When looking at how to start to investing it shouldn’t be for immediate gains, so if you are saving for your retirement, or building a pot to buy a house, then you’ve come to the right place. However, if you’re trying to get funds together for a holiday then you should probably just source a savings account with the highest interest rate available and start there.
Investing is usually a long term strategy with a recommended minimum of five years in order to see real gains on your original investment. However, it is important to note that investing is essentially a gamble, you are not guaranteed to get back what you’ve put in, but the idea is to grow your initial amount.
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The answer to which is the best Stocks and Shares ISA, very much depends on what type of investor you are and there are some key questions you should ask yourself.
Will you need help with your investment?
Investing can be complex and for aspiring investors who don’t have much knowledge of the market, and who don’t have time to dedicate to meticulously studying the marketplace, there are platforms that can manage the whole process for you. These ‘set it and leave it’ type investments are constantly monitored throughout, with a team of experts who can make changes in response to fluctuations within the marketplace. Whilst a fully managed portfolio will usually incur a management fee, this is usually a worthwhile cost if you have little experience to fall back on. The management fee you are charged will vary between providers so it is worthwhile shopping around as high charges can end up eating into your profits.
Would you rather do your own trading?
If you would rather engage in a ‘do it yourself’ option then there are plenty of platforms that can facilitate this and in this instance you may want to consider what tools you will require in order to make informed choices. The fees per trade will also be a consideration and each platform will have its own charging structure and you should ensure you engage with the best one for your investment strategy.
How much are you looking to invest?
The reason this is of relevance is due to the various charging structures within the platforms that are available. For a smaller investment pot, you may be best to look for a platform which charges a percentage of your pot in order to keep costs low. However, percentage fees can soon add up for larger investment pots and in this instance it is best to find a provider with a flat fee.
What are you looking to invest in?
When it comes to the range of investments and funds on offer, not all platforms are created equal and therefore it is essential that you ascertain whether the platform you are considering can meet your investment needs before deciding where to place your money.
Are You Ready to Start Investing?
If you have savings then the answer to that is probably yes. Be careful if you are riddled with debt (outside of your mortgage) as you may want to focus on paying that off before you look to grow your wealth.
If you don’t currently have any savings, there are a handful of investment apps that can help you start saving using algorithms and artificial intelligence to work out how much you can afford and automatically setting that amount to one side in a savings account where you can later choose to invest your money. One of our favourite apps for this purpose is Plum.
What About the Risk?
Generally speaking, the greater the return, the higher the risk. Any risk that you undertake should be in line with your timeline for investing. Should you be only five years away from retirement and investing your retirement fund, then you want the lowest risk option. Never invest more than you can afford to lose and remember that diversification is key in order to mitigate your exposure to risk.
With an online trading platform, your investment information is always available to you, so it is very important that you keep a steady head as panic leads to bad decisions. Just because an investment is going down, doesn’t mean it won’t go back up and selling when prices are low is often the worst mistake to make.
What’s the Main Difference Between a Robo Advisor and a Financial Advisor?
The most acute difference between a robo advisor and a wealth manager is the fees. A wealth manager on average costs between 2-3% of your total portfolio, whereas a robo advisor can charge as little as 0.2%. To put this into perspective, the difference in cost for a portfolio of £1000 would be £30 for a wealth manager and £2 for a Robo Advisor.
However, a wealth manager will tailor your investments to your unique circumstances, with the aim of helping you achieve your financial aspirations in line with your appetite for risk. Whether you feel that you need this level of service is a personal choice and you should take into account the size of your portfolio and your requirements.
How Much Should You Invest?
This very much depends on how much you have, however, many robo investors take investments from as little as £1 so there is no real minimum amount. If you are new to investing it might be worth starting small and growing your pot gradually as your confidence grows. The main thing is that you never invest more than you can afford to lose.
Whether you have £1000 set aside or only have £10 a week to commit, done right investing can open up an opportunity to grow your wealth.
What Should You Invest In?
The most popular way to invest is in the stock market. Investing in the stock market essentially means that you buy shares in a company in the hope that the value of that company grows and you make a profit as a result of that economic growth.
There are two ways to make money from shares. One is to sell your shares when they have increased in value, the other is when a company pays dividends. Dividends are when a company pays some of their profits back to their shareholders, the first £2000 of which is tax free.
Often the cheapest way to buy shares is through an online platform. Different platforms will offer investors shares in different markets, whether it be the London Stock Exchange, the New York Stock Exchange or the rest of the global market.
Understanding a Fund
A fund is where your cash is managed by a specialist who pools it together with cash from other investors in order to put together a ‘fund’. This fund is then used to buy shares in the stock market. Funds can invest in anything unless otherwise stipulated but are usually grouped together by category.
How to Start Investing and How to Get Started
If you haven’t already used your ISA allowance then this is the first point of call in order to avoid tax on any investment gains you make. In the UK anyone over the age of 18 is entitled to an annual ISA allowance of £20,000.
There are two main types of ISA, a Cash ISA and a Stocks and Shares ISA. For the purposes of investing you want to find a Stocks and Shares ISA, with a good range of investment opportunities, low platform fees, robust security, good customer service, and a quick and easy account set up process. For investors who wish to employ a hands on approach and trade their investments themselves, there are several platforms to choose from and our reviews can help you select the best one for your needs. If you are intending to engage in this approach then it’s important that you do your research, study and analyse the markets and the fluctuations and keep a steady head about you.
If you have neither the time or the confidence to trade yourself and would prefer a set it and forget type approach then you would be best served to leave your investments in the hands of a robo advisor. 25% of millennials now use a robo adviser for their investment needs and this is fast becoming a popular choice where you automatically have money drip fed into your investment account and that is then invested for you in a pre-selected fund. These robo advisors use clever algorithms to make investment decisions for you.
Which Platform to Choose?
Fees are one of the major considerations when choosing which platform to use for your investments. These can vary considerably between platforms so you are best to get a solid handle on fees before commencing. Take into account platform fees and trading fees should that be relevant to your requirements. Many ISA accounts also charge a small fee which you should ensure you are aware of as these can really start to eat into any profits you make. Ensure that the fees are relevant to the size of the investment fund you have.
It is also prudent to check the minimum investment amount. As stated previously, should you wish to start small and work your way up, there are platforms that offer investments for as little as £1 which is a good way to practice before committing large sums of money.
Ensure you are familiar with any features you may require to maximise on your investments. Auto deposit features allow you to set a fixed amount to invest straight after payday, ensuring you pay yourself first and funds are automatically transferred across without you having to facilitate the process. There can also be the option to automatically invest anything over a certain amount in your current account, as well as rounding up features.
The Best Way to Invest £100
£100 may not seem like a large investment amount, but some smart decisions at the start can soon help see your money grow. We would advise for this amount that you find a platform with zero platform fees as even a fee of £1 per month can soon erode any returns you make. Platforms such as Wombat will only implement the £1 per month fee once your account reaches a minimum of £1,000 so this would make a good starting point. Another platform to consider is Wealthify who charge a percentage fee of 0.6% of your total investment amount which is equal to £0.60 on an investment of £100.
Peter Field is a financial analyst and has written for InvestingReviews.co.uk covering topics from pensions, savings, investments and ISAs. His knowledge of the Investment market has proven invaluable, making his unbiased views and opinions open and honest for everyone. In 2021 Peter retired and is working towards enjoying more of the outdoors with his beloved labrador Millie.