What is it you think about when you hear the word investing? Do you envision Wall Street traders at the Stock Exchange, or perhaps you’re picturing complicated investment charts?
There are plenty of misconceptions about investing, many of which have grown into myths about investing that could be intimidating. The reality is investing is simple, and something that can be relatively straightforward in an ISA or Pension.
Growing your wealth towards a goal over a period of time is something millions of regular people do, and over the long term an investment can help you to realise aspirations such as retirement.
Here are some of the common investing myths that may be holding you back from your investment goals.
You need to be rich to be an investor
If you think about investing as it is portrayed in the media, there’s often a sensationalised image of wealth. This could lead to the misconception that investing is for the rich.
The reality is, anyone can be an investor. Even if you are just starting out in your career, you can choose to put a small percentage of your wages into an investment. It doesn’t necessarily have to be big lump sum investments.
The reality is that little and often investing, over a long term period, has the potential to grow in value significantly. Think about the 20 year old graduate putting £50 from their first paypack into an investment, that investment has potentially 50 years of growth to come. At True Potential you can top your investments up from just £1 with impulseSave® in the True Potential app. However, capital is at risk when investing, past performance isn’t a guide to future performance, so you must be prepared for any eventuality when investing.
Investing is costly and complicated
You might think that investing is expensive and too complex to navigate, but nowadays it can be as simple as using an investment app, taking an attitude to risk survey to find an appropriate fund, and adding money. If you are unsure, it may be worth seeking financial advice.
As for investing being complicated, it is true that markets are complex, but that’s why it is best to leave investment management to an expert professional. Discretionary Fund Managers manage investment Portfolios on your behalf, while financial advisers can help with selecting the investment product that is most suitable to your needs.
Investing is too much of a risk
One of the things that may put people off investing is the notion that it is too risky. It is true that some investments will be high risk, for example day trading or cryptocurrency, where volatility is high.
However, there are other investments that may be less volatile, such as investment Portfolios that are diversified regionally and across a broad range of asset classes. Generally, Investment Managers will build Portfolios with mixes of equites, bonds, and other assets with the aim of ‘not putting all of your eggs into one basket.’ While these investments may be less volatile, there is still an element of risk and the perspective will depend on your individual circumstances.
While different funds will have their own time horizons, Investments are typically more suited for long term goals, considered as 5 years or more, such as retirement through a Pension, and you can take an attitude to risk survey to help find the right Portfolio for you from a defensive to aggressive scale. A financial adviser is qualified to help you understand risk and to help assess what level of risk is suited to your attitude and circumstances.
Remember, risk is a necessary part of investing, investment growth involves a balance of taking risk for reward. Another risk may be not investing at all, as this could mean you don’t have a Pension and no feasible way to fund a comfortable retirement.
it is important to remember that with investing, your capital is at risk and that past performance is not a guide to future performance. Markets go down as well as up, and you may get back less than you invest.
Investments take up too much time
There may be the perception that investing is time consuming and will require you checking in on performance or moving your investment regularly.
In reality, investing is typically for the long term, depending upon the time horizon of the fund invested in, and checking in on performance in the short term isn’t really indicative of anything. Days, weeks, even months, aren’t really all that relevant when you think a Pension may be invested for multiple decades.
There is a term, ‘set and forget’ for regular investing. Simply set a direct debit of a regular amount for the start of each month to go directly into your investment. This ensures you are continually doing little and often investing over a long term period.
Investing is all about timing
In an ideal world, of course you want to invest as markets are rising, allowing you to ride a wave of growth upwards.
In reality, timing markets is impossible, there isn’t a way of knowing when markets are going to rise or fall. Trying to time the markets is pointless, nobody knows what is going to happen an hour from now, let alone in a day or a week.
What may make more sense is to regularly invest little and often, perhaps at the start of every month after you’ve just been paid. Over time this may mean your average investment price is smoothed out compared to a one off lump sum investment.
The get quick rich myth
When it comes to getting rich quick and packing out the drive of a mansion with sports cars, if it looks too good to be true, it probably is.
Granted, there will be investors who manage to find the next Apple or Netflix stock before it takes off, but it is a very risky way of investing to put all of your eggs into one basket on the hopes of chancing upon the next mega stock.
A slow and steady investment in a globally diversified Portfolio may help to manage risk and volatility, providing a more sustainable path to potential growth over the long term in investment products such as ISAs and Pensions.
A Cash ISA is safer than a Stocks & Shares ISA
You’ll have seen the high street banks pushing their Cash ISA rates, which may seem tempting with the higher rates of interest we’ve had from the Bank of England. The Cash ISA may look even more tempting given the volatility in stocks and shares.
It is true, a Cash ISA may be suitable for some shorter term goals, you may recive a fixed rate of interest if you lock your money away for a set period of years, and you don’t risk losing your money.
But look at things from another perspective. Cash ISA rates are still below the rate of inflation, meaning any growth in you cash won’t keep up with the growth in prices. You aren’t really adding value.
For example, as of August 8 2023, a Cash ISA may seem attractive with an interest rate of 5%, but at the same time the current UK inflation measure is 7.9%. In real terms that is a decrease in value of 2.9%. With this in mind, perhaps only consider a Cash ISA for a shorter term goal.
On the alternative side, for longer term goals, in a Stocks & Shares ISA your money may be able to grow at a rate that exceeds the rate of inflation. Markets have been volatile recently, but that potentially means you are buying units at a lower price, which could mean more potential for growth in the years to come.
Whether you are just starting out with investments, or you want to review what you already have, it is recommended that you seek financial advice from a professional.
With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Past performance is not a guide to future performance. Tax is subject to an individual’s personal circumstances, and tax rules can change at any time. This blog is not personal financial advice.
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