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Why You Can't Afford Not to Invest

In the first of this five part series we explain the importance of taking control of your finances, and facing the stock market and ask: can you afford not to invest?

Emma Wall 4 September, 2017 | 10:11AM

 

 
 

TRANSCRIPT

Welcome to Morningstar’s Guide to Investing. In the first of this five part series we explain the importance of taking control of your finances, and facing the stock market. It may seem complicated but it can quite literally pay dividends.

Since the credit crisis, consumers have been battling the rising cost of living – coupled with little or no wage inflation and poor returns on cash. While it may seem impossible to find the spare cash to put money away for a rainy day, it is increasingly important that individuals think about their long term finances. The public purse is under pressure, and the guarantee of a state pension in retirement for those currently aged 35 or younger is questionable. For those that will receive a retirement income from the state – ask yourself is £100 a week enough to live on? If it is not you need to take steps now to provide yourself with extra income in retirement.

Inflation erodes the power of your pound. Since 2004 inflation has ranged from 1% to more than 5%, but at its peak in 1975 it hit an incredible 24%.  In the past it would have been sufficient to put your cash aside into a bank account, and rely on the interest paid boosting your savings. But few banks now pay a sufficient rate of return to beat the Consumer Price Index.

And so we turn to the stock market. Not only does it offer the chance of capital growth, but income too. Those with a long-term savings plan should reinvest the income. Reinvested dividends have been the single biggest driver of equity returns in the UK, the US and European stock markets over the long-term.

Even Albert Einstein was a fan – calling compound interest one of the wonders of the world. He said: “He who understands it, earns it, he who doesn’t, pays it.”

This is not to say that the stock market and other investable assets such as bonds and commodities are without risk. You can lose capital and income fluctuates. But the most important tool in your armoury is information and this guide will help you build up your knowledge so you can reduce the chances of capital loss – and know how to deal with it when it happens.

Investing is not for everyone, but if done correctly it can help build you buy a property, pay for your children’s education, and protect you from pension poverty. Can you afford not to invest?

This video was first published in September 2014

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author Emma Wall

Emma Wall  is Senior Editor for Morningstar.co.uk