1. Home
  2. >
  3. Guides
  4. >
  5. The complete guide to investing for beginners

The complete guide to investing for beginners

Investing in the stock market is widely seen as one of the best ways to generate a return on your money. As a result, you may be considering trying to take your first steps on your investing journey.

Of course, the trouble is that it can feel like there’s a lot to consider before you can get started.

You may be unsure of how to find accurate information to base your investment decisions on. Or perhaps you’re unsure of what types of assets and investment vehicles will be right for you as a novice investor.

This could put you at risk of losing money, especially if you end up choosing investments that aren’t appropriate for you.

That’s why, if you’re new to investing, it’s important to do your research and understand what you’re buying before you dive into the stock markets.

So, from how to choose an investment platform, to some of the different assets that first-time investors could consider, find out everything you need to know in my guide to investing for beginners.

Investing for Beginners

7 of the best investment platforms for beginners UK

There are various stockbrokers and investment platforms in the UK that are ideal for beginners.

Below is a selection of my top picks for the best platforms to invest with in the UK.

Platform At a glance Visit Platform
eToro eToro
– Free trading on stocks
– Quick and easy to open an account
Visit Site
InvestEngine InvestEngine
– Great for beginners
– New customers get a £50 welcome bonus subject to terms and conditions
Visit Site
Freetrade Freetrade
– Super simple to set up
– Get a FREE share worth up to £200
– Choose stocks from the London Stock Exchange, NYSE and NASDAQ.
Visit Site
Wombat Wombat
– Quick and easy for beginners to set up
– Start with just £10
Visit Site
Stake Stake
– Get a FREE share worth up to $150
– Simple to set up in minutes
– Zero trading fees
Visit Site
Circa5000 CIRCA5000
– Simple to set up and beginner friendly
– Ethical investments in ETFs
– Get £5 FREE when you open an account
Visit Site
Orca Orca
– Simple to open an account
– Just purchase 3 different assets and get FREE stock worth up to £200
Visit Site

The 5 steps to starting investing for beginners

It’s remarkably straightforward for beginners to start investing.

1. Choose a stockbroker or investment platform

First, you need to choose a stockbroker or investment platform to facilitate your investing.

There are a number of stockbrokers and investment platforms available in the UK. Choosing the right one for you will depend on a variety of factors, such as trading costs and how much money you want to invest.

2. Choose an investment account

Next, you need to choose an investment account.

From general investment accounts to ISAs, there is a range of different accounts available. Search for the most appropriate account for you based on your investing needs.

3. Work out your investment goals

Once you have an account, decide what it is that you want to achieve with your investing.

Are you looking to supplement your income in the short term? Or are you actively saving for your future, perhaps targeting returns that will support you in retirement?

Your investment goals will determine a great deal of your investing, including the strategies you can explore and the types of assets you choose to trade.

4. Set your investment strategy

With your goals in mind, decide how you’re going to get there. Research different investment strategies and figure out which of these will work best for you.

Just as it is for veteran investors, it’s often sensible for beginner investors to target gains in the long term, rather than trying to turn a quick buck.

5. Start trading your investments

Once you have a strategy in place that targets your goals, you can start buying, selling, and trading investments.

Make sure to do your research into your investments before you buy.

Choosing the right investment account

Next, you need to choose an investment account that suits your needs.

Stockbrokers and investment platforms offer a variety of accounts to choose from.

General investment account

A general investment account, also sometimes referred to as a “share dealing account” or a “GIA”, is the most basic type of account, allowing you to trade a variety of investments, typically with no limits.

Some brokers now offer their most basic accounts for free, including no commission on your trades.

However, investing in this type of account can leave you with a tax liability, depending on how much you generate.

ISAs

An ISA (standing for “Individual Savings Account”) is a type of personal account that allows you to hold money and investments tax-efficiently.

Each tax year, you have an ISA allowance for how much you can save into your ISAs. For the 2021/22 tax year, this amount is £20,000.

Crucially, when you hold investments within the ISA “wrapper”, it means you won’t be subject to Income Tax or Capital Gains Tax when you come to sell any of your investments.

This means that you can keep the money that your investments generate, rather than having to pay tax on it.

There are various types of ISAs, each with its own benefits:

Stocks and Shares ISA

One of the most common types of investment ISA, a Stocks and Shares ISA allows you to buy and sell investments within your ISA wrapper.

You have full control over the investments you choose, allowing you to buy and sell them as you see appropriate, all while sheltering them from Income Tax and Capital Gains Tax.

This makes them a great option for new investors who want to pick their own investments without worrying about the prospect of being taxed if they see a return on them.

“Ready-made” ISA

When using a “ready-made” ISA, the underlying investments are chosen for you by a fund manager, rather than you selecting them yourself.

Typically, investment platforms allow you to choose from different ready-made products, allowing you to pick whether you want to target growth or income, as well as how much risk you want to take on in your portfolio.

You may have to pay more in trading fees compared to other ISAs. Even so, this can be a great option for first-time investors who want to invest but aren’t yet confident enough to choose their own investments for themselves.

Lifetime ISA

A Lifetime ISA (LISA) is another type of ISA available exclusively for 18- to 40-year-olds looking to buy a first home or make an early start on their retirement savings.

While many banks offer Cash LISAs, some stockbrokers and investment platforms offer an investment version of the product, allowing you to choose investments to give your money a boost.

The main benefit of a LISA is that you receive a 25% government bonus on your contributions. In real terms, that means you receive £1 for every £4 you put into the account.

LISAs have a separate maximum threshold of £4,000. So if you made the full contribution to a LISA, you could receive up to £1,000 in government bonus each tax year.

Any money that you contribute into a LISA up to the £4,000 threshold does count towards your ISA allowance, but any government bonus or investment returns on top do not.

It’s important to note that if you withdraw money from a LISA without using it for the intended purposes of buying a first home or retiring, you’ll face a 25% withdrawal charge.

This charge removes any government bonus and a little extra, meaning you’ll lose money if you don’t use the account for either of its specified reasons.

Self-invested personal pension

If you wanted to use your investing for saving towards retirement, you could consider opening a self-invested personal pension (SIPP).

A SIPP is like an ordinary pension, except that you choose the investments contained within instead of having them chosen for you by a pension manager. You can then access your SIPP when you turn 55, rising to 57 in 2028.

A SIPP has the same tax relief benefits as any other pension, depending on your marginal rate of Income Tax. That means you receive an extra 20% on your SIPP contributions if you’re a basic-rate taxpayer. You can also claim a further 20% or 25% if you are a higher- or additional-rate taxpayer, respectively.

You may even be able to have your workplace pension contributions from your employer paid directly into a SIPP. Check with your employer if they’ll allow you to do this.

Bear in mind that contributing to a SIPP as well as any other pension products may impact your pension Annual Allowance and your Lifetime Allowance. You may want to check with a financial advisor to make sure that this is a sensible option for you.

Working out your investment goals

In the space between opening your investment account and choosing the specific assets you want to buy and sell, you should give some thought to your investment goals – what is it that you’re actually investing for?

It can be useful to separate your financial goals into the short, medium, and long term.

Short-term goals

Your short-term goals are the types of ambitions that you hope to reach in the immediate to near future, typically within a time frame of 12 months or less.

This could be something like saving towards a dream holiday or buying a car.

Medium-term goals

Medium-term goals are those aims you have that will take upwards of a year, potentially even up to five or maybe 10 years.

Buying a first home is a common medium-term goal that encourages people to invest for the first time.

Long-term goals

Your long-term goals are the ones that will take the most time, often requiring you to build up towards them over many years or perhaps even your entire working life.

This could include your retirement goals. You may have grand ambitions, such as travelling the world, which you’ll need to invest over many years to accomplish.

No matter what your specific goals are, having investment objectives like this can make it easier to make informed decisions when you’re managing your investments.

Always remember that you can change your goals as you go; these targets provide a good benchmark for what you’re trying to achieve with your investing, but you’re free to adapt them as your life and needs change.

Setting your investment strategy

While it’s impossible to predict exactly how your investments will perform, the future success of your investing will still partially depend on your investment strategy.

Some investment strategies are more suitable for beginners looking to invest than others, so here are three that you could consider:

1. Value investing

Value investing simply means buying shares at a low price and then selling them for more than you paid initially.

While the returns tend to be smaller than other investing strategies, making multiple transactions for small profits can add up over time.

At the other end of the spectrum, this also means that losses are smaller if an investment doesn’t work out.

This can be an expensive way to trade as it may mean you have to pay more in trading fees and commission.

2. Growth investing

Growth investing is a more long-term strategy, looking to capitalise on stock market growth over a period of years.

Generally, growth investing means looking at longer-term trends and then buying investments that are yet to fulfil their full potential.

Naturally, this leaves a lot of room for error, as a company may collapse before it’s able to achieve the growth that you might expect.

3. Pound-cost averaging

Pound-cost averaging involves putting small amounts of money into the stock market over a longer period of time.

The logic here is that you’re less likely to be affected by swings and dips in value, as you end up with an average of the market’s performance over a period of years.

Of course, this may not always be true, particularly if a market or investment continuously drops during the period that you invest.

Using different elements of each

Arguably, the most sensible course of action is to take the best elements of each of these strategies and combine them into a method that works best for you.

Doing your research

As part of designing and setting a strategy that works for you, you might find it useful to do some of your own research before you get started.

Stockbrokers and investment platforms often have extensive “learn” sections which can make a good starting point for finding out about investments.

Otherwise, reading around in the finance section of news outlets can also be a good way to keep in touch with what’s going on in the investment world.

What kind of investments should a beginner have?

There are a variety of asset classes that you can invest in, but the main ones that beginners may want to look at are stocks and shares, bonds, and funds.

Stocks and shares

Stocks and shares are probably the most common asset class that people invest in as, in general, most investors will hold at least part of their investment portfolio in them.

When you buy stocks and shares, you’re essentially buying a small part of the company. Stock prices then fluctuate over time, with the goal being to sell when the investment is worth more than you paid for it.

Picking individual stocks and shares like this can be difficult and volatile, but it can also be highly rewarding if you make the right decisions.

Dividends

As well as making money by selling shares that have risen in value, some companies pay dividends to their investors who own stocks in the company.

A dividend is like a small reward that companies pay out from their own profits to incentivise shareholders to continue holding an investment with them.

Dividends are paid out as a percentage of how much you own. As a result, the more shares you hold with a company, the greater your dividend payments.

You can take this additional income as profit or reinvest it into more stocks and shares in the company.

Bonds

Bonds are small loans that you make to a company in return for your money back with interest. This is a popular method for companies to raise money.

Lending money in the form of bonds can be useful to you, as it means you receive regular interest payments before they mature. So, provided that the interest rates are good enough for you, bonds can present solid, fixed-income investments.

Of course, you should only buy bonds in companies that you’re confident in. If a company goes entirely bust, you could lose your entire investment.

Selling bonds

Alternatively, rather than receiving your interest payments and waiting for your bonds to mature, you can also consider selling them on a secondary market.

Selling bonds to another buyer can be lucrative, as they may be willing to pay more than you think the bond is actually worth.

Of course, by selling the bond, you’ll no longer receive the interest payments.

Government bonds

You can also buy bonds from governments, known as “gilts”.

Gilts tend to pay back lower interest rates than corporate bonds but are typically more secure, as it would require an entire government to collapse for you to not receive your money.

You can also sell gilts on a secondary market.

Investment funds

An investment fund is essentially a small basket of investments that you can buy all at once.

Investing in funds like this is a lot like the ready-made ISA products that I discussed above; you simply put your money in and it receives returns in line with how the underlying investments perform.

Of course, this still doesn’t mean positive returns are guaranteed.

There are many different types of funds, but the ones below are some of the most common:

Mutual funds

A mutual fund is simply a basket of investments that you invest in alongside other investors.

Mutual funds are typically actively managed funds, meaning the money invested is handled by a professional fund manager who makes investment decisions on your behalf.

Knowing that these decisions are being made for you by a professional can be reassuring, as it means the investments are constantly being refined and curated, even if you haven’t built up your investing knowledge yet.

Bear in mind that there may be higher trading fees with actively managed funds.

Index funds

Index funds are another basket of investments, only the difference is that they track a specific stock market, such as the FTSE 100 in the UK or the S&P 500 in the US, to decide what investments to hold. As a result, you may also hear index funds referred to as “tracker funds”.

Unlike mutual funds, index funds are passive funds, meaning there’s no fund manager to keep an active eye on how the underlying investments are performing. Instead, the funds simply invest in whichever investments are on their chosen index.

Typically, index funds save you money against actively managed funds as, without a fund manager to pay for, they have lower fees.

However, this also means that there’s no one there to make changes and review the investments if they start to lose value.

Exchange-traded funds

An exchange-traded fund (ETF) is exactly like a mutual fund, except that it can be traded on a stock exchange.

While other funds can only be bought and sold once a day, investing in ETFs in the UK have a greater degree of flexibility, allowing you to buy and sell throughout the day.

Of course, the downside here is that it can be tempting to sell if the value falls.

Other investments

While stocks and shares, bonds, and funds tend to be the most suitable asset classes for beginner investors, these are by no means the only ones available across the market.

For example, precious metals such as gold and silver are highly popular with some investors, particularly in periods when the value of stocks and shares are more volatile.

Similarly, other investors may invest in property via real estate investment trusts (REITs) and other similar ventures.

You may have also noticed a huge interest in trading cryptocurrencies, with the value of some digital coins growing exponentially over the past couple of years.

However, it’s important to note that these other investments tend to be more specialised and may not be entirely suitable for beginners who are new to investing.

It can often be best to start with simpler investments that are easier to understand before moving on to these more complicated options.

How much should a beginner investor start with?

There is no “one size fits all” answer to how much a beginner investor should start investing with because it really depends on your goals, circumstances, and attitude to risk.

Whether you have £50, £500, or £5,000, it’s possible to find investments that are suitable for you. The key is to not invest more than you can afford to lose for living your daily life.

You might like: Guides on How to Invest £1,000 and How to Invest £100k

How can I start investing in little money UK?

Often, many would-be investors are put off by the fact that you do need such sums to get started.

Fortunately, it’s possible to invest in ways that mean you don’t need to instantly put thousands into the market.

As I discussed before, pound-cost averaging can be a highly useful strategy here, allowing you to invest in small sums over time.

While it’s generally true that investing more money gives you a chance of greater returns, you can still see returns on your money by investing smaller amounts over longer periods.

Fractional shares

Similarly, you could consider buying “fractional shares”. Instead of buying a whole stock or share in a company, you can purchase part of a single share that someone else owns.

This can allow you to hold shares in more expensive investments that you wouldn’t be able to afford otherwise.

Fractional shares don’t trade on the market, so you’d have to find a broker that will allow you to purchase them.

Fortunately, both eToro and Freetrade, two of our recommended investment platforms, offer the ability to buy fractional shares.

Investing and risk

As you no doubt already know, risk is inherent in investing and there are no guarantees for you to make money.

Even so, there are still some things you can do to manage risk when you’re investing.

Investing to your risk tolerance

The first thing you can do is tailor how much risk you’re taking on in your portfolio to your personal risk tolerance.

If you’re a confident individual who’s able to deal with seeing your investments rise and fall in value, you may be able to take on more risk with the chance of greater returns.

But, if you’re more risk-averse and will find it difficult to see your investments fluctuate, it may be better for you to find investments that target slower, steadier returns.

Neither approach is better than another; it’s about making sure that your portfolio carries the right amount of risk and reward for you.

Never invest more than you can afford

As I mentioned before, one of the most crucial lessons that any investor needs to learn is to never invest more than you can afford.

This simply means only investing with money that’s set aside specifically for that purpose. Avoid the temptation to dip into your emergency fund or your savings accounts. Otherwise, you could end up losing money that you need to live.

Diversification

Above all else, you need to understand the importance of creating a diversified portfolio so that you don’t end up with all your eggs in one basket. This means holding different kinds of investments all at once in different industries, sectors, and regions.

For example, your portfolio may be made up of investments that are exclusively listed on the London Stock Exchange.

However, while your investments may be in different sectors and industries, they may all be at risk of losing value as a result of political or economic changes in the UK.

Meanwhile, investments in emerging markets in other countries may not be impacted by the same factors.

Try to spread your investments across a range of industries, sectors, and geographical locations. That way, you’re less likely to lose all the value of your investments in one go.

Investing and tax

One important point to note is that investments held outside of an ISA or SIPP may be subject to Capital Gains Tax (CGT), a tax charged on the gains in the value of assets.

You do have a CGT allowance called the “exempt amount” before CGT is due, which for the 2021/22 tax year is £12,300.

However, any gains that your investments generate over this amount may be subject to CGT, with the rate of tax depending on your marginal rate of Income Tax.

Basic-rate taxpayers will see a 10% charge applied, while higher- and additional-rate taxpayers will be charged 20%.

To make your investment portfolio as tax-efficient as possible, it is often sensible to maximise your ISA allowance first before using a general investment account.

That way, any gains your investments generate are entirely free from CGT.

Working with a financial advisor

If you’re uncertain how to get started investing or you’re unsure whether particular investments are right for you, then you may want to take financial advice from a professional financial advisor or planner.

A financial advisor can help you set your investment goals and then choose investments that are suitable for your personal circumstances.

This can help to ensure that any investments you choose are right for you, rather than having a negative impact on your overall financial health.

Please note

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Menu