Five things you didn't know about investing

Once you have a trusty rainy day cash account sorted, it’s time to think about saving for the longer term and getting a decent return on your savings.

Investing in the stock market offers the chance to beat interest from the high street banks and potentially generate a better return on your money. This is really important at a time when interest rates are so low and inflation is rising.

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However, many people feel intimidated by investing and end up putting it off – or not investing at all.

Here are five things you didn’t know about investing that might give you the confidence to get started whether you intend to save for yourself in an ISA, Lifetime ISA or for your children in a Junior ISA or Child Trust Fund.

1. Ignoring the stock market can be an expensive mistake

Over the long-term, stock market investments generate a better return on your money than deposit savings accounts.

If you had invested £10,000 into the FTSE All Share index 20 years ago you would now have £34,174. If, however, you had invested £10,000 into the average UK savings account over the same period, you would be left with £12,519. That’s a difference of £21,655.

It’s not all plain sailing of course. The nature of the stock market is that there are ups and downs. That’s why experts recommend investing for no less than five years - if the market wobbles - that is, takes a hit and the value of your savings falls - there’s time for it to recover.

Stock market performance is not guaranteed though, and the value of investments can fall as well as rise. This means you could get back less than you invested.

2. You can spread risk

To earn a better rate of return than would typically be generated from a savings account, savers need to accept more risk. While it is possible to own shares in a company directly, you can use a pooled fund, which offers the opportunity to reach lots of different companies in a single investment.

That way, if one company falters, it’s not as disastrous if the others are doing fine. The fund is run by a fund manager who is responsible for making sure that each and every stock the fund invests in is a viable business. These can be UK based, or companies in other countries or regions, in many different industries and sectors.

3. Every little helps

Don’t make the mistake of thinking you need to have oodles in the bank to be an investor. Not everyone can afford to save as much as they would like each and every year, but putting a little something away every month is better than doing nothing.

Over time even small contributions could build up to provide you with a decent fund. Putting aside £20 a month can grow to a fund of £8,116 after 20 years (assuming 5% growth).


4. The power of compound growth

Saving early is to be applauded. Not only is your money invested for longer, there’s more time to benefit from the magic of compound growth. In simple terms if your money earns a return in the first year and in the second year both the original cash and any return from the first year will benefit from any growth.

This snowball effect continues each year that returns are made and is referred to as compound growth. The effect is so powerful that you could save less for longer and still be better off than saving a lot in a short time.

5. Your money is supporting the British economy

Investment boosts the UK economy by allowing businesses to raise money to develop and expand. You can also choose for your savings to back certain industries or to invest in companies that are contributing to having a positive environmental or social impact.

A recent study by Triodos Bank shows that more than half (55%) of investors say they would like their money to support companies that contribute to society and the environment. Some 61% of investors believe that for the economy to succeed in the long-term, they need to support progressive businesses.

Investing in stocks and shares can feel intimidating. But by debunking the myths around investments, and working within your means, could help you make your money work a little harder over the long term.

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