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Investing in the stock market offers the potential for greater returns compared to keeping cash in savings, while also counteracting the impact of inflation.
Inflation erodes the purchasing power of cash over time. When inflation exceeds the interest rate earned on savings accounts, the real value of that money tends to decline. Investing, however, aims to grow capital at a rate that can keep up with or surpass inflation, helping to preserve wealth. While this approach may not always yield positive results in the short term, historically, the stock market has delivered stronger growth over longer periods, such as decades, compared to the returns from savings.
There are various ways to invest, each with different levels of involvement depending on personal goals:
1. Buying individual shares: This option requires significant research, and investors take full responsibility for their choices.
2. Investing in collective or pooled investment funds: These are managed by professionals who build portfolios of stocks and other assets. Funds may focus on specific regions or sectors. Actively managed funds involve managers selecting companies, while passively managed funds use algorithms to track stock market indexes.
According to the Financial Conduct Authority's (FCA) latest Financial Lives report, 9.1% of UK adults held investment or pension assets through direct-to-consumer (D2C) trading platforms, enabling them to manage their investments independently.
