INVESTING FOR BEGINNERS
It’s a myth that you have to be rich to invest. So whether you have £1k or £20k, here are some simple ways to start…
Follow our simple advice to earn more from your savings
With most bank accounts barely paying enough monthly interest to buy a latte, it might be time to think outside the box about how to make your money grow. And once you’ve paid off debt and saved some emergency money, investing is a smart way to earn more on your savings. As Maike Currie, from Fidelity Personal Investing, explains, ‘Anyone holding cash will struggle to achieve a decent return. Over the long-term, stock markets beat cash. For example, Fidelity calculated that if you put £20,000 in the average savings account 20 years ago, you would now have £25,816. But if you’d invested the same amount at the same time in the FTSE All-share Index, which represents the share prices of companies listed on the London Stock Exchange, you’d now have a chunky £67,312.’
It’s a myth that you need to be rich to invest; you can put as little as £25 a month into most stocks and shares funds. To help you take the first steps, here are some ideas on where best to invest – whatever your budget.
THE SUM: £1,000
WHAT TO INVEST IN? Even a smaller sum can be spread across several types of investment, including cash, shares and bonds. The new breed of online investment services are perfect for beginners; you’ll answer questions about your financial goals, then the ‘robo-adviser’ picks a suitable combination of investments and manages your money for you. Some allow you to invest from as little as £1. HOW TO DO IT? Opening an account via companies such as Nutmeg, Wealthify, Moneybox, Moola and Moneyfarm is easy to do and only takes a few minutes. Watch out for fees: expect to pay around 1% of your investment a year, including to the robo-adviser and for the investments themselves. WHAT ARE THE RISKS? As with any investment, the stock market can go up as well as down and you could lose money. Before you invest, always ensure the company is authorised and regulated by the Financial Conduct Authority (FCA), as there are strict rules in place to ensure your money is safely handled.
THE SUM: £2,000
WHAT TO INVEST IN? Consider putting it in your pension. ‘Even if you don’t earn enough to pay tax, you can still put up to £2,880 a year into a pension, and get it topped up to £3,600 by HMRC,’ says Philippa Gee from Philippa Gee Wealth Management. HOW TO DO IT? If you have a workplace pension, see if you can make additional voluntary contributions – especially if your employer will add extra, too. Otherwise, Justin Modray from Candid Financial Advice suggests opening a stakeholder pension, from the likes of Legal & General or Aviva.
WHAT ARE THE RISKS? You can’t tap into your pension until 55 at the earliest, so don’t put in money you might need sooner.
THE SUM: £5,000
WHAT TO INVEST IN? If you have children, you could open the junior version of an individual savings account (ISA). From April 6th, you can put up to £4,260 a year in a Junior ISA – any interest, income and gains will roll up tax-free until the child reaches the age of 18. No children? Anyone under age 40 can put up to £4,000 a year in another variety of ISA, the Lifetime ISA (LISA) – and the Government will add an extra 25% on top. Money in a LISA can only be used towards buying your first home or for retirement, otherwise you’ll lose the bonus and pay a penalty. HOW TO DO IT? There are plenty of Junior ISA providers out there, so pick one with low fees. ‘Charles Stanley offers a great combination of low charges and investment choice, with minimum investments of a £500 lump sum or £50 a month,’ says Damien Fahy, founder of moneytothemasses.com. ‘For a smaller budget, try Hargreaves Lansdown or AJ Bell. For a hands-off approach, Wealthsimple is one of the few robo-advisers to offer a Junior ISA.’ WHAT ARE THE RISKS? No withdrawals before the child reaches 18. And, at 18, your child has direct access to the cash – so make sure you teach them about money beforehand!
THE SUM: £20,000
WHAT TO INVEST IN? Adults can stash up to £20,000 in the current tax year in a stocks and shares ISA. Buying shares in individual companies is riskier because your returns depend on the success or failure of those specific firms. Instead, consider using funds, where your money is spread over lots of companies, countries and types of investment. There are two main types of funds you can invest in: actively managed funds, which are run by fund managers who work out the best investments for you, and passive funds (or index-tracking funds), which are run by computers. If you’re starting off, passive funds are the cheapest way to invest. Lots of financial service companies run index-tracking funds, including Legal & General, Fidelity, Vanguard, ishares and HSBC.
HOW TO DO IT? For help choosing, moneywise.co.uk has a list of first 50 funds for beginners. To avoid paying tax on your investments, tick the box that says you want it wrapped in an ISA when you’re setting up an investment. And keep an eye on fees as these can really add up.
WHAT ARE THE RISKS? Investing a large amount could be painful if prices then plunge. Think long-term: at least five years and, ideally, much longer. Consider setting up a direct debit to invest smaller sums in your chosen investments every month, rather than investing the whole lot on one day. This also avoids missing out while waiting for the best time to invest.
‘INVESTING IS A SMART WAY TO EARN MORE’