As the new tax year begins, you might be tempted to dip your toe into investing for the first time.
This may seem a daunting prospect, particularly in the current period of market volatility and economic uncertainty, but it doesn’t need to be.
Recent research by Liontrust and The Big Exchange reveals savers have been deterred from investing by their perceived lack of knowledge, and the belief they don’t have enough money to invest.
We’ve picked out some of the top investing myths and looked at why taking the plunge can reap long-term benefits.
Fact or fiction: We reveal some of the top misconceptions held by first-time investors
Myth 1 – I need to be an expert
Unless it’s your day job, you’re not going to be spending hours of your day researching financial markets, nor should you.
When you start out, you are likely to pay into a fund which is managed by professionals who choose stocks and shares, Government bonds, and other assets like gold.
It means you won’t have to worry too much about picking the right companies, but once you’ve become more comfortable with how markets work you can start to build your own portfolio.
‘First time investors can find it pretty intimidating to dip their toe in the water, but the reality is that you can build up your knowledge and experience pretty quickly while growing your savings pot at the same time,’ says Laith Khalaf, head of investment analysis at AJ Bell.
‘You don’t need the labyrinthine knowledge of Warren Buffet to start to invest, you just need a bit of money to stick away and a willingness to do a little bit of online research.
‘Everyone does this for things like car insurance, but the £50 or so you save each year by shopping around for the best insurance deal is small beer compared to the financial rewards you can reap by setting up a long term investment plan.’
The first step is finding the platform that best suits your goals. If you’re starting out with a small amount of money, you’ll want to check the fees platforms charge to ensure you keep costs down.
You can check out This Is Money’s comparison of the top DIY investment platforms here.
Hargreaves Lansdown and Interactive Investor, in particular, provide plenty of guides to help you get started, as well as fund tips.
Anna-Sophie Hartvigsen, co-founder of Female Invest adds: ‘Many women think you need to work in the industry or have an in-depth understanding of complicated financial services (and the jargon to go with it) to get started.
‘Of course, knowing how the markets work and doing research is essential but you don’t have to be a day-trader with a Bloomberg terminal to invest your long-term savings.’
Myth 2 – I need to have a lot of money
This is one of the biggest myths when it comes to investing. It might have been true in the past, but you can start investing with less than you think.
There are plenty of low-cost investment apps, which allow you to start investing from as little as £1.
The £20,000 you’re allowed to put in your Isa can spook some first-time investors but remember, you don’t have to max out the allowance every year.
Plenty of people put lump sums into their investments, while others prefer to drip feed a certain amount every month to benefit from cost-averaging.
The latter approach is less risky as you spread out your small investment amounts over time, and avoid suffering from a sudden plunge in the markets just after you’ve put in a large sum.
AJ Bell says half of new Isa accounts start with £1,000 or less, although it is difficult to calculate an accurate average because plenty of people will use up their £20,000 Isa allowance and open an account with another platform.
Its new low-cost app Dodl, which offers a smaller range of stocks and shares, has a median deposit of £100 and customers can invest as little as £25 a month.
Hartvigsen says: ‘Although it’s important to make sure charges don’t eat into each investment made, sums as low as £25 can be invested on some trading platforms.
‘Normally we’d suggest investing a few hundred pounds at a time, but this can be saved up over several months, and the key is to start saving and then investing as soon as possible to get that compound growth going.’
Myth 3 – It’s time-consuming
After the pandemic boom, investing became exciting. But it’s not supposed to be. Once you’ve worked out your investment strategy, you don’t need to check it daily or frequently buy and sell your holdings. Trying to time the market, particularly at the moment, rarely works. As advisers say, it’s about time in the market, not timing the market.
Hartvigsen says: ‘Many of our members find that once they know the basics, they can’t believe how little time it takes to invest. With some online platforms allowing customers to set up an account in ten minutes, it’s become less of a time-consuming and therefore daunting task.
‘Also direct debits and regular investing can mean even speedier money management.’
Myth 4 – I’m not the right age
When you’re in your 20s, you might still be getting a grip on your finances and putting money aside every month for investments might be bottom of your priority list.
By investing consistently when you’re young, you’ll allow compounding to work to your advantage. It means the money you invest will grow substantially over time as you earn interest and receive dividends.
It is important to clear any debt and try to build an emergency fund – around three to six months of salary – for unexpected costs, before you start investing.
While it’s beneficial to start as young as possible, it’s never too late to start investing. You might have postponed putting money away because you had other priorities, like paying off your mortgage.
> Should you opt for a cash or stocks and shares Isa? Read our guide
If you delayed saving and investing and are trying to catch up, putting away more money every month will go some way in making up for lost time. This is easier said than done, however, so make sure you don’t fall into the trap of going for higher-risk higher-return funds to make up for it, if you’re unwilling to ride out some short-term volatility.
If you’re not sure where to start, get in touch with a financial adviser who can assess your risk appetite and how much you can feasibly start investing.
Myth 5 – I can get rich quick
Plenty of beginner investors fall into the trap of thinking that they can make lots of money very quickly by betting on risky investments.
It has not been helped by some of the mega gains some investors made during the pandemic, amid the tech stock boom.
Don’t be fooled, though. The recent rout shows just how volatile markets can be and how important it is to keep a cool head.
Khalaf says: ‘Probably the biggest thing to be wary of as a first time investor is get rich quick strategies. This temptation probably explains why many younger investors have leap-frogged traditional investments and dived into the very deep end by buying crypto.
‘Getting rich slowly is very much the order of the day, and while taking risk is part and parcel of investing, just make sure it’s proportionate to your capacity to sustain losses.’
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