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Cash ISA rates have been rising recently in line with Bank of England hikes. Now I can take more than 2.5% at some point in a year. Locking money away in a cash ISA may be the right move for some people. But, I’m going to get rid of it now and invest my surplus in high growth stocks instead. Here’s why.
Making my money work harder
Locking in my money for a year at a fixed interest rate gives me certainty. But, as we now know, that certainty forces me to take a beating against high inflation and therefore the potential for a real (inflationary) return on my money.
I can’t say for sure about investing in growth stocks. will do Give me a real refund, but it definitely gives me a good chance to try. For example, it’s one of my recent picks. InvestIt has seen a 40 percent increase in its stock price over the past year. SSE It is another case where it has managed to gain about 11 percent in the past year.
Of course, past performance is no guarantee of future returns. Buying now may not allow me to make a real profit for the coming year. But the ability to do this with shares like this certainly highlights the fact that it exists.
Reducing the risk of reinvestment
Another concern I have with fixed term deposits is my concern for what happens at the end of the year. At that point, rates could be higher or lower than what I’m currently locked into. This again gives me investment risk.
With growth stocks, it’s easier to work with my long-term investment time frame. I can park my money there now, and hope to see some capital appreciation next year. However, I should not sell the stock and try to find a new option. After many years, I hope to return to campus based on realistic growth prospects from the company.
For example, I might consider SSE because the utility company invests heavily in renewable forms of energy. Revenue growth from this area should materialize as growth accelerates in the coming years. By investing for the long term, I hope to be able to ride on the cloud for the entire journey.
Be aware of the risk of growth stocks
A cash ISA benefit is guaranteed. This is not the case with any stock I decide to go with. The nature of this share style means that I typically have to take a higher risk to anticipate the potential for a bigger reward.
The product or service being installed may be relatively unproven. Or growth can come from international expansion, which is always fraught with risks.
I try to minimize this risk by doing my homework. I also turn to the direction FTSE 100 And FTSE 250 Companies of sufficient size already established in the market.