Millions of newbies joined the ranks of DIY investors in 2020.
Although interest rates are starting to pick up, inflation reached a 40-year high of 9% in May 2022, which means our cash savings are suffering. With tips, guides and walkthroughs, this learning hub, created in partnership with Charles Stanley, can help you get started on your investment journey.
Stocks and shares have outperformed cash 9 out of 10 times in any 10-year period*
Erica's Investment Journey: Where to start
Meet Erica Whyte. Erica wanted to figure out how to make her savings work harder for her future. She admits to not being keen on finance or math but took the plunge through some simple steps. She decided to record her investment journey through a series jargon-free of videos so you can do the same.
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Is investing right for me?
Investing is not just for experienced share traders or wealthy people. But it is a long-term commitment. If you want to have access to your money within 3 years, you may be better off keeping it in cash. However, for longer time periods (especially 7 years+), investing in the stock market is likely to deliver better returns.
Now, returns are not guaranteed, but investing over a long time period may help you achieve a number of financial goals, such as:
- Saving for a mortgage deposit
- Saving for retirement
- Saving for your children's education
Misconceptions about investing
Investing can be daunting. Schools and banks haven’t done the best job of explaining how it works. The Wolf of Wall Street hasn’t helped either. Maybe you’ve been told a few porkies or ‘half-truths' from people you know, too. Here are a few common misconceptions:
- Most people who don't invest think investing is only for people who know a lot about it.
- Many people think investing is only for people who are 'well off'.
- Most people new to investing don't like the idea of their savings going up or down.
Every year, you can shield up to £20,000 into a Stocks and Shares ISA without having to pay any tax on your investments or any interest you earn. But fewer than 1 in 6 UK adults currently hold a Stocks and Shares ISA, despite the fact that it tends to perform much better than a Cash ISA in the long term.
Short-term investing does carry higher risks, as market swings may not work in your favour when you need access to your money. But long-term investing is much more likely to pay off. In any 10-year period in recent history, stocks and shares have delivered better returns than cash 90% of the time.
A ready-made portfolio will include a sensible 'suite' of companies that have a good track record of delivering long-term returns. But you will have to decide how much risk you want to take. If you don't want to be exposed to much volatility, and you'd prefer to have access to your money sooner rather than later, consider a low-risk portfolio.
If you're happy to take on a bit more risk, and don't need the money for 5 years or so, consider a medium-risk option. But if you're comfortable with bigger ups and downs and plan to keep your money locked away for many years (7+), you may want to consider a high-risk portfolio.
Ready-made portfolios are a good option for beginner investors because of their simple charging structure. Typically, you'll pay an 'all-in' fee below 1 percent, so it will be easier to understand how the charges will impact on your returns.
To get started, you'll usually be asked a series of short questions. The answers you provide will determine which portfolio (basket of investments) you'll be allocated. This will range from a low-risk portfolio - in which most of your money is kept in low-risk assets like cash and bonds - to a high-risk portfolio - in which most of your money goes into stocks and shares.
Thanks to new technology, greater competition and the introduction of online platforms and ready-made portfolios, the cost of investing has fallen in recent years. Tax-free allowances for ISAs have also risen significantly - jumping from £11,280 in the 2012-2013 tax year to £20,000 since the 2017-2018 tax year.
The savings limit for Junior ISAs also rose from £4,368 in the 2019-2020 tax year to £9,000 since the 2020-2021 tax year. But you don't need a lot of money to start investing. Even a small contribution of £50-£100 a month can add up after many years.
If you're looking to get a bit more organised with your finances but don't know where to start, a financial coach might be a good option for you. They can't give you professional advice like a qualified financial adviser would, but you can learn a lot about how to manage your money.
Financial advisers, meanwhile, can give you expert guidance on how to choose the right products to meet your financial goals. Some may even offer you a free consultation to help you get started.
How to start investing with a Stocks and Shares ISA
With a Stocks and Shares ISA, you can make your money work harder by generating long-term returns that exceed inflation. You can invest in shares, funds, bonds, investment trusts and other investments, depending on your interests and what your provider offers.
Sponsored by Charles Stanley
This learning hub is brought to you in partnership with Charles Stanley.
For over 200 years, Charles Stanley has been helping customers achieve their financial goals.
"In 2022, Charles Stanley won two Boring Money “Best For” awards: Best for Beginners and Best for Customer Service"; Charles Stanley is on a mission to break down the barriers that prevent people from investing and make it easier for you to get started.
Multi-Asset Funds – a beginner investor’s best friend?
A fund is a collection of investments that will be managed by a fund manager, who will pool money from other investors into one single account, called a fund. So for example, a UK share fund could have maybe 50 shares which are listed on the London Stock Exchange contained in it.
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Responsible Investing - sponsored content
Responsible investing is experiencing a revolution among newer investors. Broadly, it's about using our money to back companies that consider the environment, their staff, and governance issues as well as the focus on recent profits. These articles go into more detail about how you can invest responsibly.
What is ESG?
ESG (Environmental, Social and Corporate Governance) can be a confusing term – both for investors and fund managers. It’s basically a method for incorporating sustainability into your long-term financial returns and putting your money towards causes like carbon neutrality, promoting human rights around the world, and workplace diversity.
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Going beyond the basics - Sponsored articles
Want to learn more about how to get started in investing? Check out these articles, sponsored by Charles Stanley.
Erica's investment journey
Sponsored by Charles Stanley
When Erica joined Charles Stanley she was new to investing but keen to learn. She has recorded a series of videos on her investment journey and education about money – providing an ideal resource for other novice investors to join her on that journey.
Frequently asked questions
Have any other queries about starting out in investing? Here are some common questions below. Click on each one to discover the answer.
Investing for the first time can seem a bit daunting at first, especially if you don't know anyone who has any experience with stock markets. But you don't need a lot of money to get started. Obviously, putting in a big lump sum will give you a head start, but even investing small amounts of money consistently over a very long time period (e.g. 30 years+) can generate some pretty hefty returns. Now, returns are never guaranteed, but don't forget that stock markets have outperformed cash 9 out of 10 times in any 10-year period.
The magic of long-term investing is that, over time, your money will earn interest. That means the growth in the value of your investments will not be linear. Here's an extreme example:
You have two options:
You accept £1 million in cash today.
You put £0.01 into an investment fund, the value of which doubles every day for 28 days.
On day 28, would you be richer if you chose option 1 or option 2?
Answer: you would be richer if you chose option 2.
On day 28:
Option 1 is still worth £1 million (disregarding inflation)
Option 2 is now worth £1.343 million
Obviously, this isn't the norm, there's no guarantee you will make a return on your investment.
Investment providers earn much of their revenue from ongoing charges, which typically comprise a management fee and a % fee taken from any profits you make. This can be mutually beneficial: the more money you make, the more money they make. So your provider has a strong incentive to make sure your investments do well.
You've probably noticed that there has been a fair bit of volatility in recent months. If you choose a ready-made portfolio, your provider may have moved some of your investments to lower-risk assets, like bonds and cash. When markets recover, some of your investments may be moved back to higher-risk assets, like stocks and shares, to help you generate some bigger returns.
*Source: Barclays Equity Gilt Study 2019