I understand the hesitation that Brits might have right now about investing their savings into a see-sawing stock market. Especially if they have never bought any shares in their life.
But when no savings accounts on the market offer an interest rate above UK inflation, it makes sense to explore other options.
So let me just say six little words (followed by quite a few more):
Historically, the stock market goes up.
We’re approaching the FTSE 100’s 40th birthday, having launched in January 1984 with a starting value of 1,000.
As I write, it has had a SIX HUNDRED PERCENT gain to 7,000 today!
You’d have thought that investments with that kind of growth would be the talk of the town, right?
But unfortunately, “get rich slowly” doesn’t have the same ring to it as “get rich quick”.
But the latter is normally followed by “scheme”. And investing in the stock market is anything but.
How to get started
First-time investors might consider a low-cost index tracker, which is an investment fund that automatically tracks a group of investments, following their price movements both up and down over time.
Or, you could opt for a robo-advisor. These let you select the level of risk you’re comfortable with and how much you’re able to invest, and often only seek a minimal annual platform fee of under 1% of your holdings.
Personally, I began by investing in listed companies within a stocks and shares ISA. Why? Well, while the Footsie (collectively comprising the top 100 British publicly listed businesses) has six-bagged in 38 years, I’m of the belief that by stock-picking individually, my portfolio has a good chance of surpassing even that incredible figure!
Of course, I’m fully aware that not every stock will be a winner. In fact, The Motley Fool co-founders Tom and David Gardner admit that most of your investments will likely be ‘duds’ that follow the market — and that, inevitably, some will decrease in value.
But we also believe that, according to the Pareto principle, something like 20% of your portfolio should drive 80% of your returns in the long run! So by investing in a few stocks that give you returns of 5x, 10x or even 20x, regardless of how the others perform, you could significantly increase your chances of beating the market.
So if my investment portfolio exceeds a 600% return in under 40 years, I’ll be very, very happy.
Why now?
Turn on any television, open any newspaper (or news app) or listen to any radio station, and you’ll be bound to instantly hear about the tragic events in Ukraine. And of course, this has impacted the stock market, with the latest newsflow sending the FTSE 100 down 3% on the day as I write.
But as my colleague Scott Phillips (Director of Investing for The Motley Fool Australia) says, “The invasion is, of course, unconscionable. [But]… listed companies won’t be doing anything different tomorrow, next week, next month or next year, no matter what happens in Ukraine“.
So when share prices in quality companies are beaten-down due to events that aren’t directly related to their business, knowing what we know — that historically, the stock market goes up (even if past performance isn’t any guarantee of future returns) — I’d make two arguments:
Firstly, that ‘time in the market’ is a whole lot better than trying to ‘time the market’, and every day you’re holding an investment gives you a better chance of seeing it grow.
And secondly, if share prices are momentarily retreating, now is a great time to start investing in potentially ‘winning’ stocks before they go up in price again, which time has told us they are likely to do.
