Busting six of the most common investment myths

There are many myths and misconceptions surrounding investing that can put people off. Poppy Fox, investment director at Quilter Cheviot helps us bust six of the most common myths so you can take a fresh look at investing, and consider whether it might help you reach your financial goals.

Myth 1 – Now isn’t a good time to invest

With political uncertainty and geopolitical tensions present, it is only natural to feel apprehensive when considering what you should do with your money, and you may think now is not a good time to invest.

Myth busted: “While the tone of media coverage on markets can sometimes be alarming, the truth is that the best time to invest is whenever you are ready and able to. It’s an age-old cliché but investing is more about time in the market than timing the market. Once your money is invested, you can benefit from the power of compound returns, the name given to earning returns over time.

“It is important to remember that markets can be volatile, and the value of your investments can go down as well as up, so it is best to invest for the long term to allow you time to ride out any bumps along the way.”

Busting six of the most common investment myths - Poppy FoxMyth 2 – Cash savings are risk free

Many people believe that cash savings are a safer bet and that you can’t lose money on your cash savings.

Myth busted: “While holding cash is necessary for emergencies and tends to be the better option for short term savings, it is by no means risk-free. After considering the impact of inflation, cash savings often provide a negative real return if the interest rate is less than the rate of inflation. While investing is of greater risk than leaving your money in cash given you are exposed to market volatility, if you are looking to invest for the longer term – for 5 years or more – then it may be a good option for you to consider. Investments can be selected to match your own level of risk, including in lower-risk assets such as government bonds. However, it is important to remember the golden rule – make sure you have between three to six months of cash savings set aside before you consider investing.”

Myth 3 – I’ll be invested in companies that don’t match my values

Where you put your money matters, but some worry that by investing they may be compromising on their principals.

Myth busted: “People are often concerned that their ethics and investing won’t mix, but isn’t always the case. Investing can be done in line with people’s ethical preferences, and responsible and sustainable investment options can be integrated into the investment process. This can mean avoiding investment in certain companies (ethical investing), investing to make your voice heard on environmental, social and governance issues (responsible investing), and investing to make an active difference to the world (sustainable investing). Speaking to a financial adviser can help you make the best decisions for your personal circumstances and preferences.”

Myth 4 - I have a pension so I’m saving enough for retirement

With more of us than ever before saving into a pension thanks to auto-enrolment, many people will believe that saving into a pension means they are putting away enough for retirement.

Myth busted: “Most people will be saving into a pension, but this does not necessarily mean you’re saving enough for the kind of retirement you may wish to have. Estimates of an appropriate pension contribution from the Pensions Policy Institute vary from 14-27% of total salary, far higher than the 8% many people will currently be contributing through automatic enrolment. A pension alone might not necessarily be enough to provide for a comfortable environment. Investing through a tax-efficient vehicle such as an ISA could be important for also providing enough income in retirement. A financial adviser can help you decipher how much money you will need for retirement and what you need to be doing to reach your goal.”

Myth 5 - I don’t need to start investing for my retirement yet

Of all the life events to plan for, people may be tempted to put saving for retirement on the back burner, as saving for a house, planning a wedding, or preparing for a family may seem more of a priority.

Myth busted: “Some people believe saving for retirement from a young age is unnecessary, but it is in fact one of the most important times to be contributing as that money will have far longer to grow. The effect of compounding returns means that investing for retirement is best done sooner rather than later. In fact, an investor investing £10,000 a year would have accumulated £248,741 more in 20 years that someone who started investing just five years later [1]. However, it is important to remember that the value of your investments can go down as well as up.

Myth 6 - Investing stops at retirement

Once you hit retirement, you may think that your investing journey is over, but this might not be the best option.

Myth busted: “Life expectancies are on the rise, so your retirement savings are going to have to work harder and last longer. According to the Office for National Statistics, men aged 65 in the UK in 2020 can expect to live for another 19.7 years and women for another 22 years. This is projected to rise to 21.9 years for males and 24.1 years for females aged 65 in 2045. Those in defined contribution pension schemes will need their pot to provide for all these years, and often this means continuing investing well into retirement, particularly with drawdown options. A financial adviser will be able to put a plan in place that is right for you.”

Seeking financial advice can help you make the best possible decisions for your personal circumstances and future plans. A financial adviser will be able to support your decision making and help find the best solutions for you based on your personal preferences and goals.

When thinking about your options, a good place to start is the free Government backed service, MoneyHelper, which can help you better understand your overall financial situation and provide useful things to consider.

[1] Total return in pounds sterling over the period 31 December 2000 to 31 December 2020 based on an initial investment and ongoing investment of £10,000 in the MSCI World Index.