Getting started as an investor: We debunk the biggest myths for beginners

At the start of the new tax year, you may be tempted to dip your toe into investing for the first time.

This may seem like a daunting prospect, especially in the current period of market volatility and economic uncertainty, but it need not be.

Recent research from Liontrust and The Big Exchange shows that savers have been put off investing because of their perceived lack of knowledge and the belief that they don’t have enough money to invest.

We’ve picked out some of the top investment myths and explored why taking a leap of faith can pay off in the long run.

Myth 1 – I must be an expert

Unless it’s your day job, you won’t spend hours of your day researching financial markets, nor should you.

When you start out, you’ll probably pay into a fund managed by professionals who choose stocks, government bonds, and other assets like gold.

It means you don’t have to worry too much about choosing the right companies, but once you’ve become familiar with how markets work, you can start building your own portfolio.

“First-time investors can find it quite intimidating to dip their toe in the water, but the reality is that you can build your knowledge and experience fairly quickly while growing your piggy bank at the same time,” says Laith Khalaf , head of investment analysis at AJ Bell.

You don’t need the labyrinthine knowledge of Warren Buffet to start investing, you just need a little cash to stay away from and a willingness to do a little online research.

“Everyone does this for things like car insurance, but the £50 you save every year by shopping around for the best insurance deal is small compared to the financial benefits you can get from setting up a long-term investment plan.”

The first step is to find the platform that best suits your goals. If you’re starting out with a small amount, you’ll want to check the fees that platforms charge to make sure you’re keeping costs down.

You can see This Is Money’s comparison of the best DIY investment platforms here.

Hargreaves Lansdown and Interactive Investor, in particular, offer plenty of guides to get you started, as well as fund tips.

Anna-Sophie Hartvigsen, co-founder of Female Invest added: ‘Many women think that you need to work in the industry or have a deep understanding of complicated financial services (and associated jargon) to get started.

“Knowing how the markets work and doing research is essential, of course, but you don’t have to be a day trader with a Bloomberg terminal to invest your long-term savings.”

Myth 2 – I must have a lot of money

This is one of the biggest myths when it comes to investing. It may have been true in the past, but you can start investing with less than you think.

There are plenty of cheap investing apps that can get you started investing from as little as £1.

The £20,000 you’re allowed to put into your Isa may put some new investors off, but remember you don’t have to max out the allowance each year.

Many people put lump sums into their investments, while others prefer to drop a certain amount each month to take advantage of cost averaging.

The latter approach is less risky because you spread your small investment amounts over time and prevent the markets from crashing suddenly after you put in a large amount.

AJ Bell says half of new Isa accounts start with £1,000 or less, although it’s hard to calculate an accurate average as many people use up their £20,000 Isa credit and open an account with another platform .

The new low-cost app Dodl, which offers a smaller range of stocks and shares, has an average deposit of £100 and customers can invest as little as £25 per month.

Hartvigsen says: ‘While it is important to ensure that costs are not reflected in every investment made, amounts as low as £25 can be invested on some trading venues.

“We normally recommend investing a few hundred pounds at a time, but this can be saved over several months, and the key is to start saving and then invest as soon as possible to kick-start that compound growth. to take.’

Myth 3 – It’s time consuming

After the pandemic boom, investing became exciting. But it’s not supposed to be that way. Once you have worked out your investment strategy, you no longer need to check it daily or buy and sell your investments regularly. Trying to time the market, especially right now, rarely works. As advisers say, it’s about time in the market, not timing the market.

Hartvigsen says, “Many of our members find that once they know the basics, they can’t believe how little time it takes to invest. With some online platforms that allow customers to set up an account in ten minutes, it has become a less time consuming and therefore daunting task.

‘Direct debits and regular investments can also provide even faster money management.’

Myth 4 – I’m not the right age

In your twenties, you may still be getting a handle on your finances, and putting money aside each month for investments may be at the bottom of your priority list.

By investing consistently when you’re young, you can make compounding work to your advantage. It means that the money you invest will grow significantly over time as you earn interest and receive dividends.

It’s important to pay off any debts and try to build an emergency fund — about three to six months’ salary — for unexpected costs before you start investing.

While it is beneficial to start as young as possible, it is never too late to start investing. Perhaps you put off putting money aside because you had other priorities, such as paying off your mortgage.

> Opt for cash or Isa shares? Read our guide

If you’ve been putting off saving and investing and are trying to catch up, you can set aside more money each month to make up for lost time. This is easier said than done, though, so make sure you don’t fall into the trap of going for riskier, higher-yield funds to make up for it, if you’re not prepared to endure some short-term volatility.

If you’re not sure where to start, talk to a financial advisor who can assess your risk appetite and how much you can feasibly start investing.

Myth 5 – I can get rich quick

Many novice investors fall into the trap of thinking they can make a lot of money very quickly by betting on risky investments.

It hasn’t been helped by some of the mega-profits some investors have made during the pandemic amid the boom in tech stocks.

However, don’t be fooled. The recent defeat shows how volatile markets can be and how important it is to keep a cool head.

Says Khalaf, “Probably the biggest thing to look out for when you first invest are get-rich-quick strategies. This temptation probably explains why many younger investors have skipped traditional investments and dived into buying crypto.

“Get rich slowly is very much the order of the day, and while risk-taking is an essential part of investing, make sure it is proportionate to your ability to bear losses.”