Investments

ISAs and the myth that investing's for experts

Holly Mackay

Independent consumer website Boring Money – experts in demystifying the markets who are known for their straight-talking plain English approach – explain why you don’t have to leave investing to the experts, and might want to consider a Stocks & Shares Individual Savings Account (ISA) if you don’t already have one.

What springs to mind when you say the word “investor”? Many people picture an old man in a pinstripe suit wearing a bowler hat. Someone rich. Someone brilliant at maths. 

And for the vast majority of people, that doesn’t feel very much like them! 

But in the same way that you no longer need to be a brilliant cook to put a lovely meal on the table (thank you Hello Fresh/COOK/Deliveroo), you no longer need to be an economics graduate to start investing.

You can start investing in many Stocks & Shares ISAs online, from the comfort of your own home, with just a small amount each month - less than you might expect.

Investing involves risk, but it’s not the same as gambling

There are a few basic concepts to get your head around when you start investing. The first one is that four-letter word – risk. Lots of less confident potential investors tell us that investing feels like gambling for rich people.

"Please make it easier to understand. Investing can be seen as something too risky and hard to do and only for those who have a lot of money." (Investor)

But that’s not necessarily true. Yes, the outcomes of investing aren’t certain and it involves taking a level of risk. However, it’s not as extreme as putting it all on red or black in a casino. 

Financial markets can be volatile, but think of them as the sum of their parts – the sum of thousands of individual companies which offer shares. If you buy a collection of shares through a fund, you’re spreading your investments amongst a large number of different businesses. These might be Apple, Heineken, ITV, Microsoft, Samsung for example – and other giant global names. 

There is of course a risk that some businesses will struggle. Even larger names. But if you invest through a fund and hold lots of investments under one umbrella (known as diversification), this minimises the impact of any one component part doing badly. 

You can read more about investments and risk in this article – Why risk isn’t necessarily a bad thing when it comes to investing. And you can find out how much risk you may be comfortable taking with this risk questionnaire.

Cash may not grow your money enough if you’re saving for a longer-term goal

The alternative to investing is cash savings. These are of course secure – you will at least get your money back, and it’s usually easy to access your money. It’s generally considered a good idea to have some money in cash savings to cover emergency situations or short-term goals, such as money you need for a wedding or a holiday.

However, interest rates on cash savings are at all-time lows these days and there’s little short-term prospect of a change. You won’t experience the same bumpy road with cash savings – but the incline on the savings hill isn’t very steep and interest rates are currently very low! For those saving with horizons of five years or more, this could be a problem as your money may not grow in value very much.  

Add the hidden ghost of inflation to the picture, and you could be going backwards and losing money in real terms. This is because £100 in the bank, when you add the very small amount of interest you’ll currently get, will likely buy less in one year’s time than it will today. In other words, inflation is likely to be higher than interest rates. 

So if you’re saving for a medium- to long-term goal (at least five years), you might want to consider investing. This is because investing gives your money more potential to grow in value over that longer period and beat inflation, although it’s important to remember that all investments can go down as well as up in value, and you may get back less than you paid in. 

You can make it easier with ready-made ISA investment options that are managed by experts

If you’re reading this and still feeling a bit uncertain about investing, don’t worry – there’s help out there. In the same way as ready-meals allow us to eat a meal without the detailed preparation, many firms have created ‘ready-made’ investment options for Stocks & Shares ISAs for people who want to harness the potential of the world’s financial markets. Without the responsibility of calling all the shots. Someone else chooses and blends together a mix of investments for you. 

 

Learn more about how you can invest in a Standard Life Stocks & Shares ISA – without being an expert – here. Or to open a new Standard Life ISA, select the link below.

Open an ISA

The information in this article should not be regarded as financial advice. 
All information is based on Boring Money’s understanding in October 2020.