The most common objection I hear to investing is the fear of losing money. It’s also the most misunderstood part of the game of money. Risk is unavoidable when it comes to money, whether you choose to invest or not, your money is at risk. A simple example;
If you had £50,000 in 2012, it would have the same spending power in 2012 as £71,000 has in 2022, based on the costs of goods and services measured by the RPI. However, if you had £50,000 in 2012 and let it build interest until 2022, your savings would total £57,000 (based on average rates on savings accounts in the last decade). So, a £14,000 difference. In that time, just leaving your cash in a “safe” bank account means that your money is worth 80% of what it should be worth according to inflation over the same period.
All investing carries risk, but it’s all about the type and level of risk involved. The key to successful investing is not risk avoidance but rather, risk management.
Take my Investment ISA as an example. Since opening the account in the 2018/2019 tax year, I’ve invested £58,300. In addition to capital gains, my ISA has generated £1,897.52 in dividends since it was opened.
Total amount invested + total income = £60,197.52
Current ISA balance: £61,162.54
The difference between the amount invested and total income, compared to the current balance isn’t that great. This is all ignoring the fact that I’ve withdrawn money from my ISA as well, which amounts to over £3,000 since opening the account.
Taking into consideration fees and charges for administering the account, I’m up approximately 10% on my original investment.
When looking at investments that are directly linked to the stock market it’s important to note that the value can change from one day to the next. So, if you need money to be instantly accessible for the face value, you should probably stay away from this type of investment. However, if you are leaving thousands of pounds in a basic savings account or cash ISA, that money is losing value every single day.