Investing isn’t gambling! Here’s why I’d start buying shares in 2021

Buying shares doesn’t have to be risky, says Roland Head. He explains why stock market investing could help you retire earlier.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Over the years I’ve been a financial writer, I’ve spoken to many people who believed that buying shares is basically the same as gambling. Needless to say, I don’t agree with this view.

Indeed, I’m worried that by keeping savings in cash and avoiding the stock market, many people are missing out on the opportunity to build wealth to support their retirement and other ambitions.

Stock market vs cash

I understand the fear of losses which goes with stock market investing. You can lose money. Indeed, it’s true that some shares are little better than gambling chips. Small, speculative businesses that are losing money and lack funding are a recipe for big losses. Very few make it big.

Should you invest £1,000 in BAE Systems right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if BAE Systems made the list?

See the 6 stocks

However, it’s easy enough to avoid buying these shares by focusing on larger, profitable companies with some history and a decent track record. Safer still, in my view, is to focus on index funds, such as FTSE 100 tracker funds. These buy the whole market, so your exposure to individual company problems is minimal.

I admit that even the most conservative stock market investments will rise and fall in value sometimes. But I think the risk of permanently losing money is quite low, if you take the right approach. I’ll explain more about this next.

Buying shares could triple your savings

Over the last 100 years or so, the average return from the UK stock market has been around 8% each year. Some years have been better, some worse. But that’s the average.

Investing £100 per month at 8% for 25 years would create a fund worth about £94k. By comparison, £100 per month saved in cash with an interest rate of 1% would be worth about £34k after 25 years. So, the stock market investment would be worth nearly three times as much as the cash savings account.

This highlights an important point. Stock market investments tend to work well over long periods. Over short periods, they’re less predictable. For this reason, I’d only buy shares with money I didn’t expect to need for at least five years.

How to invest in the stock market

When it comes to buying shares, there are lots of choices. But billionaire US investor Warren Buffett believes the simplest choice is best for most people. Buffett’s advice is to invest in an index fund. That’s a fund which tracks all the stocks in a specified market.

In the UK, the biggest and most popular index is the FTSE 100. This includes the 100 largest companies listed on the UK stock market. Companies such as Tesco, BP, housebuilder Persimmon and consumer goods firm Unilever are all members of the FTSE 100.

I reckon the simplest, safest, and cheapest way to start buying shares is to open a tax-free Stocks & Shares ISA and pay money into a FTSE 100 index fund. Many funds allow monthly payments of as little as £25 per month. And by setting up a direct debit, the investment can be completely automated.

Over short periods, cash is useful for emergencies and planned spending. But, for long-term growth, the stock market has always outperformed cash. I expect this to continue.

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Pound coins for sale — 51 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

More on Investing Articles

Investing Articles

Prediction: 12 months from now, £5,000 invested in Tesla stock could be worth…

Tesla stock has endured a miserable year so far, falling by 29%. Muhammad Cheema takes a look at how it…

Read more »

Investing Articles

See what £10,000 invested in Tesla shares at their mid-December peak is worth today 

As the world absorbs the full scale of Donald Trump's tariffs, Tesla shares are reeling. Investors who bought the stock…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Dividend Shares

2 ‘safe’ LSE dividend stocks to consider as global markets sell off

As global markets experience high levels of volatility due to economic uncertainty, investors are piling into these ‘safe-haven’ dividend stocks.

Read more »

Investing Articles

US stock market rout: an unmissable opportunity for investors?

His tech-heavy portfolio has been smashed by Trump’s tariffs. However, Dr James Fox believes there could be some opportunities in…

Read more »

Investing Articles

After a 13% ‘Trump tariff’ fall, is the Barclays share price too cheap to miss?

Does the Barclays share price fall mean we should all panic and run screaming from the stock market? Nah, of…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

2 investment trusts to consider for a Stocks and Shares ISA

These two investment trusts have a different focus -- but our writer sees both as worth considering, one more for…

Read more »

Investing Articles

Deutsche Bank reiterates Buy rating on 9.6% yielding FTSE 250 stock that was “most shorted in UK”

Our writer investigates why a major broker remains optimistic about a FTSE 250 stock that was once the most shorted…

Read more »

Investing Articles

2 things to remember when stock markets are turbulent

US trade policy has rattled the stock markets in New York, London and elsewhere. Our writer outlines a couple of…

Read more »