Are you thinking about investing for the first time? Our guide takes you through some of the basics, then outlines how our tools can help along the way
Our website offers information about investing and saving, but not personal advice. If you're not sure which investments are right for you, please speak to a qualified financial adviser.
The value of investments, and the income from them, can go down as well as up, so you may get back less than you invest.
You can invest in almost anything but the most common investments are:
There are also more niche options which may require more analysis and technical knowledge, such as:
Before deciding to invest, you’ll need to review your finances. Everyone’s situation is different but here are some key things to think about.
If you have any outstanding personal debt such as a personal loan, credit card, or car loan, you should work towards paying these off before you think about investing. Paying off a loan is like a risk-free investment – if you have a credit card debt which is charged at 17%, you are getting a guaranteed risk-free 17% return when paying it off, which any right minded investor would jump at!
If you have a mortgage and are on a higher interest rate, you should focus on paying off the loan until you can either re-finance at a lower rate or it is paid off entirely.
You want to always have some cash on hand for emergencies. A good rule of thumb is to have enough to cover between 3 and 6-months expenses assuming you have no income.
In terms of how much you can invest, it again comes down to your personal finances. You can invest with a lump sum, or by setting up a regular monthly plan. In general we prefer the latter, as it can help budgeting knowing that a portion of your monthly income is automatically being invested.
Remember that when investing you should think of it as locking away the money for the longer term, in general at least a five-year period.
Everyone’s financial circumstances are unique and so there is no one-size fits all approach to investing.
We have developed tools which aim to demonstrate some key financial concepts and strategies to be aware of when investing.
The first is the Asset allocation tool – which shows you some of the key concepts involved in picking which types of investment (e.g. shares or bonds) should go into your portfolio and how much of each type (e.g. 50% shares 50% bonds).
Research has shown that, if you have a diversified portfolio, the vast majority of your performance (in terms of volatility and returns you earn) is traced back to your asset allocation, with the selection of individual shares or bonds within each category being secondary and having far less impact.
The tool demonstrates some well-established financial principles to be aware of when thinking about your asset allocation, they are:
Which investment types might be right for you
When it comes to investing in shares or bonds we think index tracker funds are the obvious choice for most people vs share selection or actively managed funds. They have generally outperformed their actively managed counterpart over the long term due to lower fund charges, and share selection is too lengthy a process with investors needing to decide on at least 20 different shares to diversify their portfolio in the way a fund can instantly.
Remember that even though differences in fund charges can seem small they have a huge impact on overall performance over long investment periods.
When it comes to picking index funds there are some things to consider:
Find share indexes
Search for ESG, geography and more
Find bond indexes
Search for bond type, geography and more
A lot of online investing platforms publish free research on market trends and specific shares (if you don't have a investing platform yet we cover that below).
The easiest and cheapest way to invest is online via an online dealing platform.
A platform will set up the ‘nominee account’ and hold the shares on your behalf, so you do not have to deal with any additional paperwork. You are still the legal owner of any shares or bonds you buy, but your name will not appear on the company’s share register.
Everyone in the UK over 18 has an annual £20,000 tax free interest ISA allowance (for the 2020/21 tax year, ending 5 April 2021) meaning that any interest or gains are not subject to income tax. You can use all of this in an investment ISA, or you can split it across the range of different ISAs available (e.g. cash ISAs).
If you've invested more than your annual ISA allowance you can use a share dealing account but remember this comes with no tax benefits.
Compare ISA platform fees and features
Share dealing accounts
Compare share dealing platform fees and features