Why Investing Matters: How Long-Term Stock Market Investment Can Outpace Cash

Investing in stocks and shares can offer ordinary savers a route to grow wealth above inflation over the long term, according to the first chapter of This Is Money’s new investing guides series by Simon Lambert.

Lambert argues that equities allow people to put money to work through companies’ profits and dividends and to benefit from compounding returns over many years. Long-running studies show stock-market returns have outpaced inflation historically: the Barclays Equity Gilt Study reported a real annual return of 4.8 percent for the U.K. stock market across 124 years to 2024, while the U.S. market returned 6.7 percent a year in real terms over a 98-year period in the same study.

Those long-term averages are not guarantees, and stock values do not rise in a straight line. Lambert noted recent calendar-year returns can vary widely: the MSCI World index returned 19 percent last year, the U.S. S&P 500 returned 23 percent, and the U.K.’s FTSE All Share returned 9.5 percent. At the same time, savings rates have risen, with some accounts offering rates above 5 percent, making the cash-versus-equities decision a topical one for savers.

The core rationale for investing, Lambert wrote, is to seek a better financial future. He used compounding to illustrate how modest, regular contributions can grow over decades. For example, investing £200 a month at an average 5 percent annual return would yield about £92,500 after 20 years. Extending that plan to 30 years, with an additional £24,000 of contributions, would result in around £201,000. Over 40 years, the same monthly amount could grow to about £398,000. Those figures demonstrate how returns on prior gains can magnify an investment balance over long horizons.

Lambert acknowledged barriers that keep people in cash: perceptions that investing is complicated, fears about losing money and the belief that one needs large sums to start. He said platforms now allow very small initial amounts — in some cases as little as £1 — and that many firms offer fee-free trading and no account fees, which can make low-value investing feasible. More realistic starting points for meaningful progress might be monthly amounts of £25 or £50, he added.

Savers who already hold cash can also transition gradually, Lambert recommended. Rather than moving entire savings pots into the market, investors can shift a portion — perhaps 10 to 20 percent — into a stocks and shares Individual Savings Account to gain tax advantages while testing comfort with market volatility. If the experience is unwelcome, portions can be reversed; if it proves acceptable, more can be allocated to investments.

Lambert set out practical routes for new investors. A simple, low-cost exchange-traded fund or global tracker fund provides broad exposure to equities and is an accessible way to become a long-term investor. Risk can be managed by balancing equities with a government bond fund or by holding a cash buffer. More active investors can select individual shares, funds or investment trusts, but Lambert stressed costs are lower than in past decades and many retail platforms make do-it-yourself investing straightforward.

Risk and behaviour were central to Lambert’s guidance. Market falls are to be expected and should not be interpreted as failure when investing for the long term. He advised regular, monthly investing to smooth entry prices and reduce the impact of market timing. He also urged investors to recognise the role of emotions: greed and fear can prompt rash decisions, especially during sharp market moves. Taking time to reassess rather than acting immediately can prevent costly mistakes.

Diversification was highlighted as a key risk-management tool. Holding a range of assets, sectors and markets lowers exposure to any single failure; Lambert warned that owning several companies in the same industry does not equate to meaningful diversification. He also cautioned against frequent portfolio checking, noting that daily monitoring encourages short-term reactions that can undermine a long-term plan.

Finally, Lambert encouraged a contrarian mindset during downturns: market falls can create buying opportunities to acquire assets at lower prices. He framed such periods as sales rather than losses for long-term investors who can tolerate the interim volatility.

The chapter closes with five practical rules: invest regularly and maintain a long-term horizon; acknowledge and control emotional reactions; diversify holdings; avoid constant portfolio monitoring and hasty trades; and consider buying when others are fearful. Lambert reiterated that while past evidence supports equities as a tool to outpace inflation over long stretches, past performance is not a guarantee of future returns, and investors should consider their personal circumstances and, where appropriate, seek professional advice.