29 reasons not to invest in the stock market
Wars, disasters, economic strife and political instability have been persistent themes over the the last three decades and they can affect people’s attitude towards investing.
In many cases they make an already tough decision to part with your money and invest even harder, leading some to not invest at all.
Loss aversion: the reason some shy away from investing
Behavioural scientists have a name for this: loss aversion. They reckon that the psychological pain of losing about twice as powerful as the pleasure of gaining, hence why some people shy away from the risks involved with investing.
However staying out of the stock market over the last 30 years could have been costly.
Why could staying out of the stock market have been costly?
The eroding effects of inflation and historically low interest rates would have eaten away at the value of your money if you decided not to invest. While investing in the stock market carrier greater risks (the possibility of your losing all the money you have invested) and volatility (the value of the money you have invested going up and down) it could have boosted your returns.
Choosing to invest depends on your own personal circumstances (if you’re unsure of the suitability of any investment speak to a financial adviser), but there are some basic rules and facts that can help guide your decision.
The numbers: £1,000 in UK stocks, a bank account or under your mattress for 30 years
The chart below shows the change in real value (after adjusting for the effects of inflation).
£1,000 hidden “under the mattress” at the start of 1989 would now be worth £467 due to the effects of UK inflation - annual growth of -2.7%.
£1,000 left alone in a UK savings account at the start of 1989 would now be worth £1,011 - annual growth of 0.03%.
£1,000 in the FTSE All-Share index at the start of 1989, with all income reinvested, would now be worth £5,683 - annual growth of 11.2%.
You must remember that past performance is not a guide to future performance. Also investing in one geographical region (UK equities) may result in large changes to the value of your investment, which could impact the performance.
Another thing worth considering: in some circumstances, up to £85,000 in a UK bank account is protected by the Financial Compensation Services Scheme.
Read more: Six steps to start off investing