Taking the stress out of investing

When you board the jet that is about to take you on holiday, you are unlikely to give a second thought to the physics of flight or the incredible engineering behind modern airliners. Greg believes investors should adopt the same approach.

Many younger – and older – adults are deterred from investing because they think that specialist knowledge of all sorts of financial terms and instruments is required.

That means, says Greg, that “there is a strong tendency to adopt the proverbial ostrich approach. People often avoid investing because they’re afraid of getting it wrong”.

Yet investing doesn’t have to be complicated, a message that people should be encouraged to absorb as early as possible.

Greg adds that there are just four basic rules potential investors need to know:

• Keep some money in savings as a buffer against events such as redundancy – three months’ worth of outgoings is the standard.
• Make the rest of your money sweat. Don’t search for the perfect investment – it doesn’t exist. Just invest your money in a mixed portfolio of bonds and shares. If, over time, you want to adopt a more complex strategy, that’s fine, but don’t sit on cash waiting for the ‘killer’ investment to appear.
• Diversify. Make sure that you spread your money because, as Greg says, “any single investment can collapse, but a diversified investment won’t”.
• Leave the investment to grow. As Buffett says, the stock market is “a device for transferring money from the impatient to the patient.”

Greg argues that, if investors follow these four simple rules, they don’t need a detailed knowledge of finance, or even to closely follow markets. As he explains:

“It’s actually very easy to get started, and I think that message needs to be hammered home.”

Why time is the investors greatest friend

“It’s not timing the market, but time in the market” is one of the most famous adages in the investing world. And the young have plenty of the precious commodity that is time.

Greg explains:

“No matter how much of their money they invest, it’s typically not a very big portion of their total wealth, which at that stage of life, lies mostly in their human capital – what they’ll earn over time. Younger people can often afford to take the most risk. Buffett himself says he’s rich not so much because of what he invested in, but because he’s been doing it for a very long time.”

A compounding calculator can demonstrate the awesome power of time, and the advantage the young enjoy. Invest £10,000 for 10 years at an annual average return of 7% and the initial investment turns into £20,097. But over forty years it grows to £163,114, while half a century bequeaths a staggering £327,804.

Turning the tables

Greg adds that while people often associate investing with gambling, they are only partly correct:

“Whether you’re investing or gambling, you can’t predict what’s going to rise or fall. But the odds in gambling are stacked in favour of the bookie or the casino — they always win in the long run. With investing, it’s the other way around. If you choose not to play, inflation eats away at your savings. But if you do invest, the odds are in your favour over time. So. the best thing you can do is simply get going.”

Keep calm and carry on

Greg believes there is also some practical advice to give younger people who are still anxious about investing. Advisers, he says, could suggest that investors start small and review their progress in six months’ or a year’s time and then, if things are going well, commit more.

There is another way of avoiding the anxiety that some people feel every time they decide whether or not to invest money – and that is to take the decision out of their hands. Greg explains:

“There are always reasons not to invest today, and that delay can be costly. So why not set a rule: once your savings hit a certain level, anything above that gets invested. For example, if you have £10,000 in a rainy-day fund, you could decide that you will invest whenever your savings exceed that level. So, if your funds increase to £11,000, you invest £1,000. Or you could simply open a savings plan that automatically invests £100 a month into a diversified investment fund.”

Moreover, if the idea of investing today makes a client anxious, set a start date in the future, says Greg. If the client has an advisor who can put that plan in motion, that is even better, because the client doesn’t have to pull the trigger.

In conclusion, advisers should understand each client’s investment profile, and the various emotional blocks that stop people from investing. Using the methods Greg outlines above can help their investment journey take flight.