Putting money in the stock market can be confusing, especially if you’re new to investing. But ask any experienced investors, and you’ll find out that investing tends to come with many advantages. Here are three key benefits of investing in the stock market.
Investing can be a good way to make your money work harder
Why invest? This is a good question and the answer is pretty simple: to give your money a chance to grow. Many of us have money tucked away in savings accounts or Cash ISAs, and whilst having an emergency fund is a sensible thing to do, it may not always be the best way to boost your finances. In fact, if you do little more than save, you could be hurting your financial future over the long-term. How so, you ask? When you save, you’re guaranteed to get what you originally put in, plus a little bit of interest, however, it’s important to keep an eye on inflation as it could erode the value of your money. If the interest rate you get from your bank falls below the rate of inflation, the value of your savings will drop.
If you ‘re looking for inflation-beating growth, consider giving investing a try. Historically, stocks have beaten cash over the long-term. A Barclays Equity Gilt Study found that since 1899, British stocks have returned on average 4.9% a year, compared to 0.7% for cash. Even more telling, stocks kept for any ten-year period have had a 91% chance of outperforming cash1. As long as you’re willing to stick with your investments for a number of years, investing could help you build up wealth over the long-term.
Investing could help you achieve your long-term goals sooner than you think
We all have long-term goals we’d like to achieve, and whether it’s travelling around the world or planning for your child’s future, investing could help you get closer to your dreams. Let’s say you want to help your child with their university tuition fees. You could save money in a Junior Cash ISA, but it could take a very long time before it returns a sizeable profit. You could also choose to invest in their future with a Junior Stocks and Shares ISA.
Whatever option you opt for, a Junior ISA lets you save or invest up to £4,368 a year (subject to change) for your child in a tax-efficient way, and not only does the money belong to them, it also cannot be accessed before your child turns 18. If you can’t decide between saving and investing, you could split your child’s allowance between a Junior Cash ISA and a Junior Stocks and Shares ISA. But make sure you consider taking advantage of the latter as it could help boost your child’s future. For instance, by investing £100 a month in a Junior Stocks and Shares ISA, starting as soon as possible after they’re born, your child could celebrate their 18th birthday with £29,375* in their account, which could be used to pay their tuition fees.
* This is the projected value for a Confident Plan (Medium Risk Plan). This is only a forecast and is not a reliable indicator of future performance. If markets perform worse, your return could be £22,953. If markets perform better, your return could be £37,643. Values correct as of 18/07/19.
Investing can help drive positive change in society
Investing isn’t just about making money or achieving long-term goals; it can also help you have a positive impact on the environment and society. Investing ethically is a great way to put your money to work whilst supporting companies committed to doing good and it’s easier than you might think. One effortless way is to invest in ethical funds - think of them as hampers full of sustainable investments. By buying such funds, your money gets invested in a number of ethical companies without you having to pick each one individually. If you don’t have time to pick your own ethical funds, there are many robo-investing services which will do the hard work for you.
At Wealthify, we offer Ethical Plans (including Ethical Stocks and Shares ISAs) that let you invest in organisations committed to doing their part for the environment and society. The ethical funds we use in our Plans will exclude activities considered harmful to society by using negative screening. Some will only remove the so-called ‘sin stocks’: gambling, tobacco, adult entertainment, and weapons, whilst other funds will go further and screen out a wider range of activities, such as deforestation and nuclear power. Funds will also have different tolerance thresholds with some removing sectors completely, and others investing in companies involved in harmful activities as long as no more than 10% of their overall profits come from those activities.
Ethical funds we use in our Plans will also carry out positive screening where investment experts pro-actively select companies that are operating in a sustainable way. To ensure these companies maintain high ethical standards, our investment experts will closely monitor their practices and remove any organisations that let their standards fall behind.
To summarise, if you’re looking to make your money work harder and achieve your financial dreams whilst having a positive impact on the environment and society – ethical investing could tick all of your boxes. If you haven’t already – why not give it a go?
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.