Fear has nothing to do with logic. We know we are safe behind a wall on a cliff but are still afraid of heights, we know nothing’s hiding in the dark but it still sends shivers down our spines – we know too that investing is the right thing to do, yet we procrastinate.
A list of facts on why you should invest probably won’t help – you already know you should, but something irrational is keeping you. Perhaps you’ve even already opened an ISA, but haven’t touched it because you’re paralysed with concerns.
I wondered myself why I hadn't invested earlier and decided it was for a mix of reasons and excuses: money management wasn't a topic of discussion at my family's dinner table when I was growing up, I thought I'd get laughed out of the bank if I showed up wanting to invest the small savings I had when I was studying and I wasn't going to get rich anyway, so why bother.
Below, I’ll try to take these concerns apart so you can begin your investment journey with more confidence.
Investing isn’t for me
There’s more than one reason why you might think investing isn’t for you. Maybe you’ve seen The Wolf of Wall Street and think asset management is like a pack of wolves and you’re not one. Maybe you think it requires knowledge (or guts) that you don’t have.
All of these I believe are only true to an extent. If you don’t consider yourself an investor, you’re probably ignoring the fact that you already are one. If you started a new job since 2012, you’ve been auto-enrolled to a workplace pension, which means you’ve been paying someone to buy a fund with your money and make it grow.
James Corcoran, senior chartered financial adviser at Lumin Wealth: “If you have a pension, you have investments and are, by definition, an investor. People don’t realise it because they get a statement once a year and everything happens in the background.”
This offers an easy way out of your fears: you could just continue doing what you’re doing by topping up your current pension. But if you want something different, as I did, then you might think you must know everything there is to know about finance. But that's like waiting to know everything there is to know about cars before stepping into one. I say just pick a car and let the mechanic do their job. Pick a fund and let the manager worry about stocks and bonds – you don't have to.
I don’t have enough savings
You can set up an investment plan with just £50 a month. That’s as little as it takes.
Fees are charged as a percentage at most fund shops, so you’re not losing money by investing only a little. The less money you invest, the lower the fees. I think that’s encouraging because you can just invest £50 and see what happens: in the worst-case scenario, you’ve lost £50 and learnt something. Which takes us to Corcoran’s first piece of advice: It's really important to only invest what you can afford to lose.
That’s not because you will lose it or because there’s a chance you’ll lose it. At least for me, that’s because that’s how you invest.
I think of my invested money not really as mine anymore but the market’s, until I decide to withdraw it. That money isn’t available to me and if it’s all gone tomorrow (hopefully, surely, it won’t) I’ll still have a backup in my cash savings.
For this reason, the stupid thing to do, according to Corcoran, would be to invest with a specific thing that you are investing for in a short time frame.
“You really have to think about time scales. Say you need £10,000 in a year's time to buy a car or pay for your wedding and you’re investing £1,000 a month in shares or, God forbid, crypto. Then a year’s passed and you realise that your £8,000 you were hoping would be £10,000 is now £5,000. Now who's going to pay for the wedding?”
“For example, many of my clients are saving for their children’s university, but if you've got a child that's two years away from university, you’ll probably want to take a very low level of risk, whereas if they’re 10 years away from university, you are able to take more risk because your investment is going to go up and down but you're unlikely to have a massive swing down,” he explained.
I don’t know what to buy and when
When it comes to your investment choices and how to select between the products that are out there, it can be overwhelming to hear many different things and stories from the media or your friends and make sense of it all, which is why you need perspective and not to listen to your mates down the pub, says Corcoran.
“If you hear from someone about a share that’s done brilliantly and is up 500%, they've probably not told you about the 10 shares that are down 50%. People tend to only talk about the things that are interesting and aren't too excited to share the bad news.”
“Unless you are very knowledgeable or you genuinely can afford to lose all the money, stay away from individual shares and look at managed or tracker funds.”
As for the when, the advice is to ignore the noise and try not to time the market.
“If you follow the press, you would think that the markets were just always down, whereas typically, they have generally gone up a bit every year. The FTSE makes the front pages of newspapers when it’s down 4%, but what they don’t tell you is that every day for the following 10 days it has recovered.”
So if you're comfortable with level of risk you’re taking and understand that your money could go down, then just crack on, said Corcoran, and don’t wait for a better moment. If you do, chances are you’ll lose it.
“It's very difficult to call the bottom and to have the confidence to buy when the market’s down 40%. Most people would wait, but then by the time you've waited for it to come back 10%, you’ve missed 10% and you'll never recover that.”
I still need discipline not to buy smaller companies or a China fund or private equity or anything immediately after having read how good an opportunity they are at the moment. Probably, the person speaking highly about the asset class invests in that very thing, so it's only normal that they would think it's a good investment. There are plenty of good investments around and I just can't buy all of them. I have to be selective and stick to what I know and what I'm doing.
I’m not familiar with how things work
This was probably the biggest impediment for me. I wasn’t familiar with the infrastructure, with the technology, with how things worked in the UK.
And no, you don’t have to go to your bank to start investing. If you do, they’ll give you an appointment with one of their advisors who can only sell you certain funds from the bank’s range.
All these things, ultimately, are easier than you think and for me, they were really just an excuse.
What I’ve done in the end was to pick a platform and an easy fund I understood, and started investing. If you do the same, you’ll gain familiarity with the process and it won’t be as scary, because you’ll come to know what to expect.
Ultimately, you are better off learning by doing. You might make mistakes and lose some money, but you’ll have learned how to make it back and more in the long term.