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Why should you invest?

HG Funds

Most investors build an investment portfolio to help them plan ahead for financial commitments. But even if you don’t have a specific reason, investing can also help to offset the erosive effects of inflation.

To plan for future events 

Investing can help to plan for long-term financial goals, such as repaying a mortgage, or securing a good education for your children.

While a savings account can offer security, the returns are often modest. Investing in the stockmarket has far greater potential over the longer term. That’s because returns are based on the underlying performance of specific companies, which have historically provided much stronger performance than you might expect from a savings account.

UK asset returns since 1940

As you can see from the graph, equities have consistently outperformed cash and fixed interest securities every decade since the1940’s. However, bear in mind that past performance isn’t a guide to future performance. As with all stock market investments, the value of shares (and the income from them) can fall as well as rise. 

However, because stocks and shares can go down in value as well as up, such investment carries a greater risk. So, unlike a bank or building society savings account, your capital is not secure and you may get back less money than you originally invested.

To help beat inflation

In order to make any headway against inflation, your money needs to produce a return after tax which is greater. So, if you want to make a material difference to your wealth, it is worth considering investments which have the potential to outperform inflation. The charts below demonstrate the impact of inflation over 25 years on three common items.

The impact of inflation over the last 25 years.

Because shares outperform cash over time

While the stock market can fall as well as rise, historically shares have almost always outperformed cash deposits. According to the Barclays Capital Equity Gilt Study (2007), based on past statistics, there is a 99% probability that shares will produce a higher return than cash over an 18-year rolling period.

So, while cash is undoubtedly safer than shares, over the longer term it’s unlikely to generate significant growth potential. Plus, any volatility in the stock market can sometimes represent an opportunity for investment mangers who are looking to buy shares cheaply. 

We’re living longer

There’s plenty of evidence to show that in the UK we’re now living longer. So, in order to enjoy our retirement, it’s important to have adequate resources to help us maintain our lifestyle.

Historical and forecast life expectancy

An investment portfolio can be designed to achieve different objectives as you go through life. For example, your attitude to risk may change as you become older, and with careful planning it’s possible to tailor your portfolio aims to reflect that.

You can pick funds to suit your preference 

If you have a considerable period of time in which to invest, you may wish to consider a fund which aims to generate capital growth, such as our HGREF Alternatively, some funds can offer the potential for both capital growth and income, such as our HGINF, while others are designed for income alone, such as our HGLSF

By selecting a combination of funds you can tailor your portfolio to fit your expectations as well as future financial commitments or goals.