Why Invest?

Most people ask this question and in some cases the answer is that maybe they do not need to invest but there are some facts which need to be considered before we can answer this question.

We are all living and working longer.  Our money needs to last longer and work harder for us. We can work out how much you need to invest and how much of a return you require to achieve a secure future.  So what should we do? Should we hoard our money under the bed? Leave it on deposit in the bank or building society? Invest in the stockmarket? 

A low risk environment for your money would be wholly invested in cash and gilts. In the Barclays Capital Equity Gilt Study 2011 the research shows that over the last 94 years in any period of 18 consecutive years cash beats equities only 1% of the time.  The same question was asked of equity performance vs the performance of gilts and over 18 consecutive years gilts have beaten equities only 11% of the time.  At Gibson Financial Planning we believe that while both cash and gilts have a place in an investment portfolio equities must also be considered.  See here for more information on asset classes. 

Barclays Capital's study of long-term performance also showed that even taking into account two major market crashes, £100 invested in UK equities in 1990 would have produced a real (after inflation) return of £323 by the end of 2010, while the same amount in a building society would have grown to £129 (both figures with gross income reinvested).

So how do you invest in the stockmarket?  An investor can buy directly by buying the actual shares or by investing in collectives where the shares are bought, held and traded by the fund.  Investing directly in equities makes it very difficult to achieve a tax-efficient, low cost and diversified portfolio. Unit trusts, OEICs (Open ended investment companies) and ETFs (Exchange traded funds) are in our opinion a much better way to access the stockmarket and therefore form the backbone of our portfolios.