Investing can feel intimidating if you have never done it before, but the basics are simpler than the financial industry would have you believe. This guide explains everything you need to know to get started confidently.
- Why invest at all?
- Where to start — the Stocks and Shares ISA
- What to invest in as a beginner
- How much do you need to start?
Why invest at all?
Over long periods of time, investing in the stock market has historically delivered much better returns than cash savings. The FTSE All-World index, which tracks stocks across the globe, has returned an average of around 7-9% per year over the past few decades — significantly more than any savings account.
The trade-off is risk. Unlike a savings account, investments can fall in value as well as rise. This is why investing is generally considered suitable only for money you will not need for at least five years, ideally ten or more.
Where to start — the Stocks and Shares ISA
For most UK beginners, a Stocks and Shares ISA is the perfect starting point. It allows you to invest up to £20,000 per year with no tax on gains or dividends. Platforms like Vanguard, Hargreaves Lansdown, AJ Bell, and Nutmeg all offer straightforward ISAs for beginners.
What to invest in as a beginner
Rather than picking individual company shares, most financial experts recommend beginners invest in index funds. These are funds that simply track a stock market index — such as the FTSE 100 or the S&P 500 — rather than trying to beat it.
Index funds spread your money across hundreds or thousands of companies automatically, reducing risk through diversification. They also charge very low fees compared to actively managed funds, which is important because fees eat into returns over time.
How much do you need to start?
Many platforms allow you to start investing with as little as £25 per month. Regular monthly investing — often called pound-cost averaging — has the added benefit of smoothing out market ups and downs, as you buy more units when prices are low and fewer when they are high.
Bottom line
The most important step in investing is simply to start. Time in the market is more important than timing the market — the longer your money is invested, the more it benefits from compound growth. Open a Stocks and Shares ISA, choose a low-cost global index fund, and invest a regular amount each month.