A beginner's guide to investing

Investing in the stock market used to be considered the preserve of red trouserwearing dads in the Home Counties, suits in the City — or something you paid a financial adviser to do for you. Now we are all being urged to give it a go by everyone from finfluencers on TikTok to Martin Lewis to the Government, which this year rolled out its “savvy squirrel” awareness-raising initiative to encourage more of us to think about how to build long-term wealth.

The argument goes that keeping your life savings in cash may feel less risky than dabbling in the stock market but if you have money sitting in an account that does not pay interest that beats inflation you are guaranteed to lose money over time. Moving beyond the cash Isa can feel daunting, though, when there’s a lot of jargon to navigate. Where to begin?

Don’t overthink it

One of the biggest barriers to getting started is a sense that you need to know everything before you do, believes Emilie Bellet, founder of Vestpod, a community that helps people improve their financial lives, including learning to invest, through courses, events and a podcast The Wallet.

That and the myth that you need a lot of money. You can open an investment account with as little as £1, though if you want to do things sensibly — financial advisers point out that investment should be a long game, for money you don’t need for at least three to five years in order to ride the ups and downs of the market — then you do need to be rich enough to have some cash savings as a buffer for emergencies, first.

How to choose an investment platform

Once you have decided to invest you need to choose an investment platform, an investment account, and then what to put in it.

You can open an account through an investment company, also known as a platform, fund supermarket, robo adviser or brokerage. The main differences between those on offer, including from companies such as Hargreaves Lansdown, Vanguard and AJ Bell, online platforms like eToro and Wealthify, or banks such as Monzo, is the type of investments you can buy and the fees involved. Some brokerages specialise in individual shares, which can be more risky for beginners, while others offer a limited number of funds, and fees can be charged as a percentage of your investments or a flat fee.

Beginners might also want to look for a platform that specialises in making things easy, with readymade portfolios or educational advice built in, such as Plum, Moneybox, AJ Bell’s Dodl, or Bestinvest — which offers free financial coaches.

What kind of account to go for

Most platforms offer a basic general investment account. You can get joint versions of this to invest with a partner, or a stocks and shares Isa, popular because any returns you earn on money in an Isa are free of tax. You can invest up to £20,000 in a standard stocks and shares Isa each year, and £9,000 into a Junior stocks and shares Isa for children.

What should you invest in?

When you buy stocks or shares (also known as equities), you are buying a tiny slice of a company. Selecting single stocks is considered more risky for a beginner because you are tying all your money to the fortunes of one firm. If it has a bad few years, you will lose out. This is why experts talk about the importance of spreading your money across lots of companies, industries, countries, sectors and asset classes such as bonds, too. The easiest way to do this for a beginner is to invest in funds, where your money is pooled with that of other investors and then spread among a number of different assets or shares in companies.

“If you were to start with a multi-asset fund, you would have diversification from day one,” says Sarah Coles, head of personal finance at AJ Bell. “A ready-made portfolio is an excellent way to grow your money while keeping things simple,” believes Ben Faulkner of EQ Investors. “All the hard work of researching and stock-picking to curate a diversified portfolio is done for you by a professional, without having to spend hours scouring the internet doing your own research.

For cost-conscious investors, low-cost index funds offer broad market exposure.”

How to invest like a city fund manager

What do the experts do with their own money and what mistakes do they see? We ask three City fund managers for their tips.

Alexandra Jackson, director of equities, Rathbones Asset Management

“One of the things that puts people off getting started in investing is thinking they need to find the perfect investment initially. Time heals a lot of mistakes. The best thing to do is get going early. So, for beginners, I’d focus less on finding the next winning stock and more on building good habits. Invest regularly, diversify your holdings, use your tax wrappers (pensions and ISAs), and think in terms of years rather than weeks or months. Consistency, patience and not looking too often really helped me when I first started investing my own money.”

Sabrina Denis, investment specialist for Middle East, Africa and Central Asia, Janus Henderson Investors

“Diversify properly — that doesn’t mean five technology funds that all own the same ten stocks. Genuine diversification means holding things that behave differently from one another. My own approach is boring and consistent. The bulk of my money sits in diversified, unexciting holdings, which is precisely what lets me sleep when markets turn rough. Alongside that, I do hold exposure to the areas I find exciting: technology, healthcare and innovation-led themes. The best portfolio managers are patient and deliberate, only making changes when they have a strong reason to do so.”

Daniel Bland, head of sustainable investment management, EQ Investors

“Most people only start worrying about markets once there’s been a run of bad news. But by the time you read about it prices have already dropped, because markets react immediately to known facts. For private investors, timing decisions are usually driven by fear that markets are about to fall. Human brains jump to the worst-case scenario, even though it rarely happens. If you do sell, it only pays off if you’re prepared to buy back in when the news gets even worse. Most people aren’t that brave. Investors who stick to a long-term plan tend to be rewarded for it.”

How much should you invest, and when?

It is tempting to wait for the perfect moment to invest savings, but this is hard to do. The adage is “time in the market beats timing the market”. Or you could set up a regular payment. Coles says “by drip feeding money into the market you will buy some stocks in a rising market, and others after falls, when your money will go further and you can benefit more from the recovery”.

Ignore the hype and choose your advice carefully

“Don’t be drawn into investing in something because everyone seems to be talking about it, or because you feel rushed into making a decision,” says Bellet. “Be wary of anything that promises easy returns.” When investing, your capital is at risk and you may get back less than invested. Past performance doesn’t guarantee future results.

When investing, your capital is at risk and you may get back less than invested. Past performance doesn’t guarantee future results.