Investing your savings doesn’t need to be daunting

Investing doesn't have to be scary
 

Investing isn’t scary, but a lot of people think it is

Risky, time consuming and emotionally exhausting. Sounds like a bad relationship or like attempting Everest. Not what most people would like to associate with growing their savings.

Unfortunately, these are the feelings many Australians associate with investing. When asked why they are not interested in investing, most Australians cite lack of knowledge, disinterest and fear.

Many people still have memories of the global financial crisis and the effect that had on their own investments or those of family and friends.

These are all natural and very human feelings. Loss aversion or fear of the unknown is something that has helped us survive through history – it’s evolutionary. However that same fear holds us back when it comes to investing. We refuse to take a well calculated risk that could immensely benefit and enrich our lives because we are fearful of losing money.

If this sounds familiar you are potentially missing the most effective way to grow your wealth.

Many Aussies are not investing

More than 44% of Australians’ personal savings outside of their super and home is in cash and term deposits1. You might expect that cash in the bank would be most popular with older generations, however under 35s actually have the highest percentage of their money in the bank. Those with the longest time to benefit from compounding returns are mostly avoiding them because of fear.

The latest Russell Investments/ASX 2017 Long-term Investing Report shows that in the 10 years to December 2016, the average cash return (i.e. the interest rates your bank gives you) in Australia over the last 10 years has only been 2.8%.

Compare that to the returns made investing in other places over the past 10 years.
Asset class - 10 year returns
Sources: Russell Investments, ASX

Remember the last 10 years includes the Global Financial Crisis. Yep – even with the GFC factored in, those who stayed the course earned a much better rate than those with their money solely in cash. Granted this is much easier said than done when the world is in financial meltdown but it shows that even over a bad decade, those who embraced fear did best.

Asset class - 10 year returns
Sources: ABS, REIA, Global Financial Data, AMP Capital

Over the long run, shares have always recovered any short term falls and continued higher. If you look at the graph of the Australian shares over the long run, the GFC looks like a small blip in history. Money in the bank will keep your money safe but this graph shows you’re missing out on potential wealth creation that simply isn’t possible even in a savings account.

Investing doesn’t need to be scary

It’s your approach to investing that will make it less scary. The idea that you need to research stocks, understand how to calculate PE ratios and magically know when to buy or sell are some of the main culprits that lead people to think investing is daunting and difficult.

Investing like that simply isn’t necessary or smart these days when you can piggyback off everyone else’s research by buying ETFs.

You can also reduce your fear by having a good mix of defensive investments like bonds that cushion your portfolio when markets fall.

Technology can manage your fear

The rise of financial technology (fintech) has fundamentally changed how people invest. It’s made investing more accessible, transparent and personalised. Technology lets you invest your savings with a professional without having to pay high fees to a financial adviser.

A digital investment adviser (or robo-adviser) like Stockspot uses technology to manage the entire investment process for you online. This includes providing investment advice and asset allocation (what you invest in and the percentage of your money in each asset) and personal guidance to keep on track. This means investing doesn’t have to be daunting or difficult because everything is done for you.

Taking the leap

Taking a cautious step into investing will be daunting but anything worth doing in life involves some risk. You can manage the risk of investing by focusing on the long-term and putting your eggs in different baskets.
 

1 Source: Rice Warner
 

Grow your savings the smart way

Stockspot is Australia’s largest digital investment adviser. We can help you build and manage a personalised portfolio tailored to your financial situation and your goals. It’s professional investment advice without the high costs of seeing a human adviser.

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Lauren Franze

Head of Communications and Public Relations