments that are made on your behalf will be charged a management fee of 0.59%, if there are returns. If your returns are less than 0.59%, there’s no fee. You can see more information about our fees by reading Save’s Terms & Conditions.
Card comparisons made based on public disclosures available by other issuers. Source: Discover, Citi, Chase websites. Interest rates for these comparisons were sourced as of 8/06/2021.
Emma Wright, Financial Coach, Chartered Financial Planner, founder of Emma Wright Coaching.
