Wall Street was a memorable film for a variety of reasons. The famous ‘Greed is Good’ speech, with Gordon Gekko standing at the podium in Wall Street, talking to investors, explaining why they should support his takeover bid of the paper company they hold shares in. The ‘lunch is for wimps’ macho attitude that made the stock market seem dangerous, exhilarating and like a roller coaster ride all at the same time. And, of course, a mobile phone that was the size of a carry-on suitcase.
On the one hand, these are just moments and feelings in a pretty iconic film. On the other, they offer a little insight into the problems facing Corporate America at the time – problems which still seem to be relevant today, when you think about it.
A lot has changed since the movie, of course. It’s almost thirty years old, if you can believe that! But what hasn’t changed is the barriers that most people see to investing. That it’s for the big banks in London, Hong Kong, or Wall Street itself to do. That it’s a ruthless, alpha male world where everyone’s out for themselves, and that it’s highly complex and takes guts and skill.
But investing doesn’t have to be scary, complicated, or just for the wealthy. It doesn’t even require a huge amount of skill to begin your investing journey – by far the biggest barrier is making the decision to invest in the first place. And debunking the myths related to investing was one of the driving forces behind setting up GreenSky in the first place. If you remove the marketing speak and lingo, the world of finance can actually be pretty straightforward with a little guidance, which is what we’re here to do.
So to prove that it isn’t scary, we’d like to bet that you’re probably already an experienced investor – you just don’t think of it as investing…
What is investing?
Investing is putting money into financial schemes, shares, property or a commercial venture with the expectation of achieving a profit. Do you have a savings account? Well, congratulations, you’re an investor. See? We told you! Instead of putting your money under your mattress, you’ve handed it over to your bank, and you’ll receive a bit of interest in return – putting money into a financial product (a savings account) and expecting a profit (interest).
Investing can be as simple as that. Now, this is a good time to say what investing isn’t. Investing is not gambling. Gambling is placing a bet on an uncertain outcome while keeping your fingers crossed that you’re going to win money.
Imagine that you’re buying a house. Gambling is hearing from your mate about a great house that’s up for sale and that it’d be worth a punt. So you buy it. Investing is researching the housing market, seeing and assessing the house, having surveys done, checking out the area, going to the house at different times of day to see what’s happening. By the time you decide to buy (invest in) the house, you’ve done extensive research and it’s a much more calculated and thoughtful risk.
So why invest?
The simplest reason to invest is that if you don’t, your money depreciates in actual value over time due to inflation.
Let’s say you have £1,000 and you put it in a little box in the cupboard under your stairs. If inflation (which is the sustained increase in a general price level of goods and services in an economy over a period of time) is at 2%, then in 12 years, while you may still have £1,000 in bank notes, the purchasing power of that £1,000 is now only £800. Everything got more expensive, but your money stayed the same – your money is now worth less. But, if you find a savings account which allows you to grow your money at the rate of inflation, then your money will still have the same spending power in the future. If your savings account pays you interest above inflation, then you’re beginning to make money.
And that’s where we can introduce another reason to invest, which is to put your money to work for you. Obviously, you work for you as well – you go to work every day, and get paid to do that. But there’s a limit to how many hours you can work, so unless you get a big pay rise or a better job, there’s also a limit to how much you can earn. When you invest your money rather than spend it, you’re able to make more money without going to work at all – the money earns interest, and that interest eventually earns interest.
Other types of investing
Investing doesn’t necessarily mean saving your money or dipping your toe in stock market. You might say that going to University is an investment in your career. Buying a house is a tangible investment as you’ll own something real once you’ve paid your mortgage off. Participating in a share save scheme at work is an investment, with you owning a little piece of your company.
In all of these things, like in all investments, there is an element of risk. Your degree might not open the doors you thought it would, or it might not end up being relevant to your chosen career. You might buy a house that depreciates in value, meaning you might lose money when you come to sell it. And you might put money aside into your work’s share save scheme only for your company to perform poorly while you work there. You never know.
Time to invest?
If you want your money to retain its value over time, there are lots of different options to choose from. Over the coming weeks, we’ll be helping you understand more of your options.
And who knows? If you invest in the right thing, you too may be able to buy a suitcase-sized phone one day…
This article is for general use only and is not intended to address your particular requirements. It should not be relied upon in its entirety and shall not be deemed to be or constitute advice.
The value of your investments can go down as well as up.
GreenSky Wealth Limited is authorised and regulated by the Financial Conduct Authority. FCA No. 629624. Registered Office as above. Registered in England and Wales, Company No. 07103441.