RACHEL RICKARD STRAUS: Start by investing little and often

24 June 2020

With the savings market is in the doldrums, now could be a good time to start investing

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Imagine you have £10,000 that you have diligently saved as a nice little nest egg. You tuck it away safely for a year in an average savings account and avoid the temptation to touch it even once. Twelve months later, guess what your restraint will have earned you?

The tidy sum of £30. Yup, that’s all. Barely enough to cover a couple bags of groceries. In fact, you will have lost money in real terms because few savings accounts currently beat inflation.

‘Lacking interest’ is a pretty fair assessment of the savings market at the moment.

Even the best accounts pay little over 1% and rates are so low it’s hard to get excited about saving at all.

So what is the alternative for savers?  As rates are unlikely to improve any time soon, I think there are two options.

The first: you could just spend it. That can feel much more exciting. But the past few months have reminded us that the value of savings goes well beyond the interest you earn. A financial buffer is invaluable.

The second option? Invest.

It won’t be for everyone but if you won’t need your savings for at least the best part of a decade, and you have already built up a rainy-day fund of three to six months of outgoings, it may be worth considering.

There is no guarantee about how much you could earn, but over most time periods investing outperforms saving in cash over the long term.

Some savers find the idea of investing daunting. But if you have saved into a pension you are already an investor. Don’t think that that retirement money is sitting there in cash – almost all of it will be in investments.

Investing is very easy. With a bit of research (and Moneywise by your side, of course), getting started is simple – and fun. Moving from saving to investing takes a shift of mindset. When your money is in a savings account, you know exactly how much you have – and can expect to have – from day to day.

When investing, the value of your savings fluctuates daily and you have to be prepared that it can go down.

But you don’t have to choose between measly, safe saving or more generous but riskier investing. You can invest in ways to make sure you are only taking a small amount of risk – or however much you are comfortable with. The key is to diversify – buy lots of different investments, so your eggs are not in one basket – and keep costs low.

The Moneywise team has put together everything you need to help you along the way. Go to moneywise.co.uk/investing/beginner-investor for our guides to investing from scratch and through turbulence, to managing risk, and putting together a portfolio. Look out for our How to Invest podcast series as well.

I’m often asked: “When is the right time to invest?” And no matter when I’m asked I’ll give the same answer: now.

It is all but impossible to time the markets – to work out whether they are on their way up or a crash is just around the corner. I think there is little point in trying.

Throughout the pandemic financial markets have been confounding financial professionals. Following a slew of bad news, markets would continue to creep up, then sentiment would suddenly change and markets would fall again.

Ordinary investors like us are much better off investing through the highs and the lows – putting aside a little and often, so we do not have to watch the markets every day and worry about what is around the corner.

If you find it unsettling not knowing how much you will have in your account day to day, don’t check day to day. Set up a regular direct debit into funds that suit your risk appetite and time horizon and then forget about it. You usually only need to check in a couple of times a year to make sure everything is on track.

Rather than investing a lump sum if you have one, you can drip-feed it into your investments so you don’t risk buying at a bad time. Or you can choose to invest some and leave some in a savings account; you can pay into both a Cash and Stocks and Shares Isa in the same tax year. Savings accounts may not pay much interest, but they are still a great tool for building wealth.

If you are ready to invest, the biggest mistake is to put it off to another day. Time in the market is what reaps rewards, not timing the market.