FT Guide to Wealth Management

5

Rules of the investing ‘game’

While cash has historically been a poor store of value, particularly over the medium to long term, it is the best home for capital that may be needed within three to five years to meet any planned and unplanned expenditure. We refer to such capital as ‘savings’ because it is earmarked for short-term needs and as such we are less worried about inflation and more concerned that the value won’t fall in nominal terms (i.e. excluding the effects of price inflation). There is no point in committing capital to a diversified investment portfolio, only to find that you need to sell some of it when the portfolio might have fallen in value – as it invariably will – because you need to spend it on something in the short ...