Myths Investing

5 myths about investing

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Growing your personal finances over the long-term is a goal shared by many of us. And whilst investing can be a great way to generate more income and help bring projects to life, our recent survey of over 2,000 British people revealed that 62%* aren’t currently investing at all and only 2%* of Brits have invested in a Stocks & Shares ISA the first time in the past twelve months. This reluctance towards investing amongst almost two-thirds of the population no doubt has many roots, but misconceptions seem to play a significant role. Here are five of the most common myths and why they probably shouldn’t prevent you from dipping your toe in the investing world.

 

‘I don’t have enough money to invest’
Surprisingly, our survey reveals that the main obstacle for most non-investors is still the belief they need a sizeable amount of money to join the investing arena. Indeed, 30%* of Brits think they don’t have enough money to invest. Whilst this conviction may have been true in the past when investment managers targeted the very wealthy, it’s now a complete myth. Since the introduction of digital investment management services, it’s now possible to invest small sums. In fact, you can start a diverse investment Plan with as little as £1 in some cases, making investing accessible to everybody.

 

‘Investing is too risky’
Another concern people have is risk, with 19%* of those taking part in our survey believing investing comes with too much risk. Investing does present risk, but many modern investment providers come equipped with slick tools to help choose a risk level that suits you. Risk can be mitigated by the choices you make as an investor. Buying lots of different types of assets (i.e. bonds, shares, and so on) is a process known as diversification and helps by spreading your risk. Our blog 5 things you need to know about diversification, will go into a bit more detail of how it works. 

If you have lots of time, you can do it yourself, but an easier way might be to use an online investment service that makes all the important investment decisions for you. The trick is to find the right balance between the risk you’re willing to take and the level of return you’re hoping for. Asking yourself, ‘is limiting losses more important to me than making gains?’ could be a good place to start. 

 

‘I don’t understand how investing works’
Our research reveals that 16%* of Brits believe they need a good knowledge of investing before giving it a try. Yet, previous experience and expertise are not prerequisites at all. If you use an investment management service, investment professionals do the hard work for you, from picking your investments and building your portfolio to keeping it on track. All you have to do is choose how much you want to put in, how long for, and the risk level you’re willing to take. Then, you can relax and enjoy potential financial growth, knowing an expert is taking care of it for you.

 

‘I don’t want my money to be locked away’
Many digital investing services, like Wealthify, are designed to be flexible, allowing you to withdraw funds if you need to, without penalty. However, due to the up and down nature of the stock markets, you should always approach investing with a long-view, and only invest money if you believe you won’t need in the short term. Remember you should also have an emergency cash fund that you have easy access to in case something goes wrong, and this should be separate from your investments.

 

‘Why invest? I already have money in a savings account’
Putting money aside in a savings account is vital for covering unexpected expenses, but while inflation continues to outpace most available savings rates, it’s unlikely to be your best route to long-term growth. Imagine, for example, you have £2,000 in a savings account with a 1% annual interest rate. After 12 months, your savings will grow by 1% and you’d have £2,020. However, if inflation is running at 2.7% year on year, the value of your money will decrease in real terms. In other words, if you were to take your money out after 12 months, you’d lose some purchasing power. The way around this would be to find a savings rate that will beat the effect of inflation, and in this case, that means finding an annual rate higher than 2.7%!

Investing is an alternative way to get potential inflation-beating returns over the long term. History suggests that people investing during any 10-year period since 1984 in the FTSE 100 index had an 88%1 chance of making a positive return on their money.

So, if you’re comfortable taking an element of risk, investing could be a great helping hand towards achieving long-term financial growth to fund those life projects you’re dreaming about.

 

1: Bloomberg Data

 

*Wealthify ISA survey. Research conducted by Opinium Research between 9– 12 March 2018 amongst 2,010 consumers

 Figures are based on past performance and past performance is not a reliable indicator of future results.

Please remember the value of your investments can go down as well as up, and you could get back less than invested.

 

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The comments and opinions expressed in this article are the author's own and should not be taken as financial advice from Wealthify.

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