Investing for absolute beginners: how to get started

By October 3, 2018 No Comments

How many times have you played Monopoly over Christmas but have no idea why you received £75 because of ‘stocks and shares’?  As interest rates continue to stagnate and offer poor returns for savers, investing in stocks and shares could be a way to grow your nest egg. 

And with start-ups like Wealthify advertising investment opportunities from as low as £1, it’s important to know what you’re signing up for before you jump on the investment bandwagon.

Novice investors think doing well on the stock market can make you rich quick, but as with any other financial system, it’s all about playing the long-game. The market goes up and down and investors must learn to stay calm and not panic if there are any changes.

The good news is that you don’t need a lot of cash to get started, but having some knowledge of key investment terms and processes is crucial. 

Investing can result in a slow but effective savings growth

First thing’s first – what is a stock?

A stock represents a share in the ownership of a company. Basically, the more stocks you own, the larger your stake in the company or organisation.

What is a fund?

Funds offer both experienced and novice investors a convenient way to invest money. A fund is a collection of money from a variety of different investors, which a fund manager then invests on their behalf. Funds can be invested in a variety of different types of asset, from shares to bonds to property. They’re a way to easily diversify across multiple areas.

Why invest in the first place?

Investing in stocks can help your money grow, especially at a time when savings accounts have minimal interest rates. If you invest sensibly, over time you should be able to boost your savings more than if you rely on a standard bank account saver.

Do consider the value of your investments can fall as well as rise, so do keep that in mind when you invest.

Take a page out of Warren Buffet’s book: 'If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes'
Take a page out of Warren Buffet’s book: ‘If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes’

When should you not invest?

If you have debts it makes more financial sense to clear those before you start investing. When you’ve paid your debts off, that’s when you might want to consider investing. 

‘Before investing, clear out any debts’

Clare Francis

“Getting your financial house in order means taking a look at your debts first. Add up how much you owe, identify the re-payments with higher interest rates and aim to pay them off first, to put yourself in the strongest financial position possible,” Clare Francis, director of savings and investments at Barclays Smart Investor tells i

“And be sure to build up a rainy-day fund of easily accessible money. You will want to invest steadily and regularly for the long term, and not keep dipping into your investments.”

Think about your long-term goals

Perhaps you’re investing because you want to speed up the saving-for-a-house-deposit process, or because you want to make your pension work harder? Maybe you’re just frustrated by the low interest rates on your savings accounts and want higher returns. Having a clear idea of how much you want to make in the long term will make it easier to see your investments more clearly, and help you to know when to back out if necessary.

‘Don’t be tempted to buy the hot stock your friend recommends’

James Norton

James Norton, senior investment manager at Vanguard, tells i: “Like any area of life, if you’re to be successful, discipline is important. That means sticking your plan. Don’t be tempted to sell when the market falls. Accept that that’s what markets do, they go up and down. Also, don’t be tempted to buy the hot stock your friend recommends – have they told you about all the ones that have gone wrong? At Vanguard we call all of this noise. It’s best just to tune it out and stay focused on your goals.”

How much do you need before you start investing?

“A common misconception is that you need to have a lot of money in order to invest. This isn’t true. To invest in a stocks and shares ISA you can put in as little as £50 a month as part of a regular investing plan. This will be easier on the purse and you will benefit from pound cost averaging. This means you buy more when prices are low and fewer when prices are high which can help to cushion your portfolio from dips in the stock market,” says Maike Currie, investment director for Fidelity International.  

“If you’re struggling to make a choice when picking investments to go into your ISA, remember there are ‘ready-made’, low maintenance solutions out there such as multi-asset funds which do the job of choosing the right mix of investments for you.”

Choosing the right investment platform can help you stay in control of your funds (Photo: Getty)
Choosing the right investment platform can help you stay in control of your funds (Photo: Getty)

The minimum amount of money you’ll pay into a fund depends on which platform you’re using. For example, if you’re on Hargreaves Lansdown it’s £100, but can be just £50 if you’re using an online broker, for example, It makes sense not to go all-out when you are starting out. Investing your entire savings pot would be a risk for an absolute beginner because returns can go up as well as down.

How to choose the right investment platform

If you’re just getting started, choosing the right investment platform can help you to keep in control of your funds. A platform is an online service that enables investors to buy funds, sell, and monitor funds. They help you to see how well your funds are performing, and work out whether it’s a good time to sell or buy more.

Bear in mind you’ll probably have to pay fees to use an investment platform, but for beginners, more fees can mean more support. Hargreaves Lansdown offers an expensive service (with a platform fee of 0.45%) but it has excellent customer service and you can speak to an adviser in around 10 seconds, ideal if you’re just starting to explore investing. It’s also a very safe platform, it’s listed on the FTSE 100, has more than a million users, and a clear interface on the mobile app.

Fidelity Personal Investments is also a great option for beginners. It has no trading fees for funds and just a £1.50 fee for other investments. Plus, it has a snazzy, easy-to-use iOS app perfect to check up on how your funds are doing. They also offer clear guidance for beginners keen to make headway in the world of investing.

How apps can help beginner investors

Apps can make it easier to invest (Getty)
Apps can make it easier to invest (Getty)

As with most sectors, apps are disrupting the investment scene. As with more established investment platforms, you should always do your homework when it comes to using apps to invest. Apps like Stash are geared towards beginners. As well as providing investment opportunities, there’s also lots of advice and articles on how to make investing work.

Around 2 million people have used apps like commission-free stock trading app Robinhood without paying a trading fee. You can use apps like Robinhood to invest in ETFs, stocks and other options for free.

Key things to watch out for when investing

Avoid short-termism. Michelle Pearce-Burke, co-founder and CIO of Wealthify, the online investment service, advises fledgling investors to focus on the future.

Thanks to smartphones, it’s easy to jump between stock markets and fund managers with the swipe of a finger. She tells i:”Don’t base your decisions on the previous 12-month performance track record – focus on the long-term and take a page out of Warren Buffet’s book: “If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.”

Finally, try not to put all your eggs in one basket. When you start investing, try to pick a variety of investment types like shares, bonds and others. Bear in mind that shares are high risk, while bonds can lower the overall risks you’re taking with your money, useful to bear in mind if you’re a brand-new investor.

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