In 2011 a survey was carried out which showed 58% of people had lost faith in the market and 44% planned never to put more money in the stock market again.1 But in 2016 we are in the 7th year of historically low interest rates in the UK and investing is becoming one of the few ways to protect your hard earned money against inflation.
Investments could enable you to earn more from your money and keep up with inflation.
Many individuals have a laissez-faire attitude to investing. This is likely to be due to one of the hundreds of myths about investing that cause many to switch off when it comes to investing. You have probably heard that:
- Investing is for the super rich
- Investing is for people who work in finance
- Investing is complicated
The reality is, if you have 3 months’ salary in a cash account, now is the time to start caring about investing. If you want to see your money grow over the long term, then investing could be a good option.
What are investments?
Investments are something you buy into to get a profitable return. There are many types investments, these are known as asset classes and can be broken down into; cash, bonds, shares, property, commodities, foreign currency, contracts for difference or collectables.
A combination of these is known as a portfolio. Spreading your money between asset classes helps to lower the risk of your portfolio underperforming. Investing in asset classes such as property or collectables requires more capital and is often less liquid (it is more difficult to get your money out). This should be considered when considering an investment.
Returns
Returns are the profit you earn from your investments. So the difference between the price you pay and the price you sell, or capital gains (or losses). With many investments (not cash) the value is likely to go up and down but over the long term the value should grow, that growth can vary. An investor needs to consider cost when looking at projected returns as that can eat into your returns. Some providers will charge exit fees, performance fees etc. at Moneyfarm there is just the management fee which keeps it simple.
Risks
This is the word that scares away most potential investors. There is no such thing as a ‘no-risk’ investment. If you save in cash you could lose value in real terms due to inflation, but the value of investments in stocks can be volatile. Investing in multiple products is the best way to protect yourself from risk. A provider such as Moneyfarm will do this for you, all of our portfolios contain at least 7 different ETFs.
1 Prudential Financial survey
