Busting investment myths

The money paid in is invested, aiming to grow it for your retirement. That means a big chunk of the population already invests in a pension, so you may be more familiar with investing than you think!

Is investing right for me?

So if you have a pension, you're already investing for a long-term goal: retirement. But it’s worth considering if investing outside your pension might be worth it too. 
 
After all, most of us have goals and dreams for the future – including medium- to long-term goals that investing could help you reach or even exceed. For instance, you could start investing after the arrival of a child to support their financial future. A nest egg could help towards  university fees or cover the deposit on their first home. 
 
As we explore these myths about investing, it’s important to remember that the value of investments can go down as well as up, so you may get back less than you paid in. 

1. I need to know lots about investing

Investing can seem complicated, but you don’t have to be an expert to get started.  
 
It’s true that individually picking your own investments, such as stocks and shares, can take a lot of time and needs investment knowledge. But there are other, easier ways to invest.  
 
If you’re new to investing, putting your money into funds could be a good way to get started. Funds pool your money with other investors’ money. The company you’re investing with uses this pooled money to buy a range of different investments. Some funds buy just one type of investment, such as stocks and shares or bonds, while others include a mix of different types of investments.  
 
To make things even easier, many companies offer ‘ready-made’ options, where all you need to do is choose one which matches how much risk you’re comfortable taking. Investment experts manage these for you, monitoring them to make sure they stay on track and don’t take any more or less risk than they should. 

2. I can’t afford to invest

You might think you need lots of money to invest, but that’s not the case. 
 
Many companies let you invest small amounts of money monthly rather than a large amount at once. For example, investing £50 a month over a year works out at just £1.64 a day. This unlocks the potential benefits of investing for a relatively small monthly payment. 

3. I don’t need to invest if I’m saving in cash

Cash savings can be an important safety net. Money in an easy-access savings account is quick to get hold of if you need it due to unexpected costs or life events.  
 
It’s generally considered to be a good idea to have an emergency fund in place before you consider investing. 
 
However, saving in cash beyond an emergency fund may not be enough to meet your future financial needs. This is partly because growth on investments – known as investment returns – tends to be higher than the interest you get on cash savings over longer periods. Read more in our guide to saving vs investing.

4. Investing is too risky

Sometimes, investments go up and down in value very sharply. Periods of significant ups and downs in financial markets (known as market volatility) can be unnerving, even for experienced investors. 
 
But, while all investments involve risk, not all investments have the same amount of risk. You can choose investments (or funds) with lower levels of risk if that’s what you’re more comfortable with. 
 
Plus, while you might think having cash savings is more secure than investing, it isn’t entirely risk free. One significant risk to cash savings is inflation – the rate at which prices for everyday goods (like food and fuel) and services (like getting your hair cut) are rising.  
 
If the interest rate on your savings account is lower than the rate of inflation, your money will fall in value in real terms. In other words, you’ll be able to buy less with it over time. 

5. Investing involves high charges

When you invest, you typically pay some level of charges. If you’re investing directly in things like stocks and shares, you’ll pay to buy and sell these. If you invest through a fund, you’ll generally pay a yearly charge to the provider for managing the fund. Charges vary though, so it’s important to compare them when choosing a provider. 

6. Investing locks my money away

Keeping your money invested for longer periods offers you a better chance that any investment losses could be offset by higher investment returns. 
 
The longer you keep your money invested the longer you have to potentially benefit from compound growth. If you reinvest any investment returns you make rather than withdrawing them, you have the opportunity for investment growth not just on the amount you’ve put in but also on the returns you’ve achieved. This can significantly boost your returns over time. 
 
This is one of the key benefits to investing for the long term – for at least five years is typically best. However,  unless you’re investing through a pension, most of which normally only let you make withdrawals once you reach a certain age, investments don’t usually lock your money away. 

That means you can access it at any time if you need to. It’s important to understand though that if you sell investments when their value has fallen, for example during a market downturn, you could get back less than you paid in. 
 
That’s why an emergency fund in cash savings can be a good idea. You can use that rather than potentially having to sell investments to meet an urgent need, such as the boiler packing up, needing a new car, or becoming ill and unable to work. 

7. Investing guarantees returns or is a quick way to make money

Investing can have benefits, but there are no guarantees – the value of investments can go down as well as up, so you could get back less than you pay in. Any investment opportunity promising a guaranteed return or advertising itself as a quick way to make money is unlikely to be legitimate. At the very least, it’s breaching the industry’s marketing standards by not offering a balanced view or warning you about the risks involved. 
 
That doesn’t mean that all investing is bad – it just means it’s worth being cautious about where you invest and carefully considering whether any given investment is right for you.