How to start investing: a complete beginner’s guide

What is investing and how does it work?

Investing means putting your money into something with the expectation that it will grow in value over time. With savings, you put money into a bank account and earn interest. Investing involves buying assets like shares, funds or bonds that can rise or fall in value.

The biggest difference between saving and investing is risk. With a savings account, your money is protected and although rates can change, you know exactly what interest you’ll earn. With investing, there are no guarantees. Your money could grow significantly, but it could also fall in value. In return for accepting that risk, investing has the potential for much higher returns than cash savings over the long term.

What can I invest in as a beginner in the UK?

There are different types of investment to choose from. Here are some of the most common.

Stocks and shares are units of ownership in a company. When you buy a share, you own a small part of that business. Share prices go up and down based on how the company performs and wider market conditions.

You can make money if the share price rises, or through dividends. Dividends are a portion of a company’s profits paid out to shareholders.

Investment funds bring together money from thousands of investors into one combined pot. A professional fund manager then uses that pot to buy a wide range of assets. These could be shares in different companies, bonds or other investments on behalf of everyone who has invested in the fund. Rather than buying shares in individual companies yourself, which requires time and research, investing in a fund means the decision-making is handled for you.

A fund holds a wide variety of assets at once, so your money is spread across many different companies or investments rather than being tied to the performance of just one. Think of it like buying a mixed box of chocolates rather than a whole box of just one type — if one flavour turns out to be disappointing, you’ve still got plenty of others.

Tracker funds, also known as index funds, are a type of investment fund. Instead of a fund manager making decisions about what to buy and sell, the fund simply follows a market index automatically. A market index is a list of companies grouped together to represent a particular market or sector. The FTSE 100 is an index made up of the 100 largest companies listed on the London Stock Exchange. A FTSE 100 tracker fund would automatically hold shares in all 100 of those companies.

Because there is no fund manager, the costs of running the fund are usually lower which can mean lower charges for you. This is known as passive investing.

Bonds are a loan you make to a company or government in return for regular interest payments over a fixed period. They can be considered lower risk than shares, but they also tend to offer lower returns. UK government bonds are called gilts.

Commodities are raw materials including gold and silver that can be traded. Most investing beginners access commodities through funds rather than buying them directly.

Cryptocurrencies are digital currencies with no physical form that aren’t backed by the government or banks. They can be very high-risk as prices can be volatile.

What is investment risk?

Investment risk means the value of what you invest in can fall as well as rise There’s no such thing as a guaranteed return, so it’s important to choose investments with a level of risk you’re comfortable with.

What is diversification in investing?

Diversification is the investment equivalent of not putting all your eggs in one basket. Diversification means spreading your money across a range of different investments, sectors and geographies.

If you invest all your money in one company and that company performs badly, you could lose a significant amount. With diversification, the idea is that if one investment falls in value, others may hold steady or rise, reducing the overall impact on your investment portfolio. But of course, this isn’t a guaranteed outcome.

What charges should I look out for when investing?

Investment charges can impact your returns over time, so it’s important to understand what you’re paying before you invest.

Investment platforms may charge a platform fee which is usually a percentage of the value of your investments or a flat monthly fee. Funds also carry their own annual charge, known as the ongoing charges figure (OCF). Even a difference of 0.5% per year in charges can make a meaningful difference to your returns over decades, so compare costs of different options before you choose a platform or fund.

How much money do I need to start investing in the UK?

There’s a common misconception that you need a large amount of money to start investing, but that’s not the case. Many UK platforms let you start with as little as £1 and invest small amounts on a regular monthly basis.

The most important thing to remember is to only invest what you don’t need in the short-term and are willing to take the risk of losing.

How long should I invest for?

Investing usually works best when it’s used as a long-term strategy. Many financial experts suggest preparing to invest your money for at least five to ten years. This is because markets go through periods of volatility, but historically, they recover and grow over the long term.

How do I start investing in the UK step by step?

Once you’ve thought about your goals and your attitude to risk, here are the steps:

1. Decide where to invest. This means choosing what type of account to hold your investments in, whether it’s a stocks and shares ISA or a General Investment Account (GIA).
2. Choose a platform. Investment platforms vary in fees and the range of investments they offer. Any platform you use should be authorised by the Financial Conduct Authority (FCA), you can check this on the FCA Register at fca.org.uk.
3. Decide what to invest in. The right choice will depend on your goals, how long you plan to invest and how much risk you’re comfortable with.
4. Consider how often you want to invest. Some people invest a lump sum, others set up regular monthly contributions.
5. Review your investments periodically. Most investors check in on their portfolio from time to time to make sure it still aligns with their goals but keep in mind that short-term fluctuations are normal.

What’s the best investing platform?

We can’t tell you which is best for you as that depends on your circumstances, but you can compare investment accounts on Smart Money People, backed by real customer reviews, or check out Be Clever With Your Cash’s pick of the investment platforms.

Remember investments can go up as well as down. Your capital is at risk and you could get back less than you put in. This article is for information purposes only and is not financial advice. If you’re unsure whether investing is right for you, speak to an independent financial adviser.