Article
Why should I invest?
4 min read 21 Nov 24
The word investing often makes people feel uneasy, but when we use the word in relation to other things we think about it in a positive way. We invest in ourselves, in our careers and in our futures to make things better. So why when it comes to investing our money are we suddenly put off?
People often have misconceptions about investing like ‘it’s too confusing’ or ‘too risky’ but like everything, the more you know about it, the better informed your decisions are.
There are many articles that tell you ‘how’ to invest but maybe a better place to start is simply to understand the ‘point’ of investing. Why is it a good idea? Why should you consider it?
It's always best to have some money readily available in the bank in case of emergencies. A good rule of thumb is having enough to cover between 3-6 months of expenses. It is also worth considering clearing any debts you might have. However, if you have more than that saved up it might be time to help make your money work harder – that’s where investing comes in.
One of the main principles of investing is that money can grow in value (usually called ‘returns’) but there's a risk you might lose money too - it's all about balancing the two.
But I’m not comfortable losing any money!
If you're already thinking that you aren't comfortable with the risk of losing any money, it's worth considering that if you have money in cash savings, there's a chance it's already losing some of its value. This is because of the impact inflation has on your money. Put simply, inflation is the rising costs of goods and services. If the rate of inflation is increasing, it means your money won’t be able to buy as much.
Inflation can chip away at your money
The graph shows that if we assume 2.5% inflation each year, the purchasing power of £10,000 today could be worth just £5,394 in 25 years’ time.
The example shows an inflation rate of 2.5% but please note inflation can be more or less than this. The example also assumes that the sum has not grown over time as no interest has been added.
What do I need to know about investing?
First, not all investments are the same. There is so much choice about where you invest, types of investment, risk levels, to name a few, so there really is something to meet everyone’s needs and goals. Here’s a few key things to think about when it comes to investing;
- The level of risk you are willing and able to take. There's no right or wrong answer to this, some people want to invest in low risk funds which are likely to have lower returns and some people want to invest in higher risk funds which have a greater level of risk but the potential for higher returns. As with any investing in value can go down as well as up and you may not do the amount you put in.
- Are you investing for the long term? Most of the time it’s recommended to invest for the long-term so it is key to think about whether you are saving for the future or a specific event within the next few years.
- Where you invest. There are four main types of investment, usually known as asset classes. These include shares (also known as equities) in a company, property which often includes retail, office and industrial sites, Bonds which are loans taken out by a company or governments and cash, including things like currency. All assets behave in different ways and some are riskier than others.
- Volatility. If the value of an asset rises and falls quickly over time it is considered to be more volatile. The more volatile an asset the higher the risk usually is.
- Spreading your investments. Investing in a range of different assets helps spread the risk so you don’t have all your eggs in one basket.
Help is at hand
When it comes to investing, you don’t have to go it alone. Speaking to a financial adviser can really help. They’ll look at your needs and goals for the future and discuss the level of risk you're comfortable taking and can afford to take. Then balance the risk with the level of returns you are hoping to achieve. Your adviser will then be able to create a tailor-made plan to help get you on track for the financial future you deserve.
Speak to one of our fully qualified financial advisers and make an appointment to see how we can help you.
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