Investing can be a great way to grow your money and can offer higher returns than a current or savings account over the long term. It’s best suited to longer term goals (at least five years) as this allows enough time to ride the waves of the stock market and benefit from time in the market. However, with only 51% of men and just 21% of women aged 18 – 35 investing their money*, many are unaware of the potential benefits of investing and how disadvantaged their savings may be when left in cash. Did you know – a woman earning $85,000 per year who doesn’t invest typically loses out on around $1 million in their lifetime according to research by Ellevest… but it doesn’t have to be this way.

Obviously investing involves risk and there’ll be some ups and downs along the way, but for those who stay the course, it can pay to invest. Here’s what you need to know to invest like the best – it’s so much easier than you might think!


Investing vs cash

Looking back over the last 100 years you can see that shares have consistently beaten cash when held for longer periods of time. Focusing in on a 10-year period, if you had put £1,000 in a cash savings account at the start of 2011, you’d have £1,185 by the end of 2020. While if you had invested it in shares, you’d have £2,193 – almost double!

Investing returns are based on our Balanced portfolio and include all fees. Where available, returns data for the selected funds have been used. Where the fund has a shortened performance history, we have used the appropriate index to simulate performance. This is the case for the Fidelity Global Equity fund prior to March 2014, the iShares Global Property Equity fund prior to October 2014, and the iShares Global Corporate Bond fund prior to January 2012. Cash returns are based on the best available cash interest rates at the beginning of each year. Sources: Morningstar, MSCI.


Investing involves some cost, which will affect the return on your investments, so you should consider what funds and services provide the best value for money.

What about the risk of investing versus leaving it in ‘safe’ cash savings? It’s true that if you keep your money in a savings account you’ll have more certainty – you’ll know your interest rate and you can watch your savings steadily grow. However, it’s hard to find interest rates that match or beat inflation, meaning that the purchasing power of your money actually declines each year. This phenomenon has been described by the FT’s Money Editor as ‘reckless caution’.

Your secret weapon to managing the ups and downs of the stock market is time. The longer you leave your money invested, the higher the probability of it performing better than cash. While it is impossible to predict future movements of the stock market, this graph shows you the percentage of times during the last 116 years that shares have beaten cash when held for 5, 10 and 18 consecutive years.

With investing, returns are not guaranteed and you should expect to see some ups and downs along the way, but when investing for the long term you do stand a much better chance of growing your money.

To follow the principle of the world’s most successful investor, Warren Buffett: it’s time in the market, not timing the market that is the key to success.


How to invest in the stock market

There are a few ways you can go about investing, each with their own distinct strategies…

Buy and sell shares yourself

While this method allows you to have complete control over where your money is being invested, it also comes with a lot of admin, research and can be costly as you are usually charged for each trade you make.

Investing in funds

Funds deliver two key benefits…

Easy diversification – investing in a fund enables you to spread your money across a range of assets. This reduces the pressure of managing your own investments and ensures you don’t have all your eggs in one basket.

Low cost – you’ll pay less to invest through a fund versus buying and selling shares yourself. This is because a fund can negotiate lower fees when buying shares and pass these discounts onto you.


Types of funds

Active funds – an active fund employs a fund manager and team of analysts who research industries and companies and ‘actively’ choose which ones to buy, hold and sell at any one time. The fund manager is hoping that they can beat their benchmarks (usually an index – see below) by picking the winners and avoiding the losers.

Tracker funds – also known as passive funds, track the performance of certain stock market indices. An Index is a segment of the stock market, based on factors such as size, industry or location. For example, the MSCI World Index is made up of the largest 6,000 listed companies in the world. So instead of trying to identify winners and losers, a tracker fund simply replicates the performance of the index. As less day-to-day fund management is required compared to active funds, these typically have lower fees. They also can allow you to invest in a range of global companies such as Apple, Facebook, Nintendo and Disney at a lower cost. Costs can eat away at your returns so it makes sense to reduce them where you can.

At Moneybox, we’re big fans of tracker funds and we make it easy to get started. You can invest in global companies from as little as £1 – no big starting balances here! We’ve also worked with experts to put together three simple starting options – cautious, balanced and adventurous – which offer different levels of risk. The option you choose determines how your savings will be split between our range of tracker funds. So, if you choose the cautious option, a large portion of your money will go into the cash fund (safer), whereas if you choose adventurous, more of your money will be invested in global shares (higher risk). The balanced option is somewhere in between.


What I can invest in?

The majority of money in the world is held in five asset classes: Cash, Bonds (also called fixed income, gilts), Shares (also called equities and stocks), Property and Commodities.

The Moneybox starting options are made up of selected tracker funds that hold certain asset classes, including a global shares fund, property shares, and bonds. Moneybox also has a ‘cash fund’ that invests in safer assets. See the Moneybox starting options performance over the past 10 years.


Investing the socially responsible way

Ethical and sustainable factors are increasingly important for our world today and into the future, so why not invest in a way that’s more aligned with your values? You can, through socially responsible funds. Also known as ‘ESG’ funds, these score companies based on their environmental, social and governance (ESG) impact to decide whether they are eligible to be included within the fund. The popularity of sustainable and ethical investing is on the rise, with Morningstar’s data showing flows into UK ESG products increasing by nearly 25 times between 2014 and October 2019. There’s also now greater choice, with over 60 ESG funds within the UK market (as at 2019), bringing the total assets under management in ESG funds to £35bn in the first three quarters of 2019.

Since the launch of Moneybox in 2016, we’ve learned how important socially responsible investing is to our community. Young people, in particular, want to be able to have more of a say in where their money goes and the type of future this is creating for them. With a socially responsible fund, you can choose to support companies with better environmental, social and governance practices around the world, ranging from climate change to workers’ rights. Moneybox has partnered with Old Mutual to offer customers the Old Mutual World ESG Index fund, exclusively available through Moneybox in the UK. This fund tracks the MSCI World ESG Leaders Index and holds shares in global companies which are selected based on MSCI’s leading ESG approach.


The magic of compounding

Make your money grow while you do nothing

Imagine a world where your money grows on its own, without you having to lift a finger. This can happen through the magic of compound returns.

Compound returns are the returns you get on your original investment and the returns you get on your returns. When you leave your returns to compound over time, your money can grow exponentially all by itself. Compounding also occurs on cash savings that earns interest.

Here’s an example of compound returns:

Suppose you invested £5,000 and it grew by 7% each year. At the end of the first year, you’d have £5,350.

At the end of the second year, your £5,000 would have grown to £5,725. So, in year one you made a £350 return but in year two it rose to £375. Year two is higher because you made a return on your original investment AND a return on your return. That’s a compound return.

The longer you leave your money, the greater the impact of compound returns. After 25 years, assuming continued 7% growth, your £5,000 would have grown to a massive £27,137. That’s more than a fivefold increase on your original investment. Now you’re really compounding!

Did you know that if you invested between the ages of 21 and 30, then stopped forever, you would still have more money when you retired than if you started at 30 and stopped at 70 (based on a 7% annual return)? Einstein allegedly described compound returns as one of the most powerful forces in the universe and the eighth wonder of the world…

By starting early and setting aside as much as you can today, you give your money the greatest chance to benefit from the magic of compounding.


Pound cost averaging

Helping you through a the market ups & downs

Investing in the stock market means you’ll most likely experience market volatility. While it can be tempting to take action when the market is down, one of the best ways to ride the ups and downs of the market is to have a plan and stick to it. If you are investing regular amounts, you benefit from the average price of the investments you buy over time – known as pound cost averaging. So, when you continue to contribute, even during a market downturn, you will buy shares at lower prices, which could help in the long-term.

Investing each week or month, no matter what the state of the market, will teach you a non-emotional approach. You’ll buy low, high and everything in between and you’ll capture the average return of the market. But remember, past performance is not a reliable guide to future performance.

The advantages of compounding and pound cost averaging also apply to your pension – one of the largest assets you may own. Check out Step 5 and why it’s so important to start thinking about your pension, now!


*Source: Moneybox research 2018