Nakalama JohnAs the new year got into its stride, so did the UK’s index of leading shares, marking a significant milestone that has captured the attention of both seasoned investors and policymakers. The FTSE 100, a barometer for the health of the UK economy and its largest listed companies, climbed above 10,000 points for the first time since its inception in 1984. This historic achievement has naturally cheered investors who have seen their portfolios grow, and also the Chancellor, Rachel Reeves, who has actively championed initiatives to encourage more Britons to shift their money from traditional cash savings into investments.
The index, which tracks the performance of the 100 largest companies listed on the London Stock Exchange by market capitalization, rose by more than a fifth in 2025, reflecting a period of robust growth and renewed confidence in the UK market. This surge has been attributed to various factors, including a resilient global economy, strong commodity prices benefiting the FTSE’s heavily weighted energy and mining sectors, and a relatively weaker pound making UK exports more competitive. However, amidst this celebratory atmosphere, many people continue to grapple with persistent everyday costs, and there is growing discussion among financial experts about whether some stocks might be overvalued. This raises a crucial question: Does the FTSE’s recent success genuinely make this an opportune moment to encourage first-time investors to enter the market?
Investing vs. Saving: A Fundamental Choice
Understanding the distinction between investing and saving is paramount for anyone contemplating their financial future. People can invest their money in a myriad of ways and across diverse asset classes, from individual company shares to collective investment funds, bonds, property, and even commodities. The proliferation of user-friendly apps and online platforms has significantly democratized access to these investment avenues, making it easier than ever to participate.
Crucially, a fundamental characteristic of investments is that their value can go up and down. If you invest £100, there is no guarantee that your investment will retain that value after a month, a year, or even a decade. This inherent volatility is the price of potential higher returns. However, historical data consistently demonstrates that, in general, long-term investments can be significantly more lucrative than holding cash. The sustained rise of the FTSE 100 over decades, despite numerous market corrections and crises, serves as compelling evidence of this long-term growth potential. Beyond capital appreciation, shareholders may also receive dividends – a portion of a company’s profits – which can be taken as income or reinvested to further compound returns.
For years, the enduring advice from financial professionals has been to treat investments as a long-term strategy. The power of compounding, where returns generate further returns, means that giving your money time to grow can result in a pot significantly larger than if it were simply held in a savings account.
In stark contrast, cash savings offer a much steadier and safer proposition. While the amount of interest earned varies between account providers, savers have a clear understanding of the returns they will receive. Savings rates have seen a period of healthy increases over the past year, largely influenced by the Bank of England’s efforts to combat inflation, although expectations are that interest rates are generally on a downward trajectory. Savings accounts remain the popular choice for setting money aside for immediate needs or short-term goals such as an emergency fund, a holiday, a wedding, or a new car. The predominant reason for this preference is the quick and easy access to funds they typically offer.
"It is important that everyone has savings. It gives you access when you need it," advises Anna Bowes, a prominent savings expert at financial advisers The Private Office (TPO). "It means you do not need to cash out your investments at the wrong time, potentially incurring losses." This highlights a critical point: a robust cash buffer prevents forced selling of investments during market downturns, preserving their long-term potential.
Evangelists for investing wholeheartedly agree that a foundational level of savings is an indispensable part of a sound personal finance strategy. "People starting out should have a cash buffer in case of emergency before going into investing," reiterates Jema Arnold, a voluntary non-executive director at the UK Individual Shareholders Society (ShareSoc). This advice is particularly pertinent given recent statistics from the Financial Conduct Authority (FCA), which reveal that one in 10 people in the UK have no cash savings whatsoever, and a further 21% have less than £1,000 available for an emergency.
However, Arnold and other investment advocates are quick to point out that holding cash is not without its own set of risks. Over time, the purchasing power of savings is relentlessly eroded by the rising cost of living, unless the interest rate earned on the savings account consistently outpaces inflation. This "inflation risk" means that while the numerical value of your cash might remain constant or grow modestly, its real-world value – what it can buy – can diminish significantly.
Risk and Reward: Navigating the Investment Landscape
Our brains are constantly making subconscious judgments about risk and reward throughout the day, from the simple act of crossing a busy road to making complex financial decisions. With money, this translates into varying degrees of risk aversion. Those who are more risk-averse have historically tended to stick with the perceived safety of savings, while others, often with a greater tolerance for uncertainty and a longer time horizon, have ventured into investments. A key prerequisite for investing is having money you can genuinely afford to lose, at least in the short to medium term, without jeopardizing your financial stability.
It’s also worth acknowledging that millions of people in the UK are already investors, often without actively realizing it. Their pension money, for instance, is typically invested in various funds, managed on their behalf. While they might not scrutinize daily market movements, their retirement security is intrinsically linked to investment performance. The FCA estimates that a staggering seven million adults in the UK, currently holding £10,000 or more in cash savings, could potentially achieve better returns by investing a portion of these funds.
Chancellor Rachel Reeves has been a vocal proponent of encouraging greater risk-taking from consumers, particularly those with sufficient capital. She firmly believes that the benefit of long-term investing, both for individual financial growth and for the broader UK economy, is clear and undeniable. To this end, she is actively pursuing reforms to the rules governing tax-free Individual Savings Accounts (ISAs), including the introduction of a new "British ISA" and simplifying existing regulations, in a much-debated move aimed squarely at stimulating investment activity.
This governmental push is also the impetus behind an impending advertising campaign, funded by the investment industry, set to launch in a couple of months. This campaign will aim to "blitz" the public with messages encouraging them to consider investing, drawing parallels with the iconic "Tell Sid" campaign of the 1980s. That legendary campaign successfully encouraged millions of ordinary Britons to invest in the newly privatized British Gas, ushering in an era of popular capitalism. The original "Tell Sid" campaign was a landmark event, transforming thousands of first-time investors into shareholders and was widely regarded as a resounding success in broadening share ownership.
But the question remains: Is this truly a good time for such a campaign, especially for new investors? While the "Tell Sid" era offered opportunities for relatively quick profits from newly privatized entities, the current landscape presents different challenges. Investing now, particularly in certain sectors, carries the distinct possibility that the value of your investment could take a short-term hit.
A chorus of commentators has suggested that an "AI tech bubble" might be on the verge of bursting. This theory posits that the valuation of companies heavily invested in Artificial Intelligence has been artificially inflated by speculative hype, leading to unsustainably high prices. If this bubble were to burst, it would mean a sharp plunge in the value of these companies, directly impacting anyone who has invested in them. This concern isn’t limited to market commentators. The Bank of England has explicitly warned of a potential "sharp correction" in the value of major tech companies. America’s top banker, Jamie Dimon, CEO of JP Morgan, has expressed significant worry, and even Google boss Sundar Pichai has acknowledged "irrationality" in the current AI boom. In truth, predicting the exact timing and magnitude of such a market correction, or indeed if it will happen at all, remains an exercise in speculation. History teaches us that market bubbles, from the Dutch Tulip Mania to the Dot-Com bust, often follow periods of intense excitement and rapid growth, only to deflate suddenly. While AI’s transformative potential is undeniable, discerning sustainable growth from speculative froth is a challenge for even the most experienced investors.
New Rules on Getting Investment Help: Bridging the Advice Gap
For many, the complexities and inherent risks of investing can be daunting, leading to a natural desire for guidance. However, traditional financial advice in the UK has historically been expensive, often placing it out of reach for individuals who haven’t accumulated tens of thousands of pounds to invest. Regulated financial advisers, burdened by extensive qualifications and compliance requirements, frequently find it uneconomical to serve clients with smaller portfolios.
This "advice gap" has unfortunately been exploited by unregulated sources. Financial influencers, or "finfluencers," have attempted to fill this void on social media platforms. While some may offer genuinely useful insights, many have been accused of promoting unvetted financial schemes and risky trading strategies with glitzy, get-rich-quick promises, often against backdrops of fancy cars and luxury lifestyles – all without proper authorization, full disclosure of risks, or even a basic understanding of their audience’s financial circumstances. The rise of such unregulated advice has led to increased concerns about consumer protection and the potential for significant losses.
In their search for tips, some first-time investors have even turned to Artificial Intelligence, hoping for impartial and data-driven recommendations. While AI tools can process vast amounts of information, they lack human nuance, cannot assess individual risk tolerance or specific financial goals, and are not regulated. This reliance also makes individuals vulnerable to fraudsters offering "investment opportunities" that are, invariably, too good to be true, often leading to devastating financial losses. A survey by the FCA highlighted the scale of this problem, revealing that nearly one in five people turn to family, friends, or social media for help with financial decisions, underscoring the pressing need for accessible, legitimate guidance.
Recognizing this critical need, the regulator has introduced significant plans to allow banks and other financial institutions to offer a new form of assistance. From April, registered banks and other financial firms will be permitted to offer "targeted support," a service designed to be more accessible, and preferably free. This new framework will stop short of providing individually tailored financial advice, which will remain the exclusive domain of authorized financial advisers who charge a fee for their personalized recommendations. Instead, it will enable these institutions to make investment and pensions recommendations to customers based on what similar groups of people, with comparable financial profiles and goals, might consider doing with their money.
This represents a big change in the landscape of money guidance, aiming to provide a much-needed middle ground between generic information and expensive bespoke advice. The benefits could be substantial, increasing access to basic investment guidance for millions. However, as with investments themselves, there are no guarantees that this new approach will be universally successful. While it lowers barriers to entry for guidance, the ultimate responsibility for understanding risks and making informed decisions will still rest with the individual investor. The success of this initiative will hinge on clear communication, robust oversight, and continued efforts to educate the public on the fundamentals of investing responsibly, ensuring that the excitement of a record-breaking FTSE 100 translates into prudent and well-informed financial decisions for a wider segment of the population.
atisusanti
George Anjay
Nana Banana