Investing for Beginners in the UK: How to Start & Best Strategies

Investing is a way to generate wealth and achieve financial goals. These could be improving your income, putting children through university or building a retirement pot. Everyone has their own reasons for needing their money to grow but it’s daunting to take the first steps because everything seems incredibly complicated.

• Where should you be putting your money?
• How do you know if a financial product is safe?
• What investments are likely to deliver the best return?

However, it’s important not to be deterred by such questions. The potential longer-term benefits of investing certainly outweigh the negatives of learning how it works. In our investing for beginners UK guide, we look at everything you need to start your own journey towards financial improvement and security.

Why investing is important

Life is expensive and if you want to enjoy a decent standard of living in the future then saving and investing is essential. It’s also a powerful way to grow your wealth and meet financial goals. One of the biggest benefits is keeping pace with inflation, which is a measure of how much the prices of goods and services rise over time, expressed as a percentage.

Let’s use the example of an item of clothing priced at £100. If inflation is running at 10%, then its price will increase by £10 to £110. This means you’ll need more money to buy the same items. If your savings aren’t increasing by the same amount then the purchasing power of your money will decrease. That’s why your investments need to at least be matching inflation.

There’s also the longer-term effects of compounding. This refers to creating wealth by earning interest/income on interest/income that’s already been received. That might sound confusing but bear with us. If you start with £200 and have earned 5% interest/income, you’ll have made £10 and now be sitting there with £210. In the following year – presuming the interest/income rate remains the same – you’ll earn 5% on £210, which is £10.50. Your original £200 investment will now be worth £220.50.

Understanding the Basics of Investing

A crucial part of investing money for beginners UK is understanding the different asset classes available and becoming comfortable with the various terms used.

Equities/shares

These are hugely popular with investors. Buying a share in a company that’s listed on global stock markets effectively gives them part ownership of the business. Management teams will sell shares for a variety of reasons, such as funding research & development or an expansion into new markets. The value of these individual shares will rise and fall depending on demand, which is influenced by news flow, financial results, and external factors. Equity investments can generate capital growth – from share price increases. Some also offer the possibility of income through sharing their profits with investors in the form of dividends.

Bonds

Bonds involve loaning money to either a government or company in exchange for a fixed rate of interest over a set period – and the original investment returned on a future date. The prices of bonds fluctuate due to interest rates and the credit worthiness of issuers. Those offered by stable governments are regarded as being the safest for investors. Bond issuers are given a rating that’s based on the likelihood of them keeping up with repayments. This gives investors an idea of how much risk they’re taking.

Property

We’re not talking about investing in the shares of companies involved in the broader property sector, nor does this area usually involve residential housing. This is more about investing in commercial property, such as shops, offices and retail parks, either directly or via a specialist fund. Investors stand to gain from increases in the valuations of such properties, as well as the rental income that’s received from tenants.

Commodities

Gold and other precious metals make up this sector, with investors able to buy the physical assets or getting exposure to the market via commodity exchange traded funds. These products either track the price changes of a particular commodity – or a basket of them – and are traded on stock exchanges. You can also buy the shares of companies involved in mining. However, as with property, this will entail equity exposure so won’t provide you with asset diversification.

Investment funds

Buying individual assets can be risky as you’re reliant on the success – or otherwise – of the relatively small number of shares you have bought. Therefore, a great alternative is putting your money into a fund that pools the money from many investors and uses it to buy a variety of holdings. There are thousands of funds available, all of which will have slightly different aims and approaches. Some focus on particular geographies, while others pursue growth or income goals.

How to start investing in the UK

Everyone’s investment journey is unique. The combination of asset classes that is right for one person may be unsuitable for someone else. That’s why you need to be very clear about your objectives. Are you growing wealth for a specific purpose or just to accumulate as much as possible? For some the goal will be to build a war chest that can be used to fund family holidays, weddings and putting their children through further education. Others need their investments to generate a monthly income that can be used to cover the bills, for example.

Your needs will dictate the return required and which assets are suitable. For example, bumper double-digit returns may require more exposure to markets offering huge potential upside. Of course, that will come with increased danger, so you need to gauge your attitude to risk. Would you be able to cope with stock market volatility or will it cause you sleepless nights?

Also, what would be the impact on your life if you lost everything you’d invested? The reality is that no investment is totally risk-free so you should only invest what you can afford to lose.

Investment strategies for beginners

Deciding where to put your money can seem overwhelming but there are a few strategies that are useful when it comes to investing for beginners in the UK.

First up is diversification. This means holding a variety of assets within your portfolio that have different risk/return profiles to one another. It relates to the idiom of not putting all your eggs in one basket and encourages people to spread the amount of risk that they’re taking.

Therefore, a diversified portfolio could be one that contains exposure to equities, bonds, property and commodities, rather than being focused on just one area. The hope is that losses suffered in one area may be countered by gains elsewhere. Should property holdings fall, the hope is that equity holdings will have risen. You can also be diversified within asset classes. Equity investors, for example, may have exposure to different countries and geographies.

Another strategy is pound cost averaging. Don’t be put off by this term as it’s actually a popular financial technique that enables people to smooth out returns by investing regularly. So, how does it work? Well, investors commit a set amount of money each month to buy units of a fund at whatever price they happen to be. For example, if you’ve been buying units at a rate of £5 each, should the price drop to £3 then you’ll be getting more for your money. This approach also encourages people to build a consistent habit of putting money away, as well as removing the emotion from investment decisions.

Common mistakes beginners should avoid

When it comes to investing in the UK for beginners there are plenty of potential pitfalls so here are some of the most seen errors.

The first is not being clear about your goals. This can result in you holding a mishmash of different assets that won’t get you closer to your objectives.

The next mistake is overlooking the impact of fees. The charges levied by providers can vary enormously but even a relatively small percentage difference can have a huge effect on returns.

Other common errors include trying to time the market – which is virtually impossible for even seasoned, professional investors – or making knee-jerk reactions. For example, the stock market may have taken an overnight tumble but selling out of your position could see you missing out on the subsequent recovery. Of course, the opposite is also true. Stubbornly holding onto a stock despite overwhelming evidence that it needs to be cut could see you losing money.

Case study: how FundCalibre helps new investors

There are thousands of investment funds available, which means it’s mission impossible for individuals to research them thoroughly. That’s where FundCalibre’s expertise comes into play. Our experts scrutinise these portfolios and then whittle the investment universe down to a preferred list of 200 funds. Fund managers need track records of at least three years to be considered for inclusion, while the most trusted funds are handed the coveted ‘Elite Rating’.

Such funds can be used to fulfil strategies such as the core and satellite approach, which is popular when it comes to investing in stocks for beginners UK. This concept involves having a fund of more reliable, steady investments at the ‘core’ of your portfolio that are capable of generating decent returns. The ‘satellite’ positions, meanwhile, are smaller funds exposed to racier sectors or parts of the world that offer the prospect of enhanced returns but can also be volatile. For example, an investor may opt for a UK large-cap fund that buys shares of leading FTSE 100 companies and then add an emerging market fund focused on developing areas of the world.

How to choose the right investment account

There are many ways to access – and hold – investments. It’s advisable to consider getting professional advice for your situation but here’s an overview of some options. For example, brokerage accounts, many of which are available online, enable you to buy stocks, bonds, funds and other assets.

As far as financial solutions are concerned, however, top of the list is Individual Savings Accounts (ISAs). These are wrappers that shield your savings and investments from taxation. A variety of assets, including equities, bonds and funds, can be held in a Stocks & Shares ISA, which makes them great for longer-term investing. Currently, up to £20,000 can be invested in ISAs during the tax year – which runs from April 6th to the following April 5th – which is enough for most investors.

There are also straightforward general investment accounts. While there won’t be limits on contributions, taxes will be due on the proceeds. For those looking to the longer term, pensions are also worth considering. Contributions get income tax relief and SIPPS (self-invested personal pensions) now offer more choice and flexibility.

How to monitor and adjust your investments

Nothing stays the same forever and that’s very true of your investments. Your situation – and financial priorities – are likely to change so you need to regularly monitor your holdings. Buying a house, having a family and coping with redundancy can impact your goals, as well as life-changing decisions such as retiring early or moving abroad. As well as a thorough overhaul every year, you should constantly monitor the performance of your investments to see if they’re still meeting your needs. You can read monthly updates from fund managers who will highlight times where they’ve done well, as well as explaining bouts of underperformance.

FAQs: Answers to common questions about investing for beginners

• How much money do I need to start investing?

  • Many platforms allow you to start investing with very little money. Embracing pound cost averaging can help manage your risk.

• What is the safest investment for beginners?

  • There’s no such thing as a 100% safe investment but you can use FundCalibre’s risk score to help gauge the level of risk for an individual investment fund.

• What is the best investment for beginners in the UK?

  • The best investment depends on risk tolerance and financial goals. Many beginners start with diversified funds, ETFs, or stocks within an individual savings account (ISA) as their money will grow tax-free.

• Is investing in stocks safe for beginners?

  • Investing in stocks carries risks, but diversification and a long-term approach can reduce potential downsides. Investing through funds can also mitigate risk as you’re not reliant on an individual stock performing well.

• What is the best investment platform for beginners?

  • The best platform depends on fees, features, and support for beginners. Look for one with low costs, good educational resources and easy-to-use tools. Quality customer service is another key consideration when starting out.

• How can I reduce my investment risk?

  • Diversification, long-term investing, and using tax-efficient investment accounts like ISAs help minimise risk. However, it’s important not to invest what you can’t afford to lose. Also, avoid emotional decision making and high-risk speculation.

Final thoughts: getting started with confidence

Starting your investment journey can seem scary but that doesn’t need to be the case. It’s easier than you think to work out your financial goals – and then find solutions to meet them. You can also start small by choosing a diversified fund that gives you exposure to different asset classes and work out how much you can afford to invest each month. This will give you the confidence to start investing more when your finances allow – and at that point you can consider exploring more advanced investment strategies.

The important thing, however, is taking that first step.