Why should I invest?

29 January 2014


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.

How to achieve your financial goals


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.

Cash versus equities performance




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.

What is compound interest?


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.

Should I invest?

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