Let’s start with the basics – what is investing?

Very simply, it’s buying a piece of something that could go up in value. So when you choose to sell it, you could get back more than you paid for it, although that’s not guaranteed. All investments can go down as well as up in value, and you could get back less than you paid.

You can invest in lots of things, including shares in companies, loans to companies and governments (bonds), as well as more physical, tangible things such as gold and property.

Many people invest through funds rather than direct into these assets. With a fund, your money is pooled with that of other investors, and a professional manager invests it for you. They’ll make all the ongoing decisions on what the fund invests in and how it’s managed.

Investing could help your money grow

When you put your money in a savings account or Cash ISA it’s generally secure, and you’ll earn a small amount of interest. But by investing your money, you’re giving it the potential to grow more in value.

Not only that, the longer you can leave your money invested, the more potential you’ll have for it to benefit not only from growth on the money you’ve invested, but also growth on any investment growth. This is known as compound growth, and can add up to a large part of the final value of your investments.

Example:

  • You invest £1,000 in a Stocks and Shares ISA.
  • In year 1, your investments grow by 5%, meaning you now have £1,050.
  • In year 2, your investments grow by 7%, so you now have £1,123.50.
  • And so on year on year

Remember of course that investment growth isn’t guaranteed, and investments can go down as well as up in value.

Investing can help beat inflation

Inflation erodes the buying power of your money. As living costs rise, your money doesn’t go as far.

Example:

If prices rose 5% a year for the next 10 years, £100 in your pocket today would only be worth £55 in 10 years’ time.

Unfortunately long gone are the days when you could expect to earn a reasonable rate of interest by putting your money in a savings account or even a Cash ISA. And even though interest rates are moving upwards again, they’re unlikely to reach a level where they’ll outstrip inflation, which is currently rising quickly.

Although the value of all investments can go down as well as up, and you could get back less than you paid in, over the longer term investing your money can give it more potential to keep pace with or even beat inflation than simply saving it.

Thinking about it