According to research done by Halifax Share Dealing, 32% of Brits think they are too poor to invest in the stock market, 33% won’t invest because of fear of losing money, and 29% think they don’t know enough about it or how it works to get stuck in.
That’s a shame because they are probably using savings accounts, or maybe cash ISAs, that pay less than 2% interest.
Funds that track stock markets like the FTSE 100 and individual stocks can be held in a Stocks and Shares ISA, which are as easy accounts to open. The FTSE 100 had an average return of 5.8% over the last five years. Some individual UK stocks had much higher averages.
There is a potential to become quite a bit more wealthy over time by investing in the stock markets.
Too poor to invest
It is possible to make regular investments of just £25 per month into a stock market fund within an ISA. If you have £25 pounds or more to invest then you are not too poor to start. Of course, the more someone can afford to invest the more wealth they will build, but starting small at least gets the ball rolling, and in time you may find you can contribute more.
Fear of losing money
There is a chance of losing money with an investment in the stock market or individual stocks. However, owning more stocks and being invested for longer lowers the risk. Buying a fund that tracks the FTSE 100 index spreads the risk across 100 of the largest UK companies. A fund that tracks the FTSE 250 spreads the risk across 250 of the next largest UK companies.
Research by AXA Self Investor demonstrated that investing for 10 years in the FTSE 100 made money 95% of the time between 1996 and 2016. The 5% of trials that lost money invested between January and June 1999, during the heights of the dotcom boom, and cashed out between January and June 2009, during the financial crisis. If one of these unlucky investors had waited a year or two, they would have been in the money again.
Trying to time the market is tough. Being in the market for the long term is what matters. On average FTSE 100 investors could have made 70% from 1996 to 2016.
Don’t know enough
The knowledge required to invest in a fund that tracks an index like the FTSE 100 or FTSE 250 is minimal. ISA providers will usually provide fund ratings. Choose the highest-rated fund that tracks the index you want and charges the lowest fee.
Investing in funds that pick stocks is a little more complicated. Some aim to provide income by picking dividend stocks. Some try to pick stocks in companies that are growing quickly and whose stock prices are anticipated to fly higher. The style (growth or income) and the skill of the manager are important considerations when choosing an actively managed fund.
Picking stocks yourself is going to require even more effort than choosing actively managed funds. Before you do anything other than investing in an index tracker I would suggest getting familiar with the world of investing.
Reading through the articles on this site is one way to start. Find a few articles about companies you are familiar with. Have a read about some funds. The more you read the more familiar the investing world will become, and the more informed your decisions will be.
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James J. McCombie has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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