Investing for growth: When safe may not be sound

In the long run, the stock market will beat the savings account. Here and on pages 14 to 17 we show how to share in the action

INVESTMENT can seem a complicated business, with numerous choices and confusing concepts, writes Steve Lodge. But improving the prospects for most people's savings can boil down to some relatively simple rules of thumb.

Fundamentally, most people have too much of their savings in traditional accounts. Despite rising interest rates and growing competition - including the Halifax's launch of a telephone-based account (see back page) - many accounts still pay a relative pittance. And even the quoted rates are in most cases unattainable: they are normally quoted before tax but face being taxed at your highest personal rate.

By contrast, while stock market investments can fall as well as rise, over five years or longer you should make more money. In recent history you would have done very well being in the UK stock market, and over the very long term no other investment has even come close to stocks and shares in terms of performance.

Stock market investments are particularly suited to people looking for growth (rather than immediate income) from their savings - which is what this special survey is about.

Of course some stock markets perform better than others - witness the recent crashes in Asia - and the timing of your investment can make a difference, but the longer you are prepared to invest, the less this should be a worry. There are also many savings plans that dripfeed your cash into the market and so sidestep the risk of investing everything just before a crash.

You could also come unstuck by picking the wrong share. But there is a huge choice of stock market investments on offer that will spread your money across a range of stocks and shares, so reducing your exposure to the problems of any one company.

Costs and how your investment is taxed are also important, but neither in isolation should dictate your choice. In particular, a tax break on its own will not turn a bad investment into a good one.

q The Independent and Independent on Sunday's free 'Guide to making your investments work for you' is available by calling 0800 137 9749. We also have a new guide to pensions, sponsored by Eagle Star. For a free copy call 0800 776666 or fill in the coupon below.