How the right investment choices can bring your goals closer
Everyone has financial goals. You may want to fund your retirement, save for your children’s education or put away enough for a deposit on a new home. Here are a few considerations that could help you on your way to achieving them.
Investing through stock markets
Investing in assets such as company shares offers you the potential to grow your money at a quicker pace than if you only put your money in a bank or building society account. The FTSE All-Share Index, for example, achieved an average annual return of approximately 5.7% over the 25 years from 1999 to 2024. However, this doesn’t mean the Index grew by 5.7% every single year. Some years were higher, some were lower, and there were even periods of underperformance.
Shares and indices are more unpredictable than money in the bank. Investment over a longer period can give your shares the opportunity to recover from factors such as short-term dips in share value, market impact, and the opportunity to benefit from long-term market growth.
Making a positive impact with your investment
Investing your money wisely could benefit more than just you and your immediate family. As an investor, you can play an important part in the economy by providing the money that businesses need to expand. Companies come to the capital markets for funds to boost research and development, launch new products and projects, create new jobs, buy new equipment, and open new facilities, helping both the organisations and the societies they operate in to grow.
But you may want to go a step further and ensure that your money is invested in businesses that reflect your ethical beliefs.
In the past, that simply meant screening out companies based on factors such as sector, but these days the Environmental, Social and Governance (ESG) operations of all listed firms are coming under scrutiny.
As a result, more companies are striving to communicate their performance in areas such as human rights, health and safety, corruption, and transparency clearly and accurately.
This information allows investors who consider social and environmental challenges important to actively invest in companies that are addressing these issues effectively.
You can discover a company’s sustainability credentials by researching news and data in their annual reports. FTSE Russell's FTSE4Good Index Series, along with the FTSE Environmental Markets Series, and a number of other indices provide investors with a benchmark of companies from around the globe that are meeting sustainability objectives.
Investing in an interest-bearing account
If you’re considering an investment in an interest-bearing savings vehicle, such as depositing your money into a savings account with a bank, do you know if you’ll be receiving simple or compound interest?
Compounding is the process by which investment returns are reinvested to generate further gains, causing a snowball effect that can see your money grow faster.
Imagine you invested £100 in a savings account that offers a guaranteed 7% annual interest rate. After the first year, your savings would grow to £107. If the account pays compound interest, and you leave the money untouched, you’ll earn 7% not just on your original £100, but on the new total of £107.
Over time, this snowball effect becomes more powerful. For example, if you saved £200 a month for 40 years, you’d end up with £96,000. But if those savings earned compound interest at 7% annually, you could end up with over £528,000 – more than five times the amount you contributed.
Paying off some debt instead
While weighing up where to invest your money, also consider your wider financial position and whether you should rather pay off any debts first.
For example, if you have £5,000 outstanding on a credit card charging interest at 19%, and you pay £100 back every month, it could take several years to settle the debt. That’s because credit cards typically charge monthly interest, making this kind of debt very expensive over the long term.
Your investments are unlikely to provide the kind of returns that would compensate for the interest on your credit card debts, so you may want to consider prioritising paying off this debt before putting your money into investments.
Make sure, however, to consult a financial advisor to help you decide what’s the best course of action for you.
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