Investing Feels Risky - Until You See How Simple It Can Be
An integral part of our work with clients, once we have designed the financial plan and decided on the right accounts for your money—usually a combination of pensions, ISAs, and General Investment Accounts (GIAs)—is how and where we recommend you invest.
For inexperienced investors, this is often the moment when they feel most anxious. Until now, they may have been savers rather than investors, two expressions often used interchangeably but fundamentally different. Saving is keeping money safe for short-term needs, usually in a bank, with little risk and low growth. Investing, on the other hand, is putting money into assets like stocks or property to grow wealth over time, with higher risk but the potential for better returns.
Investing sounds complicated, especially when people hear about "putting your money in the stock market." This is the moment when clients often feel uncertain—what exactly is the stock market? But when I explain that it's just a place where you buy a small share of the great companies of the world, it starts to make sense.
The stock market is like a giant marketplace where people buy and sell pieces of companies, called "stocks" or "shares." When you buy a stock, you own a small part of that company. Companies sell stocks to raise money to grow their business, and the value of a stock can go up or down based on how well the company is doing—or how people think it will do in the future.
In reality, investing in the stock market is just buying a part ownership of the great companies of the world. You’re buying a piece of the world’s biggest and best businesses. Every time you shop on Amazon, drink a Coke, use an iPhone, or fill up your car with petrol, you’re interacting with businesses that you could own a slice of. You get a portion of their profits, and if the company grows in value, so does your share.
But how do you decide which companies to invest in? You could try to pick winners, but that’s risky. Consider Blockbuster: once a dominant video rental company with over 9,000 stores worldwide and $5.9 billion in revenue at its peak in 2004. However, with the rise of digital streaming services, Blockbuster's business model became obsolete. Today, it has been reduced to a single store in Bend, Oregon, and its market value has effectively dropped to zero. If you had invested your life savings in Blockbuster in 2004 and never sold, you would have lost everything.
The Simpler Way to Invest
What if I told you there was an easier, more reliable way to invest? A method used by the world’s most successful investors—one that’s low-cost, easy to access, and simple to understand?
John Bogle, the founder of Vanguard, pioneered this approach in the 1970s when he created the first index fund, famously saying: “Do not try to find the needle in the haystack, buy the whole haystack.” Instead of trying to pick individual winners, he realised that you could invest in the entire market by tracking an index—this became the foundation of passive investing.
Active vs. Passive Investing
There are two main ways to invest:
Active investing – This is like trying to pick the winning lottery numbers. You (or a fund manager) choose specific stocks, hoping they’ll beat the market. Some years you win, some years you lose, and history shows that most people (even professionals) don’t win consistently.
Passive investing – Instead of guessing which companies will do well, you buy them all. How? By investing in an index fund—a basket of stocks that represents the whole market. No picking, no stress, just a slice of everything.
What’s an Index Fund, and Why Do We Use It?
An index is just a list of companies that represent a part of the economy. For example:
The S&P 500 tracks 500 of the biggest companies in the US.
The FTSE 100 covers the UK’s top 100 companies.
Global index funds track thousands of companies from all over the world.
When you invest in an index fund, you’re buying tiny pieces of all these companies. Some will do well, some won’t—but history shows that over time, markets go up. Instead of betting on individual winners, you own a piece of everything and let the world’s best businesses work for you.
Why Passive Investing Works
We believe in passive investing because:
It’s cheaper – Active fund managers charge high fees, but index funds cost a fraction of that.
It’s proven – Most active managers fail to consistently beat the market.
It’s simple – No need to constantly buy and sell stocks. Just invest and let time do the work.
It spreads risk – Instead of putting all your money into one or two stocks, you own a piece of thousands.
Investing for the Long Run
Markets go up and down. There will be bad days, bad months, even bad years. But over the long term, the stock market has historically delivered strong returns.
The key is to invest in the right place and leave it alone. Resist the urge to tweak or time the market. Believe in human endeavour, capitalism, and innovation—companies will evolve, advance, and adapt. And with indexing, as one company falls out of an index and another rises, your investment automatically adjusts to reflect the changing world economy.
Our approach? Invest. Forget. Let time and the world economy take care of it.
This article is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.
The value of investments and any income from them can fall as well as rise. You may not get back the full amount invested.
Past performance is used as a guide only; it is no guarantee of future performance