Investing for beginners

Figuring out how to invest money, and where to invest it, can be complicated. With these tips, you'll be ready to start investing soon!

What is investment?

When you are investing, you are buying a property with the expectation that it will increase in value over time.

'Assets' include things like stocks, bonds, property or even valuable collectibles or art. This also applies to the likes of Bitcoin and NFTs, and the objective is usually to buy low and sell at a higher price to make a profit.

It is important to remember that no investment is without risk. Some are less risky than others, but there is always a chance that your asset could be worth less.

The most common way to invest money is through the stock market. By buying a stock or shares, you are essentially buying a piece of a company (such as Apple, Amazon, Tesla or Tesco). If the value of the company increases, your share price will increase in value as well.

Andrew Hallam says:

If you're going to invest, buy assets that are valuable over time (investments that increase in value). Cars lose their value every year, so it's best to spend smaller amounts on assets that add value (such as cars) and more on assets.

Here's how to start investing money today:

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set your investment goals

Before investing in the stock market, it is important to set some goals.

Do you want to build capital (through stocks that increase in value) or generate income (through dividends, for example)? Are you planning to invest for your retirement or do you want the money back quickly?

Keep in mind that investing is usually a long-term strategy, held over five to 10 years (if not more).

If you know you'll need the money before that (for example, to buy your first home), it's probably best not to risk any large sums of money. This is because the stock market is volatile and the longer you leave it in your investments, the more time it has to get out of any downside.

Decide how much you want to invest

Once you have set your investment goals, it is time to see how much you can invest. While it is tempting to throw your entire maintenance debt into stocks to make a quick buck, you should never invest more than you can afford to lose.

Buying stocks and shares are the most common ways to invest money, but there is always risk involved. The market can go up and down, so it's best to leave your money in the stock market as long as possible (we'll explain why later).

Therefore, investing should not be seen as a way to make quick money. If you need the money soon, like for a vacation, it's best not to risk putting it in the stock market. You never know what might happen, and if the market crashes, you won't have enough time to recover from it.

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choose your investment

Choosing which stock, stock or fund to buy can be a bit overwhelming, especially when you are new to investing. But this is where research comes in. Always make sure you know what you invest in - just because someone on Twitter said a certain stock is a good option, doesn't mean it's true!

There are many types of investments you can make in the stock market. You can buy shares of individual companies, which is a more practical approach, or you can buy index funds (such as the S&P 500 or FTSE 100).

Index funds track the value of a group of stocks or bonds. For example, the S&P 500 tracks the top 500 companies in the US and the FTSE 100 tracks the top 100 companies in the UK.

Instead of buying one share of each company (which would be very expensive and time-consuming), you can invest in an index fund instead. Since your money is spread across many different companies, it is often considered an easy and low-risk way to invest.

Diversifying your portfolio is the best way to reduce risk. You can do this by investing in index funds, but also by spreading your investments across different markets, geographies and industries.

To open a brokerage account, you will most likely need:

proof of identification

your national insurance number

Personal details (name, email, address, bank account, etc.).

Have a look at Vanguard's ISAs for stocks and shares. Otherwise see our guide to investing with eToro.

buy your investment

Before making any investment, do your research on the company or index fund. Know what you are buying and whether it suits your investment goals.

When you're ready to buy your investment, log into your online brokerage account and search for the stock or fund you want to buy. While all brokerage platforms operate a little differently, buying shares is pretty straightforward. Find the company or index fund you want to invest in and add the number of shares you want to buy.

When buying and selling shares, you may have to choose between a market or a limit order. Here are the differences:

Market Order - You buy or sell a stock as quickly as possible for the best price available

Limit Order - You buy or sell a stock at a specific or better price.

When setting a limit order, you can get a better price for the shares, but it may take a little longer to buy.

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Some brokerage accounts also allow you to set up automatic investments. This means that it will automatically buy multiple shares/funds every month.

track your investments

congratulation! You are now an investor!

The only thing left is to keep an eye on your investments and sell them when you feel it is the right time. But if you have a long-term strategy, it may not happen for many years.

Obviously, you don't have to log into your brokerage account every day, but it's good practice to check in every few months.

Don't get stressed when your investments are going down a bit. The market goes up and down constantly, so remember to look at the bigger picture. If necessary, you can always reevaluate your strategy.

The way you make money with investing is by selling a stock that has increased in value, or receiving dividend payments. Unless you make your investments in a stock and share ISA, you will have to pay tax on your capital gains or dividend income if you exceed the limit.

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Is now a good time to invest?

Now that you know how to invest your money, you may be wondering if this is the right time to start. With the price of a stock constantly going up and down, you want to make sure you buy at the lowest price possible to maximize your profits, right?

A good investment is one where you understand what your money is doing. You should never invest in something you don't understand. Just because someone said on social media that a company would do well, there is no guarantee that it will actually increase in value. Always do your own research and don't invest more than you can afford to lose.

When you spread out your investment (for example, in an index fund) and leave it on for a few years, it's not necessarily a bad time to invest, just a bad time to sell.

The longer you leave your money in low-risk investments like index funds, the longer it will take for it to recover from any downside. It's about timing the market, not timing the market.

If you take a look at the graph above, you can see the value of the FTSE 100 Index Fund (a collection of the 100 largest companies on the London Stock Exchange) since it was created in 1984.

Even though it has experienced some ups and downs over the years (the 2008 financial crisis, highlighted by number one, and the start of the COVID-19 pandemic, highlighted by number two), the market has corrected further. continues to grow.

This is why it is so important to give your investments time to grow. It's quite possible that your investments will lose value at some point - but the more willing you are to give them up, the more likely you will be to outweigh any downside.

Andrew Hallam says:

If you're 20, you may actually have money working for you until the day you die. Sure, you'll be selling some of it to cover the cost of living after you retire, but you don't want the cost to anchor your money for a lifetime.

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How to Start Investing for beginners