Busting common investing myths with Michelle Pearce-Burke

In this episode of the In Her Financial Shoes podcast we’re going to be talking about some of the common myths about investing that become barriers to women wanting to start on their investing journey. One of my biggest passions is getting more women comfortable enough to begin their investing journey, so I really want to focus on unpacking some of these myths;

I don’t have enough money to invest
Investing is just for the wealthy
It’s simply too risky
I can’t invest because I need access to that money
You have to be an expert to invest in the stock market
Investing is the same as gambling

My guest in this episode is Michelle Pearce-Burke who is the co-founder of Wealthify. Wealthify are a digital stock management system, so they are the type of company that make decisions for you in terms of where you are investing your money. What’s amazing about Wealthify is that they do this in a very low cost, straight-forward, and jargon free way.

Listen to the interview

Hi Michelle, can you tell us a little about yourself?

I started my career in the financial industry in quite a traditional role as a stockbroker. Quite early on in my career I could feel myself becoming quite frustrated with the way things were being done, in terms if things like high fees and lots of jargon in the industry. So I left that traditional world and about 5 years ago set up Wealthify, which is an online investment service which has the aim of simplifying investing and helping to make it more accessible to more people.

So was stockbroking your chosen career, or something you ‘fell into’?

I actively chose to become a stockbroker. I actually started out in medicine, but quickly realised it wasn’t for me, so I decided to train as a stockbroker. I love the industry and my career, but I saw flaws in the way things were being done and customers were being treated, so I really wanted to be part of the solution to that rather than part of the problem.

In many ways, it’s become less about how we can serve the customer and more about how many products we can sell them. The beauty of technology and the digital age is that it has increased accessibility of services and increased customer expectations rightly so, and has enabled much more customer centric solutions to be built.

I really want to bust some common myths around investing today, and I think a lot of it for women begins with confidence.

There’s absolutely no reason that more women shouldn’t be investing as much as men. It really is the risk and confidence factor and a perception that it’s a lot more complicated than it actually is. I think it’s something we, as an industry, really should be addressing more which is why I’m so glad to be talking to you today.

Let’s start by going through some of the common myths I hear from women.

Myth 1. I don’t have enough money to invest, investing is just for the wealthy

False! This is a really common myth, and it probably was true 10 or 20 years ago. But technology has really disrupted that, which means that services can now offer investment solutions for tiny amounts of money. Wealthify for example allows you to start investing for as little as £1, and with that £1 we build you a proper investment plan which has 10 different investment funds in it and can produce you a good return. It’s certainly not going to make you a millionaire overnight, but it really can be just about getting started and taking that first step.

Everyone has £1, and even if you’re just investing a little bit every month that’s great. Investing doesn’t have to be about throwing huge sums of money in all in one go, it really is just about getting started and creating those good habits. Once you’ve built that habit, it’s so much easier to keep going.

I would suggest that it’s important to start as soon as you can, as soon as you have your first job really. Again, it can be small amounts; £1, £5, £10 a month will really help to build those habits and will definitely start to add up. The great thing about starting as early as you can is that you can avoid falling into the trap of what call lifestyle creep. Lifestyle creep basically means that as you begin to earn more you simply spend more; it could be very small changes such as buying slightly more expensive food, eating out more, or staying in nicer hotels for example. All of this is fine to a degree, but it’s really something to be aware of.

How old were you when you started investing, Michelle?

I actually started very early! I bought my first share when I was 11 years old, after a bit of an unusual introduction to the stock market. As a child, I used to play this virtual stock market game through a company called NeoPets. In NeoPets you have a virtual animal and the idea is that you collect points for the animal which you can then spend on things like accessories for it. You can earn points by playing little games, completing quests, or opening a virtual shop. But the other way you can earn points is to use their virtual stock market, so I used to do that quite a lot and ended up becoming really good at the game and earning a huge amount of points. It was really this game that got me hooked, particularly through the sheer excitement of it.

Myth 2. You have to be an expert to invest

So when I was about 11, I then went to my parents and asked if they would help me buy some real shares. They didn’t know much about investing or the stock market at the time, but they could see my enthusiasm and helped me to choose a share and buy it.

Buying a single share is basically when you buy single shares in one company. If that company does well, the share price increases and so then does the value of the share you hold. It can be quite high risk in that you are pinning all your investment hopes on the success of one company.

Investing in a fund is different; a fund is an investment vehicle which holds a number of shares. A fund could have a basket of 100 or more companies, and it tends to be a less risky approach because you’re avoiding putting all your eggs in one basket, so to speak. Investing in a fund can a be little less of a hands on approach in that you don’t necessarily need to continually monitor and change your portfolio, and you probably won’t need to do quite as much research into the companies you’re investing in.

It can, of course, still be difficult to choose a fund to invest in, which is what we try to make as simple as possible at Wealthify. How it works is that you decide how much you want to invest, you tell us how much risk you’re willing to take on a really simple scale of 1-5, and then we invest your money and build a portfolio for you and manage it.

Myth 3. Investing is too risky

I think it really goes back to how you choose to invest. As we’ve discussed, investing in single company shares can have a much higher risk attached to it. It’s a tough one, because within the industry and within industry advertising, for example, we have to be very clear that your money is at risk when you invest. What this can do is turn a lot of people off instantly because of a fear of that risk.

In truth, there will always be ups and downs along an investment journey, but there is so much evidence to suggest that when you invest long term you will likely make money and see a return.

I often talk to people who are afraid of losing all their money, and the reassurance I often give is that the chance of your investment fund balance reaching £0 could happen, but that you’d be looking at a very rare, almost Armageddon type situation. If you have invested in a fund and somehow every single one of those varying companies all go bust, then the chances are we’d have much bigger things to be worrying about in terms of what’s happening in the world!

People often think that the safer option is to keep their money in cash savings.

Absolutely, it’s seen as the safer option. But when we look at things like inflation actually your money could be decreasing in value over time by keeping it that way. If the interest rate on your savings is, for example, 1% but the cost of living increases by 2.5% then actually you’ve lost 1.5% in terms of the real life value of your money. By leaving your money in cash you’re almost guaranteeing a long term loss, whereas at least with investing you are, at the very least, giving it a chance to grow.

Can you talk to us about protection of investments, Michelle? What protection do investors have?

If the company that you invest in goes bust then your money should be ring-fenced. What this means is that the money you have invested should be separate and they should be able to return it to you.

There is another system in place which is the Financial Services Compensation Scheme, or FSCS. What they do is up to a limit of £85,000 they will protect your money, for example if your investment fund is being managed and the company who are managing it fail, go bust, or mis-manage your money.

For reassurance, you can usually check on a company’s website that they are regulated and authorised by the Financial Conduct Authority (FCA). How else can people avoid falling into investment traps and scams?

One of the key things is that of it sounds too good to be true, then it probably is! I tend to use the internet to check things out, so I would usually just head to Google and do a search for the offer I’ve seen or been told about. There are normally plenty of people who will flag up a scam online, and if you can’t find any good reviews then that’s also a good indication that it’s not something you want to be investing in.

It’s worth looking at independent verification that companies may have too. For example at Wealthify we’ve just been awarded 5 stars from Defaqto which is an independent body that rates financial services based on various factors, with 5 stars being the maximum.

Can we talk a little about the kind of access people have to their money when investing?

Myth 4. I can’t invest because I need access to that money

Again, it can be complicated because of the many different types of investments. But if you’re buying a straightforward stock or fund on pretty much any online platform you should be able to sell it pretty much instantly, having your money back within 1-2 working days.

It’s a common misconception that your money will be tied up in stocks or investments for years at a time, and that’s an unfortunate byproduct of the fact that, as an industry, it’s part of our regulations to ensure we advise people that investing is a long term option of 5 years or more. That’s often misconstrued to mean that your money is locked in for 5 years, which isn’t the case at all, rather that we recommend you look at it as a 5 or more year investment.

In reality, using Wealthify as an example, if you invest with us today and decide next week that you want or need that money back, you simply tell us and we sell the stock. You should have your money back within a week.

It comes back to something I talk about often I think, which is knowing what your end goal is for your money.

Yes exactly. I think the 5 year recommendation is good as a basic rule of thumb, but the reality is that circumstances might change and you might need to reassess things. For example if you lost your job in 2 years unexpectedly you might suddenly need access to that money.

One of the great things about technology and new platforms for investing is also the visibility of your money. Historically you might have had a paper share certificate and no real visibility of your money in cash terms, whereas now you can check up on an app or online almost anytime and see exactly what your money is worth in real time, along with lots of other information about you investments.

How often do you think people should be reviewing their investments?

I personally look at my money once every 3 months. I just check in on how things are doing generally, what kind of fees I’m paying, and how things have performed. For me that feels about right. There can be a tendency to check more often which could lead to taking your money out of an investment too soon. As I’ve mentioned, investments will always have ups and downs, but if you take your money out of an investment at the first sign of a blip then you remove the ability for it to recover and grow.

I often use the example of your pension; if you have a pension through your company or through auto-enrolment in something like NEST then the likelihood is that you’re already investing. Pensions are usually invested for us, therefore enabling them to grow over time, but we don’t check up on the performance of our pension investments every day, or even every month, so why would we do that with our other investments?