In this first chapter of This is Money’s new investing guides series, Simon Lambert explains why investing over the long-term pays off.

He looks at the opportunities that stock market investment opens up, the potential for higher gains over cash and how savers can shift to investing.

And read his five quick tips for investing success, whether you are starting out or an experienced investor.

Why invest? 

Why should I invest? This is the question everyone should ask themselves before they start investing – and it’s worth existing investors considering it periodically too.

It sounds like a simple question but once you start mulling it over you find that there isn’t one simple answer.

Simon Lambert: Before you start investing ask yourself the question of why?

People invest for many different reasons. 

They may have a goal in mind that they are aiming for, perhaps to leave an inheritance or an ambition to achieve financial independence; a retirement pot that they hope to build; or could simply be driven by a desire to build their wealth.

But while the answers may vary, there is a thread that runs through the variety of reasons that people invest, and it is to give themselves a better future.

Why investing pays off

Stocks and shares investing offers a great opportunity. It provides ordinary people with a simple way of putting their money to work.

It allows people to build up their wealth over time, benefiting from the profits that good companies can make, from the dividends they pay to reward shareholders, and the magic of compounding that magnifies those gains over time – something Albert Einstein called the eighth wonder of the world.

Compounding involves earning returns on gains that you have already made, which creates a snowball effect that can be very powerful over the long-term.

If you invest £200 a month for 20 years and get an average 5 per cent annual return, then you would end up with £92,500 at the end.

Do the same thing for 30 years and you will pay in £24,000 more over the extra decade but end up with £201,000.

Meanwhile, do it for 40 years and you will end up with £398,000.

The power of compounding over many years can really make your investing returns grow

How to move from saving to investing 

Despite the potential for long-term returns, many who could invest are reluctant to do so.

The reasons often given are that investing is too complicated, they do not want to risk losing money, or they aren’t rich enough yet to invest.

These are valid reasons, but they aren’t cause to dismiss investing altogether.

You will need some spare money to invest, but it is possible to start with a small sum each month. 

With some investment platforms this could be as little as £1 – and if you choose one that offers fee-free trading and no account fees, then your whole pound will go towards investing.

Realistically, though, you need to put in a bit more to make it worthwhile – but this could be just £25 or £50 per month, for example.

For those who have already built up savings pots and worry about investing them only for markets to all, my advice is to not think about it as an all-or-nothing affair. You can shift a small amount of your pot, maybe as little as 10 or 20 per cent into investments – ideally in a stocks and shares Isa for the tax benefits – and then see how that goes.

If you like it you can invest more, if you don’t you can swap back. 

You could find at some time find some of your investments are down on the price you paid; but this risk is greatly reduced by long-term investing – and is one you must take for the prospect of a better return than on cash.

Finally, it is true that investing does require a little work, but with a DIY investing platform, it is surprisingly easy to get started.

Moving from saving to investing doesn’t need to be an all or nothing affair

Why invest instead of sticking with cash saving

After years in the doldrums, interest rates have risen sharply and it’s now possible to get a decent return from a savings account again.

So, why would you invest instead?

This is the question even the most committed of investors will have ended up asking themselves over the past couple of years, as the best savings rates topped 5 per cent and the prospect of such a guaranteed return proved tempting.

For me, the answer lies in the wealth of evidence that shows investing in the stock market has proven to be the best way to grow your wealth above inflation over the long-term.

There are several authoritative long-running studies that show this.

My preferred one is the Barclays Equity Gilt Study, which shows the UK stock market returned an average annual return of 4.8 per cent above inflation over the 124 years to 2024.

Meanwhile, the US stock market delivered a real average annual return of 6.7 per cent over its longest measured period in the study of 98 years.

Don’t forget, these are what’s known as real returns, so above inflation and reflect genuine growth in wealth.

And remember that while cash rates look attractive now, for most of the past 15 years they languished at much lower levels.

Last year, the global stock market as measured by the MSCI World index returned 19 per cent, the US S&P 500 returned 23 per cent, and the UK’s FTSE All Share returned 9.5 per cent.

You shouldn’t expect to make money in any given year from investing but do it long-term and the evidence shows it has beaten cash.

There’s no guarantee this will continue, but the collective ability of companies to put money to productive use and turn a profit lies behind the theory of long-term returns.

Investing can be very easy

And investing doesn’t have to be complicated. There’s an easy way to become a long-term investor and that is through a simple, cheap ETF or global tracker fund, which can invest in the stock market. You can then balance your risk with a cheap government bond fund, or by holding some cash.

Alternatively, you can get more involved if you like and pick individual shares, funds, investment trusts or ETFs that allow you to back what you think will do well.

Whichever option you choose, the great news is that investing these days can be done easily at a very low cost – allowing you to reap the rewards and lay the foundations for a better financial future.

Your investments won’t go up in value in a straight line, be prepared for market falls

Five tips for investors

Invest regularly and think long-term: Studies show that the longer you invest for, the lower your chance of losing money over any given time period. Regular monthly investing allows you to steadily build up your portfolio and avoid sudden lurches in the market that can affect lump sums invested.

Acknowledge your emotions: Greed and fear are the emotions that trigger rash investing behaviour, but it is only natural to feel them. Accept that these feelings – often triggered when markets slump or soar – are part and parcel of being human but remember you can control whether you react.

Don’t put all your eggs in one basket: Investors are told to diversify for a reason. A diversified portfolio will still fall but can protect you when market storms arrive. Don’t be over-exposed to one stock, fund, sector or market. And remember, holding ten companies that do similar things is not diversification.

Don’t constantly check: Investing is for the long-term, so checking in on a daily basis is a recipe for trouble. If you do check your portfolio and feel compelled to act, don’t do so immediately. Take a step back, discuss what you are thinking of doing with someone, or write it down – evaluate it carefully and consider if it’s the right move.

Be bold when others are fearful: Treat market falls as an opportunity to buy investments at lower prices. Flip things around and think of it as the stock market being on sale rather than your investments being in a slump.