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Investing has caught a lot of attention recently with more people than ever looking to start. But, many people still ask ‘is investing worth the gamble?’. Understandably, you don’t want to risk your hard-earned cash on a strategy that is unlikely to work.
The Share Centre reported a 269 percent increase in investment account openings in March last year. But, are all these people on to something or are they gambling their money away?
For most people, it tends to come down to a choice between investing their money or saving it.
Currently cash saving rates are so low that they don’t even match inflation. You’re lucky if the money you’ve worked hard to save earns 0.1 percent interest in many cases. This means over the long term you’re essentially losing money as interest rates are not keeping up with inflation.
On the other hand the FTSE 100 – an index based on the 100 largest companies listed on the London Stock Exchange – offers average annual returns of 7.75%.
Therefore, if you are sensible about how you invest there are more opportunities to generate returns than leaving your money in a traditional savings account.
Regardless of whether it’s worth it or not, investing IS a gamble. Returns are not guaranteed and you could lose all the money you put in.
Therefore, you should never put in more than what you can afford to lose. It’s easy to get carried away when things are going well and to want to put more and more money in. But, remember – just as quickly as your money can increase, it can also decrease if markets take a turn for the worst.
Don’t put all your savings into investments, in case it goes wrong or you need to access your money quickly.
You should also always keep an easy-access cash emergency fund to cover you in the event of a rainy day.
When asking ‘is investing worth the gamble’, the biggest point in investing’s favour is higher returns.
As already mentioned, interest rates on your cash savings are practically non-existent. Investment returns are much higher.
These returns are not guaranteed as they are with savings accounts. Some months you may generate large returns, other months you might actually lose money.
But, if you diversify your investments – invest across the whole stock market, rather than just one or two individual companies – over time your returns will even out and you could generate average returns of around 7.75%. Using a Stocks and Shares ISA will add to your returns as any investments you make up to the £20,000 a year limit will be tax free.
This is almost incomparable to the meagre interest you’ll earn on savings accounts at the moment. The average easy access savings account interest rate is currently 0.19%.
This would imply that investing at least some of your savings is worth the gamble if you do so sensibly and only with what you can reasonably afford.
Many people hear the word ‘investor’ and think of men in suits like the Wolf of Wall Street. But, they should think again. Any adult, from any background, with any amount of spare cash can be an investor!
Investing is not an exclusive club only available to those with lots of spare capital. You can get started with as little as £10!
If you’re nervous about getting started, investing just £10 a month could be a really good way to get started and build your confidence.
In fact, it can be a better strategy to put in regular smaller amounts into your investments rather than making one large lump sum payment due to share price fluctuation.
The price you will pay for any share naturally changes over time. When you make your first payment, it may cost you £5 but a month later it might cost £4.50, meaning you could buy more shares than if you’d put all your money in at once.
Taking a ‘little and often’ approach can really pay off with investing and you’ll be surprised how quickly your pot adds up over time.
Investing is a long term project. Markets fluctuate daily and you’ll only see the real benefits of investing if you hold your investments for a long time.
When you see the market dip, it can be very unnerving, particularly the first time you experience it.
It’s tempting to say “Sell them all!” to avoid losing more cash. In reality, all this will do is lose you money. Some weeks, the markets will go down, others it goes up.
Rather than trying to react to all market movements, you should play the long game and hold your money regardless of what the market does on any single day.
Aim to invest your money for at least five years (ideally ten or more). This helps ride out any market dips and gives your investment true growth potential.
Of course, there is ALWAYS risk with any investment. Look at your pension pot: that’s a form of investing, too! It can grow steadily or rapidly over time, depending on the risk you choose to take. More risk means a greater reward potential.
That’s why it’s important to ONLY start investing with small amounts that you can afford to write off. It’s unlikely you’ll lose everything (especially if you play the long game), but little-and-often investing can protect you against big dips.
If you’re interested in investing and want to learn more check out these webinars run by Moneymagpie’s very own Jasmine Birtles.
The topics range from introductions for complete beginners, to more complex topics for those who’ve started their investment journey and want to take it to the next level.
These webinars will help you establish whether investing is worth the gamble and, if you decide it is, will give you the tools to get started.
*This is not financial or investment advice. Remember to do your own research and speak to a professional advisor before parting with any money.