Most people appreciate the need to grow their money over time. It’s not just a desire to become comfortably off but a necessity – to preserve the spending power of hard earned savings against rises in the cost of living. Cash in bank accounts or cash ISAs simply doesn't give a decent enough return.
Yet the world of investing can be an off-putting one, inaccessible and riddled with self-serving jargon. A simple requirement to build a nest egg can quickly become a perplexing maze for the uninitiated, while the more cautious are typically wary that the stock market – investing in company shares – involves casino-like levels of risk and conclude it isn’t for them.
A bumpy ride, but one worth considering
It is true there can be a bumpy ride when investing in shares. You are buying a small slice of a company and get a share of growth and profits. But profits don't always go up and companies can shrink as well as grow. In addition, the stock market rises and falls depending on people's confidence in the economy and in businesses. The chart below shows the peaks and troughs of the FTSE 100 – the average of the performance of the UK’s 100 largest companies – over the past ten years. The bottom line is that investments can go down in value and there's always a chance you'll get back less than you put in.
Chart: Performance of the FTSE 100 over ten years
Source: FE Analytics, total return basis with net income reinvested. Past performance is not a reliable indicator of future results.
One way to help counter the inevitable ups and downs is to invest smaller amounts regularly rather than a lump sum in one go. If you started investing £100 a month in the UK stock market ten years ago, you'd now have £18,850. At a typical bank, your £6,000 of contributions would now be worth just £11,975. Over this sort of timescale you have a good chance of a positive return through regular investing. Source for data FE Analytics to 1 May 2018, total return basis with net income reinvested; Please note however that past performance is not a reliable indicator of future results.
Investing regularly also means you don’t need thousands, or even hundreds of pounds to become an investor - you can get started from as little as £50 a month. It all adds up in the long run, and starting small can help you get comfortable with how it all works.
Invest online quickly and easily
Fortunately, it has never been easier to start investing. With an online investment platform – an account where you can hold your own shares, funds and other investments – you can get up and running in minutes. It’s possible to open an account all from the comfort of your laptop or smartphone and you can easily keep tabs on how things are going online or through an app.
This type of ‘direct’ investing often has the advantage of being cheaper, so if you have straightforward needs that don’t require advice you could save money on fees and charges too.
Top investing tips:
- Don’t put all your eggs in one basket. Individual shares can be risky. Instead you can buy funds, which buy lots of different shares so you aren’t reliant on a small number of companies succeeding.
- If you aren’t confident in making investment decisions there’s usually some help for those starting out. Investment platforms commonly have ‘ready-made’ starter portfolios, or investment funds that invest in a variety of assets with a manager overseeing what to buy and sell. For instance, funds in Charles Stanley’s Multi Asset Fund range provide diversified portfolio in one easy-to-buy investment, monitored by their experts.
- Keeping costs down can boost your investment returns. Choose a low-cost investment platform to help.
- Any expensive debts such as personal loans, overdrafts and credit cards should be repaid before starting to invest – though pensions where your employer contributes are a possible exception. Mortgage debt should also be kept under control with an appropriate repayment plan in place.
- Tax-efficient accounts should be a priority; specifically Individual Savings Accounts (ISAs) and pensions. These could save income and capital gains tax and boost long term returns.
Investors should be aware that past performance is not a reliable indicator of future results and that the price of shares and other investments, and the income derived from them, may fall as well as rise and the amount realised may be less than the original sum invested. This article is not personal advice based on your circumstances. No news or research item is a personal recommendation to deal. Investment decisions in fund and other collective investments should only be made after reading the Key Investor Information Document or Key Information Document, Supplementary Information Document and Prospectus. If you are unsure of the suitability of your investment please seek professional advice.