I know, it’s pretty shocking that as a personal finance blogger and financial journalist I haven’t invested before this week. But truth be told, a lot of the common misconceptions weighed pretty heavily on my mind. The stock market seemed like a scary place. However, I wanted to try investing, so set about learning how to start investing. Here’s my guide to investing for beginners.
The (already low) interest rates on my savings accounts were slashed as banks tried to mitigate the economic damage caused by Covid-19. This meant there was little left to lose and potentially a lot to be gained from investing.
Recently, I took a big leap and set up my first investment account. I thought I’d share five key things I learnt from this experience in case you’re considering taking the leap yourself.
It’s important to note that this does not constitute personal advice. If you’re not sure whether an investment or savings account is right for you please seek professional financial advice.
1. Investing for beginners – it’s really easy to get started
While there’s many different ways to invest, setting up a basic account was remarkably easy. Most high street banks offer an investment hub alongside their main offering. This can be a really good place to start. I decided to try out my main bank’s (Santander) offering. As an existing customer, setting up an account was easy and took less than 30 minutes.
Don’t rush your decision. However, at this point there was no financial commitment involved. Instead, I gained access to the investment hub. Here, I could look at all the available opportunities and decide which would work best for my own circumstances. I would recommend spending some time familiarising yourself with all the options to make sure you choose the best one for you.
Different banks’ versions will differ in their offerings. For most, the basics will be similar as this is a standard offering for novice retail investors.
2. You don’t have to invest huge sums of money
As mentioned in my previous post about common investing misconceptions, a lot of people think they need to have thousands of pounds to invest. While I knew this wasn’t the case, I still thought the minimum investment would be around £500 – a significant sum for a lot of people!
There are accounts like this, but you can also start with much smaller sums. For example, the account I opened has a minimum investment of a £20 monthly direct debit or a £100 lump sum. This made me feel more relaxed about the situation, as I could try out investing and see if it’s for me. I also didn’t have to risk losing a huge amount of money in the process.
This also makes investing accessible to a lot more people than most would think. It is not (and shouldn’t ever be!) reserved for the super-rich. Making everyone’s money work as hard as the individuals do to earn the money could go a long way to lowering wealth inequality.
3. Your money is not locked away
I used to think that when I invested money it would be very difficult to access and it would be lost for a significant period of time. Some accounts might make it difficult to withdraw funds, particularly if larger sums of money are involved. But, with lots of basic accounts you can access your money whenever you like. This again reduces the financial risk you’re undertaking and making investing more accessible.
That said, investments are not designed to be held for short periods of time. You shouldn’t necessarily rush to withdraw your money as soon as you see a slight downturn. Financial markets are notoriously volatile and it’s likely your investments will recover and exceed their previous value in time. Remember: Compound interest is your friend.
Having flexibility is always a good thing, as you can access your money in an emergency or if an unexpected expenditure comes your way. But in general, it’s better to try and hold any investments for at least five years to maximise your returns.
4. Stocks and Shares ISAs are your friends
There’s a plethora of different accounts out there, all offering slightly different things. For me, an ISA seemed like the natural choice- being new to investing, it was nice to use an account that was familiar.
Aside from being familiar, Stocks and Shares ISAs have the added bonus of falling within a tax free wrapper. This means you won’t have to pay any tax up to the ISA limit, which currently stands at £20,000, but is subject to change. This could save you significant sums, especially if you start investing larger amounts. You can save tax in three ways: no capital gains tax on gains received within an ISA (this is good if you exceed the annual £12,000 CGT limit); dividends are tax free; and there’s also no income tax on interest received from corporate bonds.
When you start investing, you’re unlikely to make enough to have to pay tax right away. However, it’s good to consider these options so you’re prepared when you do.
5. Always read the small print
We’ve all got used to just scrolling through and clicking ‘Yes, I’ve read the terms and conditions.’ Has anyone ever read Apple’s 100+ pages of T&Cs??
But, with investments, or any financial document for that matter, you must read the small print – and there’s a lot of it. It’s easy to think you already know it all and there’s no need to bother. But, a lot of the information is important and explains your entitlements and your liabilities as an investor.
Skipping over aspects like minimum balance requirements, dividend payments and risk appetite may mean you face some nasty shocks down the line. These could all have been avoided by taking an extra few minutes to read all the documents. So when it comes to investing for beginners, it’s important to read and understand the fine print.
As I mentioned earlier, I plan on taking you on this journey with me and sharing any successes or problems I encounter along the way.
If you found this post about investing for beginners interesting, please like and share across social media or send it to your friends. I’d also love to hear your experiences, particularly if you’re embarking on a similar journey! What are your top tips on how to start investing?