Why should you invest? (and why not!)

If you didn’t start to invest, you are probably asking yourself the very important question- why should you?

There are many reasons for which people invest. However, on the high level, the two most important are:

  • To make more money than you already have
  • Not to lose money you already have

Neither of these needs explaining, but one thing should be remembered. If you hold money that is not growing faster than inflation, you are effectively losing it, as the buying power decreases. In the last 10 years inflation in United Kingdom was between 1% and 5% so you can see, how quickly you could have been losing your money (if you had any cash or low interest rate saving account). And here we need to have a look at the rates available in saving accounts… At the time of writing they range from fractions of percent (as low as 0.25% and lower) to 3.5% on selected offers. This clearly shows that with standard saving accounts you can hope at best to preserve (not increase) your buying power. And these high rates usually come with a lot of strings attached.

Reading this may give you the impression that everyone should be investing. There is just one more thing- to invest, you should have some money. It does not have to be a lot of money, but certainly it is very dangerous and unwise to invest what you don’t have. Money you owe (credit cards, loans) is money that is not yours. Investing is not difficult, but investing where you have to clearly outperform your borrowing rate (and there are consequences if you don’t) is incredibly difficult. The number one principle of investing (especially for private investor) should be to only invest money that you can afford to lose. Of course it doesn’t mean that you are expected to lose this money! Even if you perform average, or below average, you should do better than the 3.5% offered by the most generous saving accounts.

To summarise. You probably should invest if:

  • You have money that you will not need for some time (ideally a few years, but again- there are things you could do for much shorter time period).
  • You don’t have any high interest debt (which is nearly any debt short of a mortgage, or a student loan).
  • You are prepared to learn some basics and ensure that you are comfortable with what you are doing. This is both financially and psychologically.

Once you have made a decision to go into the world of investing there are the next two natural questions. How to invest and what to invest in? To answer them is the reason why investmentrecipes.co.uk was created! So read more about the basics, read some recipes and start your investment journey!

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