Investing for Beginners (Updated 2022)

How and where to invest money can be difficult to figure out. Follow these tips and you’ll be ready to invest in no time!

Investments involve setting money aside to grow in ‘real terms’. In other words, your money accumulates faster than inflation (the cost of goods and services).

Although all investments involve some level of risk, sensible investing does not involve gambling. A financial plan is different from a get-rich-quick scheme. The greater the short-term rewards appear to be, the greater the risk of losing your investment.

What is Investing?

A person who invests buys assets with the intention of seeing the value increase over time.

In addition to stocks, bonds, and real estate, ‘assets’ can also include valuable collectibles or art. It also applies to cryptocurrency like Bitcoin and NFTs, where the aim is usually to buy at a low price and sell at a high price.

Risks are inherent in all investments. There are assets that are less risky than others, but there is always a chance that their value may decline.

Investing money is most commonly done through the stock market. A stock or share is essentially a piece of a company (like Apple, Amazon, Tesla, Tesco, etc.). If the value of the company increases, the value of your share will also increase.

Beginner's Guide to Investing

Start investing money today by following these steps:

1. Identify your investment goals

Prior to investing in the stock market, you should set some goals.

Would you prefer to build capital (by investing in stocks that increase in value) or generate income (by investing in dividend stocks, for example)? Do you plan to invest for retirement or do you want the money back sooner?

Investing is usually a long-term strategy, conducted over a period of five to ten years (if not longer).

It’s probably best not to risk any large amounts of money if you’re going to need the money sooner (to buy your first home, for example). Because the stock market is volatile, the longer you keep it in your investments, the more time it has to ride out any dips.

2. Determine how much money you want to invest

Pound Coin Cash Note

After you have determined what your investment goals are, you can start looking at your investment budget. It can be tempting to invest your entire Maintenance Loan into stocks to make a quick buck, but you should never invest more than you can afford to lose.

Stocks and shares are the most common way to invest money, but there are always risks involved. Since the stock market can go up and down, it’s best to leave your money in the market for as long as possible (more on this later).

In other words, investing shouldn’t be seen as a quick way to make money. It’s best not to put your money in the stock market if you need it soon, like for a holiday. In the event of a market crash, you will not have enough time to allow it to recover.

3. Make an informed investment choice

When you’re new to investing, picking stocks, shares or funds can seem overwhelming. But research is essential. Don’t let someone on Twitter convince you that a certain stock is a good choice – just because that person said it on Twitter doesn’t mean it’s true!

In the stock market, you can make different types of investments. If you prefer a more hands-on approach, you can buy shares of individual companies, or you can buy index funds (such as the S&P 500 or FTSE 100).

A fund that tracks the value of a group of stocks or bonds. The S&P 500 index tracks the top 500 companies in the United States, and the FTSE 100 index tracks the top 100 companies in the United Kingdom.

Rather than buying a single share of every company (which would be extremely time-consuming and expensive), you can invest in an index fund. Investing in a mutual fund is considered lower risk and easier because your money is spread across multiple companies.

The best way to minimize risk is to diversify your portfolio. Investing in index funds can help you do this, but you can also spread your investments across different markets, geographies, and industries.

4. Invest in stocks and shares through an ISA or brokerage account

You need a brokerage account before you can buy your first investment. You can buy, sell, and track the price of your stocks and shares on this online platform.

Ensure that the brokerage account you choose offers the type of investments you want to buy. A brokerage account should allow you to buy index funds, for example. If you are new to investing, you should also check the fees and ease of use.

Additionally, if you live in the UK, you can open a Stocks and Shares ISA account, which allows you to grow your money tax-free. Capital gains and dividends are completely tax-free up to a maximum of £20,000 per year. When you are planning to invest for a long time, this is a great option.

If you go over the annual threshold, you will have to pay tax on your profit. You can also open a regular brokerage account.

In order to open a brokerage account, you’ll need:

  • Identification documents
  • Your Social Security number
  • Personal details (name, email, address, bank account, etc.).

5. Purchase your investments

stock market up and down

Make sure you research any company or index fund before making an investment. Ensure that the investment you’re making aligns with your investment goals.

When you’re ready to invest, log into your online brokerage account and locate the stocks or funds you want to buy. Buying stocks isn’t difficult, no matter what brokerage platform you use. Add the number of shares you want to buy to the company or index fund you want to invest in.

You may have to choose between a market order or a limit order when buying or selling shares. The differences are as follows:

  • Purchasing or selling a stock at the best price available as soon as possible
  • Buying or selling a stock at a specific price or better.

With a limit order, you can buy shares at a better price, though it may take a little longer.

You can also set up automatic investments with some brokerage accounts. As a result, a certain number of shares/funds will be automatically purchased each month.

6. Keep an eye on your investments

Congrats! You’re now an investor!
What remains is to keep track of your investments and sell them when you think the time is right. Depending on your long-term strategy, this may not happen for many years.

It’s not necessary to log into your brokerage account every day, but it’s a good idea to do so every few months.

If your portfolio declines a little, don’t worry about it. Always keep an eye on the bigger picture, since the market fluctuates constantly. Your strategy can always be re-evaluated as necessary.

Investing involves selling a stock that has increased in value or receiving dividend payments. If you reach the threshold and do not have your investments in a Stock and Shares ISA, you will be subject to tax on capital gains and dividend income.

What is the best time to invest?

Now that you know how to invest your money, you may wonder whether this is the right time to do so. When the price of stocks fluctuates constantly, you want to make sure you buy at the lowest price to maximize your profits, right?

When you understand exactly how your money is being invested, you make a good investment. Always make sure you understand what you are investing in. There’s no guarantee that a company’s value will increase just because someone on social media said so. You should always do your own research and never invest more than you can afford to lose.

There isn’t necessarily a bad time to invest (in an index fund, for instance), just a bad time to sell.

Long-term investments like index funds have a greater chance of growing out of dips than short-term investments. It’s not about timing the market; it’s about time in the market.

FTSE Chart

Looking at the graph above, you can see how the FTSE 100 index fund (which comprises the 100 largest companies listed on the London Stock Exchange) has changed since it was founded in 1984.

Although the market has experienced ups and downs over the years (the financial crisis of 2008, highlighted by number one, and the start of the COVID-19 pandemic, highlighted by number two), it has managed to continue recovering and growing.

Because of this, it’s vital to let your investments grow. It is very likely that your investments will go down in value at some point – but the longer you’re willing to leave them, the more likely they are to recover.

Investment options you can choose from

Your money can be invested in places other than the stock market, including:

1. Invest your cash in the bank

  • Pros – Minimal risk
  • Cons – Minimal returns

A bank account appears to be a safe place to keep your money.

Although cash on its own isn’t a great investment – especially because banks and building societies pay such low interest rates. Since interest rates are rarely higher than inflation, your money is actually losing value.

You can put your money in a savings account (or a tax-free cash ISA) if you do not want to take any risks.

2. Buying and selling antiques, art, wines, collectibles

  • Pros – You can invest in things that interest you if you’re into the things you’re buying

  • Cons – You need to be an expert in the product you are selling, and the value of the item may not rise.
You can buy and sell a lot of things for money.
Some childhood toys are already worth a lot of money. Remember that these kinds of items don’t bring immediate income and the profits depend entirely on what someone is willing to pay.
Furthermore, you need to be an expert in whatever it is you’re collecting. In any case, someone who knows what they’re doing can use this to their advantage.
It is a good strategy to source valuable items from places where there are fewer buyers (like Gumtree or a car boot sale) and sell them in places where there is a lot of demand (like eBay). More tips can be found in our guide to selling on eBay.

3. Property investment

  • Pros – Stable investment over the long-term

  • Cons – You need a lot of money up front, and it’s not as easy to sell if you need the money for something else.

When your income allows it, buying your own home is the single best investment for most people.

4. Invest in bonds

  • Pros – Lower risk than stocks
  • Cons – Lower profits.

Bonds are loans that governments and companies take out. The UK government’s certificates are called gilts because the edge of the certificates used to be covered with gold leaf to reassure investors. By buying bonds or gilts, you are technically lending the government money.

What do you stand to gain from this? Bonds and gilts have a guaranteed interest rate and (normally) a date on which they will be redeemed, with the borrower buying them back at a fixed price, or nominal value.

According to investors, the yield on a bond (the interest you receive each year for every £100 invested) reflects whether investors consider the investment to be safe or risky. Low yields are associated with safer debt (the less likely a borrower is to default on its debt).

During low interest rates, bond prices rise, which reduces the amount you receive from your investments. At high interest rates, bond prices decrease.

Bonds can be sold at any time, unlike fixed-term savings accounts. You may receive less money if you do so before the set date.

5. Invest in cryptocurrencies

  • Pros – Trade 24/7 and get high returns

  • Cons – Extremely risky, highly volatile, haven’t performed well as long-term investments.

A growing number of young investors are investing in cryptocurrencies such as Bitcoin.

Cryptocurrencies may seem like a get-rich-quick scheme, especially on social media. Although you can make money with cryptocurrencies, the market is extremely volatile, and the risks are immense.

Cryptocurrencies don’t just include Bitcoin – there are hundreds to choose from! It’s obviously very important to understand the risks before investing in Bitcoin or other cryptos, as some are even more unstable than Bitcoin itself.

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