While UK financial guru Martin Lewis has traditionally focused on saving, he’s been talking about investing recently. He covered the topic again in the most recent episode of his TV show.
Now, I didn’t catch the whole show, but I did watch some highlights on YouTube. Here are three takeaways.
Shares have smashed top savings accounts over the last 10 years
Lewis showed the performance of shares versus cash savings over the last 10 years. And the results were jaw-dropping.
Had an investor put £1,000 into his top savings accounts a decade ago, they’d now have about £1,290. However, if they’d put this money into the FTSE 100 index (the index of the largest 100 companies on the London Stock Exchange), they’d now have £2,400.
Returns from international indexes were even higher. Had the investor put £1,000 into the MSCI World index, they’d now have about £3,600.
“If you do not invest, if you’ve got the money, you are missing out.”
Martin Lewis
Top savings accounts didn’t beat inflation
Another takeaway was that top savings accounts didn’t beat inflation over the last decade. In other words, those keeping their money in cash savings saw the value of their money erode in real (spending power) terms.
Shares did beat inflation however (by a wide margin). By investing in major indexes, investors could have ensured that their money didn’t lose its value over time.
Shares go up and down
Lewis also highlighted the risks of investing. He pointed out that while long-term returns can be strong, shares can go up and down in the short term.
In the clip I saw, it was stressed that focusing on the long term is important. And it is (we like to take a five-year view here at The Twelfth Magpie).
However, there’s another strategy that can help to reduce risk here. And that’s ‘pound cost averaging’.
This is the process of putting small amounts of money into the market on a regular basis instead of dumping a massive lump sum in all at once. This is one of the best ways to reduce timing risk.
An investment worth considering?
If anyone who watched the programme is looking for ideas to get started on the investing front, the Vanguard FTSE All-World UCITS ETF (LSE: VWRP) could be worth considering. This is a broad global tracker fund that provides access to over 3,500 stocks across developed and emerging markets.
With this product, an investor gets access to all the big names in the stock market. I’m talking about companies such as Apple, Amazon, Nvidia, and Tesla.
Meanwhile, ongoing fees are very low at just 0.19% a year. So it’s really cost effective.
In terms of risk, it’s higher up on the risk spectrum because the fund is only invested in stocks (which are higher-risk assets). If global stock markets were to fall, this fund would lose value.
That said, the fact that it offers exposure to many different geographic markets and many different stocks lowers risk a bit. Ultimately, it’s far less risky than an individual stock.
Zooming in on performance, the fund returned about 66% over the five-year period to the end of April. However, it needs to be remembered that in investing, past performance isn’t an indicator of future returns.
