There’s no denying it: Brits are far behind the lead when it comes to investing their money.
According to our own research (which we conducted back in 2018), 62% of Brits weren’t investing at the time, and only 2% were paying into a Stocks and Shares ISA1 – a type of account that allows you to invest your money, giving it the potential to grow without paying tax on your gains.
And although plenty of time has passed since then, and plenty of things have changed, one thing that hasn't is people's reluctance to invest. In fact, more recent research we carried out in 2023 found that 52% of people hadn't considered investing in the past year.2
So, what’s putting people off from entering the investing world? One fear that many people share is the risk of losing money, with 50% of those we surveyed in 2023 admitting that they felt the benefits didn't outweigh the risk.
Investing does come with risk, but it’s a much-misunderstood thing. So, here are some things to know.
How risky is a Stocks & Shares ISA?
Being invested isn’t without risk since returns aren’t guaranteed. This might sound a bit scary, but let us explain what this means exactly.
With a Cash ISA or traditional savings account, you typically receive a regular fixed amount of interest on your money. But if this rate is lower than inflation, your money will be worth less in future because you'll be able to buy less with it.
However, with a Stocks and Shares ISA, your growth depends on how well your investments are doing and how much they're worth when you sell them.
Basically, stock markets fluctuate due to things like the news and market trends, and the value of your investments can go up and down as a result. If you withdraw while they're down, you'll be cementing your losses and making them real. But if you were to hold onto them for longer, they could potentially recover and be worth more in future.
And because your returns won't be tied to fixed interest rates, your money could have the potential to work even harder and grow further over the years.
How can I mitigate risk?
The thing with investing is that there’ll always be some risk, but we take risks every single day.
For example, when you’re crossing the road, you’re taking some risk, but you still do it, otherwise you’d get nowhere. The key is to manage your risk, and you do this by looking right and left before you cross to make sure the road is clear.
And it’s the same with investing! There are steps you could take that might help you limit the amount of risk you take through the way you invest your money, and the investments you buy.
So, here are some things to consider.
Avoid putting all your eggs in the same basket
One way you could spread your risk is to diversify your portfolio. But what does that mean, exactly?
Put simply, this is when you buy many different types of investments (like shares, bonds, commodities, and property) and invest in different stock markets around the world, like the UK’s FTSE 100, the US’s S&P 500, and Japan’s Nikkei 225.
By doing this, you could be less likely to lose everything as you're not relying on one region, company or type of investment to perform well. In fact, poorly-performing investments may be balanced out by others that are doing well.
If it sounds confusing or like too much hard work, don’t worry, as there are services that can do it for you. At Wealthify, we have a team of investment experts who will build you a diversified Investment Plan and manage it for you, making changes as and when needed.
Commit for the long-term
Over the short-term, be prepared to see the value of your investments decrease – this is just part and parcel of being an investor, and they could go back up over time.
Financial markets are quite like roller coasters –they go up and down. But one way to help potentially shelter yourself from these unpredictable movements is to stick with your investments over the long-term – and by long-term, we mean at least 5 years.
Not only could it give your money more time to grow thanks to 'compounding' (where your returns get reinvested and generate their own returns), but it might also help you to ride out market dips. Time is your friend, after all.
In fact, Bloomberg data shows that those who invested in the FTSE 100 Index for any 10-year period between 1986 and 2022 have had an 88% chance of making a gain.
Ready to give your money more potential to grow over the long-term? Find out more about our Stocks & Shares ISA and how it works. We offer five investment styles so you can choose the level of risk that suits you.
- Research conducted by Opinium (on behalf of Wealthify) amongst 2,010 consumers in March 2018
The tax treatment depends on your individual circumstances and may be subject to change in the future.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.
Wealthify does not provide financial advice. Seek financial advice if you are unsure about investing.