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Investing for beginners: everything you need to know

The world of investing can be an effective way to grow wealth and make your money work harder for you. That can be crucial - especially if you are thinking about retiring or already drawing your pension. If you’re a beginner, this article explains everything you’d ever need to know about investing.

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Investing for beginners: everything you need to know
  • You can invest in stocks, but other assets such as bonds, commodities and property
  • A financial adviser may cost money, but they can help you more effectively invest your capital
  • When investing, it is crucial to keep in mind diversification, your investment horizon and your risk tolerance
  • Having an emergency fund built up first, for unexpected expenses can be helpful before starting to invest

Investing as a beginner - FAQs

  • How does the Financial Conduct Authority protect investors?

    The Financial Conduct Authority (FCA) is a regulatory body in the UK that helps protect investors. It does so by setting rules and regulations for financial firms, ensuring they act in the best interests of their clients. The FCA promotes transparency, fair practices, and investor education. It monitors and supervises financial markets, investigates misconduct, and takes enforcement actions when necessary to safeguard investors from fraud, scams, and unethical behaviour in the financial industry.

  • What is an investment account?

    An investment account, in the context of personal finance, is a type of account that allows individuals to buy, sell, and hold various financial assets such as stocks, bonds, mutual funds, and ETFs. It serves as a platform or repository for managing investments. Investment accounts can be opened with banks, brokerage firms, or investment companies and provide individuals with the ability to grow their wealth through capital appreciation and potential income from their investments.

  • How much should I start investing with?

    The amount you should start investing with depends on your individual financial situation and goals. It's important to consider factors such as your income, expenses, and any outstanding debts. While some investment platforms have low minimum requirements, it's generally advisable to have an emergency fund and pay off high-interest debts such as credit cards before investing. Start with an amount that you are comfortable with and can afford to potentially lose.

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Investing in the stock market can be a daunting prospect, especially for beginners. However, with the right knowledge and guidance, anyone can start investing and potentially grow their wealth over time. 

In this article, we cut out the jargon of wealth management so you can be comfortable from the moment you look up a share price. We walk you through the key steps to get started, discuss common types of investments for beginners, highlight important considerations, and explore the benefits of using a financial adviser or robo-advisors. 

Discover the UK's leading investment platforms, whatever your investment goals. Click on a provider below to get started!

How should a beginner start investing in the stock market? 

Investing in the stock market as a beginner requires careful planning and education. Here are some essential steps to help you get started:

Set clear financial goals

Before investing, it's crucial to define your financial goals. Are you investing for retirement, your grandchildren's education, or buying a property? Understanding your investment goals will help you determine your investment horizon and risk tolerance.

Build an emergency fund

It's important to have a safety net before you start investing. Personal finance experts often say it’s a good idea to set aside three to six months' worth of living expenses in a liquid, instantly accessible account like an easy-access savings account. These are bank accounts where you can withdraw your money immediately, but, unlike a current account, they also earn a return in the form of compound interest. These cash savings, often referred to as an emergency fund, are lower risk and will protect you from unexpected expenses and allow you to invest with peace of mind. 

Educate yourself

Take the time to learn about investing and the stock exchange through your own research. Read books, attend online seminars, and follow reliable financial news sources. Understanding basic investment concepts like diversification, risk management, and asset allocation will help you make informed decisions, even when you are investing for the first time.

Start with a retirement account

If you're aged over 50, ensure you are maximising the tax-efficient retirement accounts, like Individual Savings Accounts (ISAs) or Self-Invested Personal Pensions (SIPPs), available to you. These accounts offer tax advantages and can be a great way to kick-start your investment journey. 

For example, if you open a Stocks and Shares ISA, your returns are not subject to capital gains tax like other investments are. Instead, your gains are tax-free, which can make a material difference to your long-term returns in your ISA-specific investment portfolio.

Determine your risk tolerance

Before making your own investments, it is crucial to assess your risk tolerance by considering your investment horizon and emotional comfort with market fluctuations. Generally, longer investment horizons allow for more aggressive portfolios, while shorter horizons may require more conservative approaches. 

However, risk tolerance is also related to the amount of money you already have saved elsewhere and your attitude to risk. As even if you do have a large amount of money saved, you may not want to invest in volatile, risky assets. Instead, you may want to stay clear of share dealing and invest in lower-risk, fixed-rate bonds. 

Investigate index funds or exchange-traded funds (ETFs) 

Beginners often like to start investing with passive investment vehicles like index funds or ETFs. These funds offer diversification and track market indexes, providing exposure to various companies. They are relatively low-cost and can be a great foundation for your portfolio.

Common types of investments for beginners

As a beginner investor, it's essential to understand the various investment options available to you. Here are some common types:

Stocks

Stocks represent ownership shares in a company. When individuals buy stocks, they become shareholders and have the potential to benefit from the company's growth and profitability. 

Stocks are a common type of investment for beginners for several reasons. First, they offer the opportunity for capital appreciation over the long term. Second, stocks provide liquidity, allowing investors to buy and sell shares easily. 

However, while investing in individual stocks can be financially beneficial, it's important for beginners to conduct thorough research, diversify their portfolios, and consider their risk tolerance when investing in stocks.

Bonds

Bonds are debt securities issued by governments, municipalities, or corporations. They offer regular interest payments and are considered more stable than stocks. Bonds can be a good option for income-focused investors. Bonds range in risk, with Government Bonds often being perceived as the ‘safest’. However, there is always the chance of a default - where you lose the money you invested. 

The reason Government Bonds are considered safest is because they are backed by the government's ability to repay the debt. Government bonds are also known as Treasury bonds or Gilts. The highest risk bonds on the market are called junk bonds. In between junk and Government bonds are investment-grade bonds, corporate bonds and high-yield bonds. 

Researching every bond issuance and the company/entity that issues them is how you determine whether the return you receive on the bond is worth the risk of buying it. 

Mutual funds

Mutual funds are investment vehicles that pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other assets. They are managed by professional fund managers who make investment decisions on behalf of the investors. 

Mutual funds are a common type of investment for beginners because they offer several advantages. They provide instant diversification, as investors gain exposure to various securities through a single investment. Additionally, mutual funds offer professional management, making them suitable for beginners who may lack the expertise or time to select individual investments. 

They also allow for investments with smaller amounts of money, making them accessible to beginner investors.

Property and real estate investment trusts (REITs)

Property and real estate investments, including real estate investment trusts (REITs), involve investing in physical properties such as residential, commercial, or industrial buildings. These investments offer potential income through rental payments and the possibility of property value appreciation. 

Property investments, including REITs, are common for beginners due to their tangible nature and potential for steady income. REITs, in particular, allow individuals to invest in real estate without the need for direct property ownership. They provide diversification, professional management, and the ability to invest in various properties with lower capital requirements compared to buying properties individually.

Commodities

Commodities are raw materials or primary agricultural products that can be bought and sold, such as gold, oil, natural gas, or agricultural crops. Investing in commodities can provide a hedge against inflation and diversification in an investment portfolio. 

Commodities are a common type of investment for beginners due to their relatively simple nature and potential for price appreciation during times of economic uncertainty. They offer opportunities to profit from global supply and demand dynamics. However, commodities can be volatile, and beginners should carefully research and understand the specific risks associated with each commodity before investing.

Other types of investments

Peer-to-Peer lending

Peer-to-peer (P2P) lending platforms allow individuals to lend money directly to borrowers. As an investor, you earn interest on the loan repayments. P2P lending offers potentially higher returns than traditional savings accounts but comes with higher risks, including the possibility of borrower default.

Cryptocurrencies

Cryptocurrencies like Bitcoin, Ethereum, and others have gained popularity as investment assets. Investing in cryptocurrencies can be highly volatile and speculative, requiring thorough research and understanding of the technology and market dynamics.

Key considerations when investing 

While investing can be rewarding, it's important to keep certain considerations in mind:

Diversification

Diversification is a key consideration when investing because it helps to spread and manage risk. By investing in a variety of different assets, such as stocks, bonds, real estate, and commodities, investors reduce their exposure to the potential negative impact of any single investment. Diversification allows for a balance between higher-risk and lower-risk investments, which can help protect against market volatility. It can also enhance the potential for long-term returns by capturing gains in different sectors or asset classes while minimising the impact of any individual investment's poor performance.

Investment horizon

Consider your investment time frame. Longer investment horizons allow you to take on more risk and potentially benefit from compounding returns. Shorter horizons may require a more conservative approach to protect your capital. Your investment horizon has a direct bearing on your risk tolerance too. The longer you invest, the more tolerant you can be of risk (as you have more time to make up for any losses). 

Regular monitoring

Stay informed about your investments, but avoid being too reactive to short-term market fluctuations, which see varying amounts of volatility in the value of your investments. Regularly review your portfolio's performance and adjust as needed, considering your financial goals.

The path of interest rates

Interest rates are a key consideration when investing because they have a significant impact on investment returns. When interest rates rise, the cost of borrowing increases, which can reduce corporate profitability and potentially lower stock prices. Bond prices also tend to decline when interest rates rise, as investors seek higher yields elsewhere. Conversely, when interest rates fall, it can stimulate economic growth and increase the attractiveness of stocks and bonds.

Benefits of using a financial adviser

Working with a financial adviser can provide numerous benefits, especially for beginner investors who may be in need of financial advice. Their expertise and guidance can be invaluable in helping you make sound investment decisions and work towards your financial objectives. Here are some ways they do so:

Professional guidance

A financial adviser brings expertise and knowledge to the table. They can help you navigate the complexities of investing, offering personalised advice based on your financial goals, risk tolerance, and investment horizon. They stay updated with market trends, economic conditions, and investment opportunities, providing valuable insights to guide investment decisions.

Tailored investment plans

Financial advisers can create customised investment strategies that align with your specific needs. They consider your financial situation, goals, time horizon, and risk tolerance to design a plan that suits you. They can help you select suitable investments and diversify your portfolio to manage risk effectively. Additionally, they provide ongoing monitoring and adjustments as required to keep your investment plan on track.

Emotional support

Investing can be an emotional journey, particularly during periods of market volatility. A financial adviser can be a sounding board and help you focus on your long-term goals. They can offer perspective, remind you of your investment strategy, and help you make rational decisions even when market conditions are challenging.

Financial planning and goal setting

Financial advisers go beyond just investment advice. They can assist you in developing a comprehensive financial plan, taking into account your entire financial picture, including budgeting, saving for retirement, tax planning, and estate planning. They help you set realistic financial goals and provide guidance on how to achieve them.

Education and empowerment

Financial advisers are educators as well. They can help you understand financial concepts, investment strategies, and the potential risks and rewards associated with different investments. They empower you to make informed decisions and improve your financial literacy. As a beginner investor, working with a financial adviser can be an excellent learning experience that equips you with the knowledge to manage your investments effectively in the long run.

Remember, when choosing a financial adviser, it's important to do your due diligence and select someone who is qualified, experienced, and aligned with your values and goals.

Can I just use robo-advisors? 

Robo-advisors are digital platforms that provide automated investment advice based on algorithms. They offer a low-cost and convenient option for beginner investors. 

These are other key benefits of using robo-advisors:

Low minimum investment

One advantage of robo-advisors is that many of them have low minimum investment requirements. This accessibility makes them suitable for a wide range of investors, including those who may not have substantial capital to start investing.

Diversification and asset allocation

Robo-advisors utilise sophisticated algorithms to create diversified portfolios. They consider your risk profile, investment goals, and time horizon to allocate your investments across various asset classes such as stocks, bonds, and sometimes even alternative investments. This diversification helps spread risk and reduces the impact of any single investment on your overall portfolio.

Automatic rebalancing

Robo-advisors continuously monitor and automatically rebalance your portfolio. They ensure that your investments stay aligned with your desired asset allocation. Regular rebalancing helps maintain the risk-return characteristics of your portfolio and ensures that it remains in line with your investment goals.

Lower fees

Robo-advisors typically charge lower fees compared to traditional financial advisors. They operate with streamlined, technology-driven models, which allow them to offer their services at a lower cost. Lower fees can significantly impact investment returns over time, especially for long-term investors who benefit from compounding growth.

It's important to note that while robo-advisors offer many benefits, they may not be suitable for everyone. Some investors may prefer a more hands-on approach, personalised advice, or have complex financial situations that require human expertise. Evaluating your individual needs, preferences, and investment goals is essential in determining whether a robo-advisor is the right choice for you.

Investment apps for beginners

If you want to invest, you may want to do so through one of the many apps now available. 

Choosing the right investment app is crucial for beginners as it can greatly impact their investment experience. Think about these factors when choosing which one is right for you. 

User-friendliness

Look for an app that has an intuitive and user-friendly interface. As a beginner, you want an app that is easy to navigate and understand, with clear instructions and educational resources.

Investment options

Consider the variety of investment options available on the app. Beginners may want to start with a platform that offers a range of asset classes, such as stocks, bonds, mutual funds, and ETFs, allowing for diversification and flexibility in building their portfolio.

Fees and charges

Be aware of the fees and charges associated with the app. Look for transparency in fee structures, including account maintenance fees, trading fees, and expense ratios for investment products. Lower fees can have a significant impact on your returns over time.

Security measures

Prioritise an investment app that takes security seriously. Look for features such as two-factor authentication, encryption, and strong privacy policies. Your personal and financial information should be safeguarded from unauthorised access.

Customer support

Consider the availability and quality of customer support provided by the app. As a beginner, you may have questions or need assistance, so it's important to have responsive customer support channels, such as live chat, email, or phone support.

Educational resources

A good investment app for beginners should offer educational resources, such as articles, videos, tutorials, and investment guides. These resources can help you understand basic investment concepts and market trends to help you make informed decisions.

Reviews and reputation

Research the reputation and reviews of the investment app. Look for feedback from other users and ratings on app stores, and consider any awards or recognition the app has received. A well-established and reputable app can provide added confidence and trust.

Integration with other financial tools

Consider whether the app integrates with other financial tools you may use, such as budgeting apps or banking platforms. Integration can streamline your financial management and provide a more comprehensive view of your finances.

Remember, as a beginner investor, choosing the right investment app that aligns with your needs and preferences can help you embark on your investment journey with confidence.

Investing - A beginner’s guide

Investing in the stock market can be a rewarding endeavour for beginners. By following the steps outlined in this article, considering different investment options, and understanding key considerations, you can start your investment journey with confidence. Whether you choose to work with a financial adviser or opt for robo-advisors, remember that investing is a long-term commitment. Stay patient, stay informed, and enjoy the process of growing your wealth over time.

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