It is easy to think that investing in the stock market is not for us. Here are the most common fears and why they are simply not true.
1. ‘You need pots of cash to start’You can start investing with as little as £25 a month.
2. ‘You need piles of time to do it’It takes a few hours to open a stocks and shares Independent Savings Account (ISA) or Self Invested Pension Plan (SIPP) with an online broker. You can then pay in a lump sum and/or a regular payment into a low cost, low-risk index tracker. You then leave it alone to grow and get on with your life!
3. ‘You need to work in the city, have a financial background or degree – it is only for people who already know’The financial sector is full of incomprehensible jargon and pictures of men in suits. It is to their advantage that you think that investing is not something for the ordinary woman or man. Gone are the days where investing required calling a stockbroker in the city to make an investment on your behalf for a hefty fee. The internet has made investing available to everyone, to do at a time that works for you. Online brokers (like banks for investing) are really helpful and if you get stuck you can always call them. I made my first investment in my lunch hour at work. It is fun to be a secret stock market investor on the side!
4. ‘You have to be good with numbers’Many people think they are not ‘good with numbers’ and therefore cannot invest. Sometimes we believe we cannot do something when the reality is not a reality. We may have had a bad experience at school or somebody made a comment which we then take on to be how things are. To invest you only need to understand some basic concepts (see compounding above) and you’re away! With a little bit of patience, you may see it is something you can learn, might actually like it and see you are much more than you thought you were.
5. ‘Investing is risky and you will lose everything’The golden rule of investing is only invest what you can afford to lose. Being financially responsible and taking care of yourself means setting aside £1000 for expected unexpected events (e.g. your dishwasher breaking down). Then you need to have between 3-9 months of your basic living costs as a cash safety net. This is a reserve which you can draw on should you perhaps lose your job, or for some reason cannot work. This money is somewhere you can access it readily when you need it. Then you can start investing and getting money to grow, secure that you have money to protect you. Disclaimer: Simple Successful Stocks are not financial advisors and the content of this article is for financial education only. Please read our disclaimer here.
Compounding is the most important thing to understand to have your money working for you, rather than be a wage slave.
Compounding is where the money you make then makes more money, and that money then makes more money i.e. money for nothing! This does not sound exciting and yet it is a force that over time that can create the most magical wealth. If only we were taught this at school! Einstein described compounding as ‘the eighth wonder of the world’, and he was right! When we have compounding working for us (by investing) it is a force that can create the most incredible wealth. It is an asset. When it is working against us the interest on consumer debt) then it drains wealth away from us and is a liability.
Check it out with this natty little compound interest calculator
Choose your currency
Pop in £1000 as an initial lump sum
Put £0 for the amount you will add every year
Choose 20 years as a time frame
Choose an interest rate of 6% (the average rate of return from investing in the stock market is 6-8%)
Your interest is paid 1 times a year
At the end of that time you have done nothing and your £1000 is now £3207!
Increase the time frame to 40 years. This gives you nice tidy sum of £10,285!
You are now going to add £1200 a year to the pot. Everything else stays the same. After 20 years you have £49,998! After 40 years you have £207,142!! This is a profit of £158,000!!!
(the total amount minus the money you put in over 40 years)
THIS is power of compounding and why you want it working for you!
Image courtesy of Yeshi Kangran
Disclaimer: Simple Successful Stocks are not financial advisors and the content of this article is for financial education only. Please read our disclaimer here.