How to start investing: FAQs answered

What is investing?

Investing is when you buy an asset that can change in value. An asset is something you own that has value. In investing, assets include shares, bonds, cash and property.

The aim is for that value to rise so you make a positive return (the profit an investment generates over time). Your investment can either grow through income via:

• Interest
• Dividends (a portion of a company's profit paid out to its shareholders)
• The asset’s price increasing over time

Investing can offer higher returns than cash savings, but it comes with risk. There’s always a chance that what you invest in could fall in value and you could end up with less than you put in.

Where can I invest money?

You can use an investment platform to invest your money in a range of assets, from stocks and shares to corporate bonds around the world. 

Investment platforms work a bit like supermarkets. You go to one place and choose from a huge variety of products. You could buy shares in a well-known British company, some government bonds and a fund that invests in Japan, all in the same account.

You can find out which investment accounts people love using our ranking tables that are supported by real customer reviews.

What can I invest in?

There are several types of investment to choose from. The most common are:

• Stocks and shares which are units of ownership in a company. Buy a share and you own a small part of that business, so you may earn an income through dividends or a gain if the share price rises.
• Investment funds which is where you buy into one and a fund manager invests the money on your behalf. They give you access to a large range of investments in one purchase.
• Tracker funds, also known as index funds are a type of fund with no manager. Instead, it aims to copy the performance of a market index. This is often called passive investing, as opposed to the active investing you get when a fund manager picks stocks for you. Weighing up active or passive funds usually comes down to how hands-on you want to be.
• Bonds are where you lend your money to a business (corporate bond), a country (government bond) or the UK government (gilt). You’ll get a set interest rate for an agreed period, and you make money either from the interest or selling the bond if its value rises.
• Commodities are raw materials that you can trade on the stock market, such as gold, silver, wheat, cotton, oil and gas. If you’re wondering how to invest in gold, most platforms let you buy commodity funds or gold-backed funds, rather than the physical metal itself.
• Cryptocurrencies is digital money that has no physical form and is not controlled by any bank or government. If you’re looking into how to invest in cryptocurrency, keep in mind it’s one of the higher-risk options on this list.

What is an investment return?

Investment returns are the money you make from what you’ve invested in.

It can also be known as the Return on Investment (ROI) and is usually shown as a percentage. To calculate it, subtract what you paid for the investment from its current value, divide that figure by the original cost, then multiply by 100.

Say you invest £10,000 into a fund. A year later it is worth £11,000. Your investment return is £1,000, or 10% ROI.

Your investment return isn’t only about growth in value. It can also include any dividends or interest you’ve been paid along the way.

What is investment risk?

Investment risk is often a reason people avoid investing, and “how risky is investing?” is one of the most common questions we hear.

The truth is that all investments carry some risk. Values can go up and down, and you can never guarantee a return. You could end up with less than you put in.

Generally, the higher the potential return, the higher the risk. Low-risk investments, like bonds, tend to offer a lower return than, say, a share in a small business, but come with a much lower chance of you losing your money.

When you start investing, think about how much risk you’re comfortable with. Consider your finances – can you afford to lose your capital? And how you’d feel if your investments lost value.

You should never invest money you can’t afford to lose.

When should you start investing?

Before you start investing, make sure your finances are in shape. Clear any high-interest debts, such as credit cards or personal loans, first.

Also, make sure you have an emergency savings pot in cash that covers at least three months of your outgoings. That way, you won’t need to dip into your investments, and risk making a loss, to cover an unexpected cost.

How much money do I need to start investing?

There’s a common misconception that you need vast amounts of money to start investing. Many platforms now let you invest with as little as £1.

Investing small amounts regularly can be a great way to build an investment portfolio steadily with less risk than putting in one large lump sum. 

Remember, only invest money you can afford to lose.

Is now a good time to start investing?

As long as your finances are in order, there’s rarely a bad time to start investing. As the saying goes, the best time to start was yesterday, the second-best time is today.

Your aim is for your investments to rise in value, so ideally, you’d buy low and sell high. But no one can predict the stock market, and waiting for the perfect moment often means missing out on growth.

Investing is a long-term strategy. The longer you hold your investments, the more chance they have to grow. So, the sooner you start the better.

How to invest

So, how do you invest money? The first step is finding somewhere to buy stocks and shares, funds, bonds or whatever else you’re interested in. This is an investment platform and it could be a bank, app or website. 

Whether you’re looking into how to invest in stocks, funds or something else entirely, take a look at our best investment accounts to compare your options.

Once you've chosen a platform, you’ll need to open an account. You can open a General Investment Account (GIA) or a stocks and shares ISA, which cuts the tax you’ll pay on your returns. You can find out more in our sister site - Be Clever With Your Cash's - guide to ISAs or check out their Stocks and Shares ISAs comparison table.

Then it’s time to choose your investments. You could pick individual shares or bonds, opt for funds that invest in either, or choose a ready-made portfolio built by your platform. However you invest, think about your goals before you start – do you want a steady income, to build long-term growth or explore alternative investments? And remember, only invest what you can afford to lose.

Ready to start investing?

Investing doesn’t have to be intimidating once you understand the basics. Whether you’re weighing up how to start investing with a small amount of cash, or comparing platforms to invest a large lump sum, the key is to start with a clear understanding of your own attitude to risk and what you want to invest in. 

Compare the best investment accounts on Smart Money People, backed by real customer reviews, or check out Be Clever With Your Cash’s pick of the best investment platforms to find the right fit for your investment aims.

This is not financial advice. Investments can go down as well as up. Your capital is at risk.