This is not financial advice. | Contains affiliate links. I may receive an income from any investments you make through this article.
We all know we need to invest. It used to be so easy, you went to work, they invested part of your pay for you and guaranteed a liveable proportion of your salary to you when you retired. No risk, no stress. All that ended just as I joined the workforce. Now we have to invest more of our own money, wade through jargon and maybe even wind up with less money than you started with.
I’m here to help you find your way through all of that, to make investing make sense. I’m a chartered accountant who at the age of 41 could retire today if I wanted to. I’ve been investing my own money for many years and have read all the investing books, and I’m here to pass that knowledge on to you.
Why should I invest?
One of the few ways to guarantee losing money investing is to keep it in cash, where you lose a few percent each year to inflation. Usually your money will halve in value approximately every 20 years here in the UK (more loss in high inflation times, less loss in low inflation times).
Investing is how we build wealth instead of losing it each year. With good investments, your money can be earning you extra money, like sending another family member out to work. You can start to bring in an investment income, with the idea that it eventually grows to mean you don’t need to work. That’s called retirement, or if you do it early enough, FIRE.
You don’t need to be rich to start, in fact in many ways the less you start with the better. The most important thing is that the earlier you start the better. I don’t mean beating yourself up about not opening an investment account 10 years ago, I mean learn the basics, start small, and start soon.
What you need to understand before you start
A lot of people lose money early on and quit altogether, which is understandable. Investments go up and down, and over the short term the movements make no sense at all. If you need the money soon, don’t invest it or you could easily end up with less than you started with.
Sensible investments over the long term usually make money. If you’re saving money for a long term goal like a house, child’s education or retirement, a 5% loss means nothing if you will make it back again. Natural fluctuations should be ignored, and it’s wise not to follow your investments too closely. Panic selling after a loss is often the worst thing you can do.
Where do UK investors put their money?
There are a huge number of different investments you can make in the UK, such as property, bonds, gold, crypto and even pokemon cards. Most investors start with something low cost with good growth potential and manageable risk, which historically has meant stocks and shares is often thought to be the best place to start.
There are generally three places that you can invest in stocks and shares in the UK, an ISA, a SIPP and a general investment account.
ISA
ISAs now come in lots of different types, but the default is called a ‘Stocks and Shares ISA’. This lets you invest with tax free growth, giving you savings on both capital gains and dividend taxes. It’s truly a fantastic allowance from the government; you can put £20k in a tax year, which for most of us means ‘as much as you can save’.
There is even (at the moment) a LISA that gives you extra tax benefits, but this is being replaced in 2028. The cash ISA limit has also recently been reduced, showing that the government is favouring the stocks and shares ISA, which is good news for investors (but bad news for cash savers).
Pension
For the more forward thinking amongst us, you can save towards retirement in a pension, such as your workplace pension or a SIPP (self-invested pension). There are some huge advantages that mean you may be even better off saving into a pension than an ISA, such as:
- Increased tax relief the more you earn, e.g. higher rate taxpayers get £100 in their pension for each £60 they put in. It should be said that unlike in an ISA you do get taxed on money you take out of a pension, a fact that a lot of ISA / pension comparisons ignore!
- Often your employer will match or even exceed the amount you pay in, giving you a free pay rise
- The same tax reliefs on growth that you get in an ISA
- You can’t get the money out until you’re relatively old. Yes I know most people see that as a disadvantage, but I see it as protection against bad ideas and lack of impulse control. Several decades is a long time to resist raiding your money for something, so it may be helpful to not be able to
- If you’re in a defined benefit scheme paying money in may give you a valuable upgrade to what guaranteed benefits you will receive on retirement (worth checking)
Investment account
If you fill up as much as you want of your ISA and SIPP, you can invest from a general investment account, with no tax benefits. You will virtually never want to do this as an ISA is usually better. If you’ve got so much money that you need to put money outside of tax-advantaged accounts, you’ve probably got an investment manager investing for you and don’t need to worry about making too many investment choices.
For most people looking to get into investing, an ISA is the place to start. You can open them cheaply, there’s good tax advantages and you can get the money back out again.
Where should a beginner invest?
As long as you start small, you can experiment with different investments and find your investment style. Some people favour individual stocks (investments in one company), others (like me) prefer investing over a large number of companies, to improve diversification (which usually decreases risk).
A good global index fund lets you invest in thousands of different companies in one investment. You don’t need to spend hours reading through the accounts of the company (and learn what each bit means). You’re also saved the stress of either the management of the company deciding to do something really dumb (happened to me more than once), or the government to decide to raise taxes on that company specifically (again, happened to me more than once). Or even just bad luck. Any terrible thing happening will usually affect a tiny part of your investment rather than leading to catastrophe.
My favourite beginner investment therefore would be a world tracker, but again, make sure it fits how you feel about risk and how much money you want to make or are concerned about losing.
Which platform should you use?
You will rarely invest directly with the companies that you are investing in, instead you’ll invest through a platform. I’ve done a more detailed post on this, but the most common options are Vanguard, Hargreaves Lansdown and AJ Bell. There’s also some newer options like Trading 212 that are getting a lot more popular.
You can overthink this. Pick a reputable one and get investing.
How much should you invest?
There’s not normally a serious minimum amount of money you need to have to start investing. You don’t need to have Scrooge McDuck piles of cash before you get started. You can start on some platforms with £1.
It’s much more important that you are consistent when you are starting out, a monthly amount from your salary is much better than saving up a lump sum and spending it all in one go. This will make it more affordable, lower your risk, and pound-cost averaging means this is likely to get you better value on your purchases as well.
Usually I’d say a good starting amount is £20 a month if you can stretch to that, but when you’re first starting I’d say whatever you can afford from your monthly income that you’re prepared to not touch for at least five years.
Step by step guide to get you started
Decide how much you can invest monthly
Don’t overthink this. You’ll know a number that you can cope with losing from your monthly income to invest long term for your future. Don’t overreach here, it’s better to start small and gradually increase it than start too big and miss bills. Treat it like getting a new phone contract for now; does £20 a month work for you?
Choose a platform
The important things here is to a) pick a platform with a good reputation, b) actually pick one. The biggest risk is to not get started, and this is a big stumbling block for many people. You can always move later if you make a mistake. Please see the section above for a brief overview, or I have a separate post for a more detailed comparison.
Choose an investment
Find a first investment that catches your eye. You’re probably starting small but that doesn’t mean you shouldn’t take it seriously. Pick a stock you would still want to own in 20 years’ time. Most people would pick a well-diversified index fund, such as a global fund, that buys companies across the world.
Set up a regular payment
If your platform allows you to, set up a regular payment (such as a direct debit or standing order) and regular investment so that you will automatically buy more of your favourite stock or stocks each month. This will let you pound-cost average and let you invest more over time without having to worry about it.
Leave it alone
The most common error new beginners make is checking their investment 10 times a day. That will make you anxious, and persuade you to make extra trades that aren’t part of the plan and will usually lose you money. Log out and leave it alone for at least a month. It will compound on its own!
Ready to start?
Investing isn’t complicated, and it’s something all of us these days need to get to grips with. The hardest thing by far is starting, and you can do that quite cheaply. Follow the step by step guide, begin small and you will gradually gain confidence and (hopefully) more money.
Follow onto the next article to learn more about Stocks and Shares ISAs, where you can not only get great investment growth but save on your taxes too!