At Scottish Friendly, we believe everyone should have the same access to different ways to grow their money.
When investing feels complex, it can be off-putting for those of us who haven’t really been taught about finance - and there are more of us than you think. The impact of this is that some members of society, especially young people, are excluded from opportunities that could make their money work harder for them.
What is investing?
"Investing" is simply buying types of investment, for example shares in companies, with the aim that the value of those investments increases, meaning you can sell them for more than the price you paid.
Of course, with stock market investments you're not guaranteed to make money and with investing there is the risk that you might need to sell your investments at a time when they're worth less than what you bought them for. If this happens, you'll get back less than you paid.
If you're wanting to put some money away, you could choose to either save or invest it. Broadly speaking saving means that you put your money into an account that grows by building interest, whereas investing typically means that you put your money into an 'investment fund' along with other investors' money.
How does investing work?
A common way to invest is to put your money in an investment fund. This is where a fund manager chooses what investments to buy with your money, and other investors', too.
Investment funds come in all different shapes and sizes. If you choose to invest by opening a Stocks & Shares ISA, you can usually choose which fund or funds you want to invest your money in.
The investment fund or funds that you choose will then be used to buy various different types of investments - these can be things like shares in UK and / or global companies, property, corporate and government bonds and perhaps even an element of cash. Your money increases or decreases as the value of those assets change.
Funds generally have different levels of risk and return. For example, if you were to invest more of your money in assets like government or corporate bonds, this might be considered a less risky approach then investing more of your money in for example, more risky assets like company shares.
Typically the more risk you take, the more your money could potentially grow by - but the greater the chance of losing money.
So, is investing riskier than putting money in a savings account?
Both come with different risks.
With investing, there is a risk of ending up with less money than you've put in. This can happen if you decide to withdraw your money at a time when the assets you are invested in are worth less than they were when you started investing.
With a savings account, there's a risk that your money will grow by less than inflation (how much things cost). How much money you make in this type of account depends on interest rates. You can’t technically lose money, but if inflation goes up by more than you make in interest you could be losing money in 'real terms' (when the price of things you want to buy goes up faster than the amount of interest your savings make).
Generally speaking, risk smooths out over time as the ups and downs of the stock market are less significant over longer periods of time, of at least five years ut ideally 10.
