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Misconceptions about Investing

If you are someone who is yet to dip their toe into the world of investing and as a result does not know much about it, it can seem like a daunting and slightly unnerving undertaking. This is not an unwarranted reaction; investment inevitably comes hand-in-hand with risk, but it is also important to remember that there is no singular, one-size-fits-all investment solution, and that the right strategy and portfolio looks different for everyone. If you are considering seeking financial advice concerning investments, or are simply looking to learn a little bit more about the process, in this blog we dispel some of the most common myths surrounding investing so you can make your next move with confidence. 

You’ll see huge returns immediately 

Whilst there have been a few rare instances where a lucky investment has led to an individual making millions almost overnight, this is simply not a realistic scenario for the majority. The truth is that on the whole, investment is a waiting game – the longer you wait, the more you’ll tend to get out of your investment. Patience is a huge part of investment, as is resigning yourself to fluctuations in returns along the way. In many portfolios your returns are unlikely to increase at a constant, steady pace; sometimes the appreciation of your investment will slow down, sometimes it will stop and sometimes it will lose value, depending on the market. It is important not to be disheartened if you do not see a huge return on your investment within weeks, months or even years. Investing is a long-term strategy and so you should bear in mind that it might be a while before you reap the rewards.

It’s incredibly risky 

As previously mentioned, the correct investment strategy does not look the same for everyone. For some, high-risk investments are attractive due to their potentially significant returns, examples of these being cryptocurrency investments or high-yield bonds. However, these kinds of investments are also more volatile, meaning their value can drop significantly in a relatively short amount of time. Many investors opt for a lower risk portfolio with less volatile investments, especially when investing without the assistance of a financial adviser. Examples of low risk investments are corporate bonds and savings accounts – the downside of these investments is that your returns are likely to be relatively small. The correct risk profile will differ from person to person, but generally, those who are closer to retirement are encouraged to make lower-risk investments whilst those who have longer, perhaps another 20 or 30 years, before retiring can usually afford to make slightly higher risk investments. Factors such as the amount you have saved and your income will also affect how much risk you can afford to take. One way of combating risk is to invest in a diversified portfolio. This means investing in different assets that tend to behave in different ways so that if one starts to decrease in value, the loss can be counteracted by another asset in the portfolio. This is one of the most popular investment strategies. 

It’s only for the wealthy 

Another common misconception concerning investing is that it is only a viable option for those with a very large amount of savings or disposable income. This could not be further from the truth. Investing is an effective way of boosting your savings for retirement (or otherwise) regardless of the amount you are starting off with. Most investments do not require a ‘minimum sum’ for contribution, allowing you to drip feed savings into your investment as opposed to injecting a lump sum immediately. An ISA is a great place to start. 

Your money will be inaccessible 

Although you are likely to benefit from leaving your money invested for as long as possible, there may come a time when you need to access it, perhaps due to unforeseen circumstances or retirement funding. A common misconception is that this process will take weeks, if not months, restricting your access to your money in emergencies. In reality, if you do need to access the money that you have invested, it can be withdrawn from most stocks and shares accounts in 3-7 working days (depending on who the account is with). Although this does mean it will take slightly longer to access the funds than if they were in a regular account, immediate accessibility is a small price to pay for the potential appreciation in value over time. 

Investing and the potential risk that accompanies it isn’t for everyone, but it is without doubt, one of the easiest ways to increase your savings with minimal effort. If you’d like to learn more about investing solutions or which investing strategies that could be right for you, contact us today for a complimentary review of your finances. 

This communication is based on our understanding of current legislation and practices which is subject to change and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity.

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Recently, there have been high-profile failures of these systems, such as the folding of Monarch Airlines – and the collapse of their pension fund. Initially, it appeared that owners could still walk away with a profit (after new hands tried to turn the airline into a more accessible and “Ryanair-like” product) by offloading debts, and this included dropping the pension fund. Ironically, this was once a major credit to the business. The fund, which is now in the Pension Protection Fund (PPF), had been under speculation of being left short when the business first began to struggle back in 2014, after years of asset-stripping.

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