Why should I invest?
ACHIEVE YOUR FINANCIAL GOALS
Whether you're saving for your retirement, your children's education or simply to make yourself feel more financially secure, you are more likely to achieve your goals by investing, whether that's through a portfolio of investments or one well-chosen holding.
CASH VERSUS EQUITIES
History has repeatedly proven that money invested in equities will grow faster than money tied up in savings accounts.
When you look at the real rates of return (that is, once inflation has been taken into account) equities have offered investors a typical return of 5% a year over 10 years, according to research from Barclays. Savers with cash accounts meanwhile have seen the buying power of their funds eroded by inflation and have seen the value of their money actually fall by -0.2% over the same time.
THE POWER OF COMPOUND INTEREST
Over time, you also stand to really benefit from the power of compound interest.
Compound interest is basically 'interest on interest' - any money you make on your investment goes to top up your original deposit and boost your ongoing returns. For example, take £1,000 invested: in year one it earns 5% (or £50), bringing your total balance to £1,050; in year two it also earns 5%, but because that's based on a new larger balance, that equates to an increased return of £52, bringing the total value of your account up to £1,102. With each year that passes, so long as your rate of return doesn't slump, your returns stand to increase year on year even if you don't save another penny.
Paying more money in only goes to enhance - or compound - this growth.
Of course, savers in cash accounts benefit from compound interest too, but the effects are likely to be greater with stockmarket investments, as you should be compounding a higher rate of growth.
IS INVESTING RIGHT FOR ME?
Paying money into investments that can rise and fall in value is always going to be daunting – particularly if you are likely to need your money in an emergency. It is for this reason it is generally recommended that you do not invest in the stockmarket unless you can afford to tie your money up for at least five, but preferably 10 years or more. This gives your money the chance to ride out any short-term ups and downs in the stockmarket.
Some gung-ho investors will be happy to invest in, say, Japanese technology companies and are prepared to risk huge losses for the chance of stellar returns, but the majority of investors are more wary and the risk of losing money is a very real concern.
However that shouldn't put you off stockmarket investing. With the right guidance and research it is possible to choose investments that can provide steady consistent growth, without you losing sleep. Let Moneywise show you how investing can help you and your family achieve your financial goals.
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An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).
This is effectively paying interest on interest. Interest is calculated not only on the initial sum borrowed (principal) or saved (see APR and AER) but also on the accumulated interest. The more frequently interest is added to the principal, the faster the principal grows and the higher the compound interest will be. Compound interest differs from “simple interest” in that simple interest is calculated solely as a percentage of the principal sum.