Always remember that investments can go down as well as up in value, so you could get back less than you put in. A rule of thumb is to hang on to your investments for at least five years to give them the best chance of providing the returns you are hoping for.

Investing For Beginners - How To Invest In The UK Stock Market

Updated On: Oct 2, 2021
Investing For Beginners UK

Contents:

What is Investing?

Investing is a way of setting money aside with the expectation that your money will grow in value over time. When you invest, you are essentially putting your money towards assets in the hope that they will appreciate in the future. 


As the value of your assets appreciates, you make positive returns on your investments and generate some income along the way. In the same way, the value of your assets could also fall, and you could lose the money you invested.


Why invest in Stocks and Shares?

We all have financial goals. For some, it might be saving towards long-term goals such as living comfortably in retirement. For others, it might be saving towards significant life events such as buying a home or getting married. 


Whatever the goal, investing in stock and shares can be a great way to grow your money and can offer you higher long-term returns than leaving your money in a savings or current account. 


According to a 2019 Barclays Equity and Gilt survey, shares do better than cash nine times out of ten in any ten-year period. This reduces to seven times out of ten when investing for just five years.


People often ask how much money can be made in the stock market. On average, the value of your investment could rise by about 3 - 12% a year depending on a number of factors, but there are no guarantees.


The success or failure of your investment portfolio will usually depend on several factors, including:

  1. The number of assets in your portfolio.
  2. The extent of diversification of your portfolio.
  3. The performance of each asset.
  4. The length of time you hold each asset.
  5. The investment fees.


Apart from the value of your investments appreciating, you can also earn regular income from some of the companies you invest in when they make a profit. This income is called a dividend. A dividend is your share of a company's profit.


As you progress in your investment journey, you will come across the phrase, "past performance is not a reliable indicator of future results". This is usually to let you know that sometimes your investments can fail, and no human or algorithm can predict how your investments will perform. A company's past performance cannot guarantee its future success, so the onus is on you to do your own research before investing in the stock market.


What is the Stock Market?

The stock market is a marketplace where shares and other assets are bought and sold. There are several stock markets around the world, and in the UK, the main exchange is the London Stock Exchange (LSE). 


The LSE offers trading in shares from big names you'll have heard of, such as Vodafone on its main market, to smaller companies such as ASOS listed on the Alternative Investment Market (AIM), its junior market. Anyone can buy shares on the London Stock Exchange, but you need to go through a stockbroker.

When you start investing in the stock market, you'll come across market indices. In the UK, the main indices are the FTSE 100 (an index of the 100 largest companies on the LSE), the FTSE 250 (an index of the next 250 largest companies) and the FTSE All-Share (an index of all the shares listed on the LSE's main market). 


A market index is simply a group of shares of companies representing a particular segment. These companies are usually grouped by size and value.


Indices are used as benchmarks to gauge the movement and performance of market segments. For example, the FTSE 250 can be used to gauge the fortunes of the UK economy.


What should a Beginner invest in?

Beginners can invest in a variety of assets in the stock market. The major types of assets are stocks and shares, funds, bonds, commodities and properties.


  1. Stocks and Shares: ‍A share is a unit of ownership of a public company. When‍ you buy a share, you own a tiny part of a public company. So, if you bought a share in Apple Inc., for example, you will become a part-owner of Apple. If it performs well, you'll benefit from its success. If it doesn't perform well, you may lose some money.

    Companies issue shares to raise money to fund their activities. People invest in shares to benefit from the successes of companies they believe in.

    You may also come across the word, stock or equity. In most situations, stocks, equities and shares refer to the same thing. Stocks could also mean all your shares in one or more companies.


  1. Corporate Bonds: When you invest in a corporate bond, you are lending money to a company in return for interest.

  2. Government Bonds: When you invest in a government bond or gilt, you are lending money to a government in return for interest.

  3. Commodities: When you invest in commodities, you are investing in precious metals (gold, silver), oil, agriculture, etc.

  4. Properties: When you invest in properties, as the name suggests, you are investing in real estate.

  5. Funds: Instead of buying individual shares, bonds, properties, commodities or other assets directly, you can choose to invest in a mutual fund.

    A mutual fund (or fund) gathers money from you and other investors, and a specialist fund manager invests this money in assets such as shares, bonds, properties or commodities, saving you the trouble of buying shares in multiple companies or worrying about building a diversified portfolio.

    Investing in funds is safer and cheaper than investing in individual stocks, bonds or commodities since you share the risks and costs with other investors. Funds can be active (actively managed funds), passive (index funds) or traded on a stock exchange (exchange-traded funds - ETFs).

    Most people, including those who are experienced investors, use funds when investing. To fully appreciate how to invest in funds, read our Investing in Funds guide.

How much Money should a Beginner have before Investing?

Before you start investing, it is important to separate the money you want to invest with from your emergency fund and everyday spending pot.


Your emergency fund should be equal to at least three times your monthly living expenses. This will prevent you from dipping into your investments if you find yourself in any form of major financial crisis like a job loss or severe health problem. Try to keep your emergency fund in a high-yield, easily accessible cash savings account like a cash ISA or a standard easy-access savings account.


You also want to have an everyday spending pot so that you do not feel the urge to cash out your investments every time you need to buy groceries or hang out with friends.


More importantly, it is crucial to consider your wider financial position before investing in the stock market. This might include paying off any outstanding debts. Suppose you have £4,000 outstanding on a credit card charging interest at 19%, it will cost you £760 a year to pay back the debt. Your investments are unlikely to match this return, so it might be wise to pay off the credit card debt and other expensive debts before investing.


Once your finances are in order, you can invest as much or as little as you feel comfortable with. Most investment platforms and robo advisors will allow you to start investing with as little as £25 a month, and some even accept £1 a month. Investing small amounts regularly is known as 'drip-feeding' into your investment pot, and it can sometimes be better than investing a huge lump sum once.

How to start investing in Stocks in the UK

Here is a breakdown of how to start investing in the stock market:


  1. Decide what you want to invest in: First, you need to decide what you want to invest in - shares, bonds, funds, commodities, properties? Most beginners start with funds. As explained above, funds save you the trouble of buying shares or other assets directly or worrying about building a diversified portfolio. They are also safer and cheaper than investing in individual shares since you share the risks and costs with other investors.

  1. Choose an investment platform: You can buy investments from providers such as banks, building societies, stockbrokers, fund supermarkets, robo advisors, trading apps and other financial institutions. The specific provider you choose will depend on your objectives, investing savviness and personal circumstances. Scroll down to learn more about choosing investment platforms.


  1. Choose a tax wrapper: A tax wrapper reduces the amount of taxes you pay on your investments. Examples of tax wrappers in the UK are Individual Savings Accounts (ISAs) and pensions. Here are some examples:
  • ~~Stocks and Shares ISA: A Stocks and Shares ISA lets you invest your tax-free ISA allowance in qualifying investments such as shares, corporate bonds, government bonds (gilts) and funds. This tax year, your ISA allowance is £20,000. This means you can invest up to £20,000 in a Stock and Shares ISA, and you will not be taxed on any money you make on your investments. A Stocks and Shares ISA is also called an Investment ISA.
  • ~~Lifetime ISA: A Lifetime ISA is open to adults aged 18 and over but under 40 and lets you save up to £4,000 a year towards your first home or retirement. The government will add a 25% bonus to your savings every year up to a maximum of £1,000 per year.

  • ~~Pensions: Tax relief is available from the government when you pay into a pension, but you can’t access the money until you are 55 when you can take 25% as a tax-free lump sum.

  • ~~SIPPs: Self-invested personal pensions or SIPPs offer the same tax advantages as other pensions, but you have a greater opportunity to choose the underlying assets.

It is also worth mentioning that if you do not want to use a tax wrapper, perhaps because you have already used up your ISA allowance for the tax year, you can choose to invest in a general investment account (GIA). 


With the GIA, you are allowed to make up to £12,300 of gains tax-free. Additionally, the first £2,000 you receive in dividends is tax-free. Read our Stocks and Shares ISA guide for more information. 


Typical Investment Fees

We've outlined some typical investment fees below, focusing only on the fees charged by fund providers. Share-dealing platforms charge pretty similarly, so no need to worry about that for now.


Quick Tip: Fixed fees tend to work out cheaper for people investing high amounts, whereas percentage-based fees tend to be less expensive for those with little to invest.


  1. Annual Platform Fee: This is charged by the investment provider for providing a platform for you to invest in.
  2. Annual Fund Management Fee: Also known as Ongoing Charge Figures (OCF) or Total Expense Ratio (TER). This is the fee paid directly to the fund manager responsible for managing your funds. When you invest in funds, you typically select a few funds to invest in. If you selected three different funds, for example, you would be required to pay a fund management fee on each fund.
  3. Market Spread: Also known as transaction cost. This is the difference between the buy and sell price of an asset.
  4. Annual Investment Cost: Some providers display this cost as the annual fund management fee plus the market spread.
  5. Trading Fee: Also known as dealing fee. This is the fee for buying and selling funds, shares or other types of investments on the platform. It usually ranges from £0 to £25.
  6. Transfer Out Fee: Also known as an exit fee. It is the fee you pay for moving your investments from one provider to another. Consider, for example, if you decide to move your investments from AJ Bell to Barclays, you’ll need to pay an exit fee. That said, not all platforms charge an exit fee. But the ones that do typically charge per fund or holding.
  7. Advice Fee (Optional): This is only paid if you opt-in for personalised financial advice.


Seven Top Tips for Investing in the Stock Market

Here are our seven top tips for investing in the stock market:

  1. The higher the risk, the higher the reward (or loss): The higher the return you want, the more risk you'll have to be willing to accept. It's usually wise to take on more risk when you are young with many years ahead of you to ride out market fluctuations. As you grow older, you'll be more inclined towards medium and low-risk investments.


  1. Don’t put all your eggs in one basket: It is important to diversify your investments. This means investing in different asset types (e.g. shares, bonds) in various sectors (e.g. technology, food & beverage) and across different geographies (e.g. America, Europe, Emerging Markets). In practice, this is usually hard to achieve; that's why most people, including experienced investors, use funds when investing.


  1. Invest for the long term: Investing for the long term is one of the most rewarding habits you can acquire. If you know you'll need your money in two or three years, for example, you should consider putting your money in a high-interest cash savings account. Investing should always be for the long term, at least five years. This way, you give your money enough time to ride out any fluctuations in the market. You can use a compound interest calculator to estimate your earnings over a specified period.


  1. Consider investment charges carefully: Charges are important and can impact your overall returns. If an investment costs 2% and you receive a 5% return, your gain would reduce to just 3%.


  1. Review your portfolio: Whether you hold funds or shares or both, it is vital to review your portfolio regularly, so you don't end up with dud shares or poor-performing funds. While we do not advocate selling your investments every time the market takes a hit, if you are convinced you've invested in a rubbish fund, you may want to sell it and invest your money elsewhere. Additionally, your investments will change in value over time, and some assets may not align with your objectives. When this happens, you may need to rebalance your portfolio to keep with your investment goals.


  1. Don’t try to time the market: Since no perfect equation exists to tell us exactly how share prices will behave, trying to time the markets can be painfully futile. You may sell too quickly or buy too late. It is better to hold on to your investments through tough times and avoid making panic-driven decisions.
  2. Take advantage of tax-free accounts: When investing in the UK or other parts of the world, a rule of thumb is to always put the maximum amount in the tax-free account. In the UK, we have ISAs and pensions. These accounts are tax-efficient and help you limit your tax liability.

Best Investment Platforms for Beginners

At Koody, we divide investment platforms into three categories based on the type of service and level of support or guidance they offer. The three categories are robo advisors, trading apps and investment platforms.


Robo Advisors

Robo advisors are technology companies that provide automated financial planning with little or no human supervision. Their products include ready-made investments, managed investments and financial advice.

Robo advisors are excellent for beginner investors or those who do not want to deal with the hassle of choosing individual stocks, shares and other investments.

Compare some of the best robo advisors in the UK below. To make sense of the charges, use our robo advisor price comparison table.

Capital at risk. ISA rules apply. Other charges apply.


Moneyfarm - Mid-price range; Offers advice and ESG investments

Moneyfarm Logo
Account Type
Ready-made
Annual Fund Management Fee 0.20%
Annual Platform Fee
0.75% - 0.35%
Minimum ISA Deposit
£500

Moneyfarm is a UK robo advisor that provides you with a personalised investment plan based on your risk preferences. It has seven globally diversified risk-rated portfolios, including ethical investments. The team at Moneyfarm actively manages your investments, so you can be sure you've got a good mix of hard-working assets handpicked from around the world. You also benefit from free and personalised digital financial advice from Moneyfarm's investment consultants, and you can chat, phone, email, or meet your consultant in person. Moneyfarm's products include Stocks and Shares ISA, General Investment Account, and Personal Pension. Moneyfarm recently introduced the Environmental, Social and Governance (ESG) investment style to its portfolios.

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Plum - Low cost; Automatic investing; Beginner friendly

Plum Logo
Account Type
Ready-made
Annual Fund Management Fee
0.48%
Annual Platform Fee
£12
(first month free)
Minimum ISA Deposit
£1

When you subscribe to Plum Plus or Plum Pro (from £1 a month), you can choose to invest your money in a variety of funds. Plum calculates how much you can afford to set aside and automatically invests that amount for you. You choose your investments based on what matters to you. For example, you could choose to invest in emerging markets, technology, ethical companies, etc. Plum offers Stocks and Shares ISA, SIPP, and other money management tools.

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Chip - Low cost, Automatic investing; Ethical investments

Chip Logo
Account Type
Ready-made
Annual Fund Management Fee
0.17% - 0.97%
Annual Platform Fee
0.25% - 0.75% + (£1.50 - £3.00/month subscription)
Minimum ISA Deposit
£1

Chip recently launched its investment product which allows users to choose from three funds, namely Cautious, Adventurous and Balanced, depending on your risk appetite. The funds are passive and are managed by BlackRock - the world’s largest investment manager. Although the funds are ‘passive’, the Index Allocation team at BlackRock still monitors the funds on a daily basis. With Chip, you can enjoy automatic investments and savings via the Round Up feature and competitive interest rates on your savings.

Chip offers a tax-free individual savings account (Stocks and Shares ISA), General Investment Account (GIA) and Automatic Savings Account.

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Circa5000 - Ethical investments, Auto-investing; Beginner-friendly

Circa5000 previously Tickr Logo
Account Type
Ready-made
Annual Fund Management Fee
0.45% - 0.65%
Annual Platform Fee
0.50% + (£1/month subscription fee)
Minimum ISA Deposit
£5

Circa5000 is a UK robo advisor that gives you access to a variety of ethical investments. Their portfolios consist of ETFs of companies that intentionally generate social and environmental solutions - alongside a financial return. There are three portfolios to choose from - People, Planet and Planet & People. Each portfolio gives you the choice of three risk levels - Cautious, Adventurous and Balanced - depending on your risk preference. With Circa, you can enjoy automatic investments via the Round Up feature and access exclusive deals from many retailers, including Oddbox, Honest Mobile and Coral Eyewear.

Circa5000 offers tax-free individual savings accounts (Stocks and Shares ISA & Junior ISA) and taxable general investment accounts (GIAs).

Promo: Click the button below to access a £5 welcome bonus. Terms apply.

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Trading Apps

Trading apps allow you to buy and sell investments such as shares, bonds, funds, ETFs, crypto and CFDs. Unlike robo advisors, they do not provide financial advice or any form of guidance. Their services are aimed at people happy making their own investment decisions. 

Compare some of the best trading apps in the UK below.

Capital at risk. Other charges apply.


Stake - Commission-free trading; Fractional shares; Analyst ratings

Stake Logo
Annual Platform Fee
£0
Dealing Charge
£0
Regular Investor Charge
£0

Stake is a global commission-free brokerage that gives you access to 4,500 US stocks and ETFs via a mobile app and web interface. You can choose to upgrade to Stake Black to access more sophisticated features for US$9/month (or US$90 a year). Stake Free gives you access to all assets on the platform, unlimited commission-free trades, advance order types, and fractional trading. Stake Black gives you access to analyst ratings, price targets, full company financials, and trading on unsettled funds. FX rates apply to non-USD deposits and withdrawals. Stake does not offer ISA or SIPP.

Promo: Promo code: KOODY. Stake offers a free stock (Nike, GoPro, Dropbox or a mystery stock) for each new user that opens an account and funds it with at least £50 within 24 hours of opening the account.

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Investment Platforms

An investment platform, otherwise known as a fund supermarket, allows investors to buy, sell and hold a range of investments in one place, including shares, funds, bonds, commodities, properties, CFDs and more. You can think of them as a combination of robo advisors, trading apps and much more. They are quite powerful, and you can almost buy and sell any type of investment with them.


Compare some of the best investment platforms in the UK below. 


Capital at risk. Other charges apply.


Interactive Investor - One free trade every month; Lots of research

Interactive Investor
Account Type
DIY & Ready-made
Dealing Fee
£7.99 - £3.99
Annual Platform Fee
£120 - £240
Minimum ISA Deposit
£25

Interactive Investor has more than 40,000 investments to choose from, including UK and overseas shares, funds, investment trusts, and ETFs. You get a free trade every month, which you can use to buy or sell any investment. It is free to top up your ISA each month, and there are no trading fees with its regular investing service. It also has several ready-made funds and expert ideas to make it easy to choose investments. Interactive Investor also offers Trading Account, SIPP, and Junior ISA.

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InvestEngine - Low cost; Commission-free ETFs

InvestEngine Logo
Account Type
DIY & Ready-made
Third-party ETF Costs
0.15% - 0.25%
Annual Platform Fee
Free - 0.25%
Minimum ISA Deposit
£100

InvestEngine is a UK investment platform providing ready-made and commission-free DIY investments. Users can invest in ETFs through a Stocks and Shares ISA, personal account or business account. With InvestEngine, there are no setup fees, dealing fees, ISA fees or withdrawal fees. If you choose the DIY Portfolio, you can invest in ETFs commission-free. InvestEngine offers Stocks and Shares ISA, Personal Investment Account and Business Account (for companies).

Promo: Click the button below to access a £50 welcome bonus. Terms and conditions apply.

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eToro - Commission-free trading; Fractional shares; Crypto trading

eToro Logo
Account Type
DIY & Ready-made
Dealing Fee
£0
Annual Platform Fee
£0
Minimum Deposit
US$50

eToro is a commission-free multi-asset platform that offers both investing in stocks and crypto assets, as well as trading CFDs. It is entirely free to open an account with eToro, and all registered users receive a US$100,000 demo account for free. You also do not pay trading or platform fees with eToro. Withdrawals incur a fee of US$5, and FX rates apply to non-USD deposits and withdrawals. If you would rather select a ready-made portfolio, eToro has over 40 fully allocated, balanced investment portfolios, focusing on market segments you can understand and to which you can relate. Some of the portfolios include BigTech, DividendGrowth, GoldWorldWide, Vaccine-Med, FoodDrink, BitcoinWorldWide, CyberSecurity, Diabetes-Med, Driverless, GigEconomy, Utilities and many more. These portfolios are a grouping of several assets, such as stocks, cryptocurrencies, ETFs, and even people, bundled together based on a predetermined theme or strategy. eToro does not offer ISA or SIPP.

Note: Cryptoassets are a highly volatile unregulated investment product. No EU investor protection. Your capital is at risk.

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Vanguard - Low cost; No dealing fee

Vanguard Investor'
Account Type
DIY & Ready-made
Dealing Fee
£0
Annual Platform Fee
0.15% (max £375)
Minimum ISA Deposit
£500 lump sum
or £100 per month

Vanguard is a popular low-cost investment platform with over 70 funds. You can only invest in its own funds, and it does not offer share trading. It gives you the flexibility to choose a ready-made portfolio or build your own. Vanguard's products include SIPP, Stocks and Shares ISA and Junior ISA.

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To make sense of the charges, use our investment platform comparison table.


Frequently Asked Questions

1. Can you lose more money than you invest?

Yes, you can lose more than the amount of money you invested in the stock market.


However, the only time you really lose money in the stock market is when you are forced to sell your investments in bad years. If you can hold on to your investments even when the market takes a hit, things should get better in the following years, but there are no guarantees.

You may also lose money if you choose to invest in only one company, and that company fails. The riskiest thing you could do in the stock market is to invest in just one company. Ideally, you should invest in at least ten companies operating in different sectors and even different geographies. We recognise that creating a diversified investment portfolio like this can be quite tricky; that’s why most investors, even the experienced ones, invest in funds.


2. Can you make a lot of money in stocks?

Yes, you can make a lot of money from investing in stocks, but please remember that the stock market is not a place to create wealth. It is a place to grow your wealth.

The best way to create wealth is to build a company or get hired in an existing company. Depending on your circumstances, the business you build may create wealth for you passively or actively. As an employee, you create wealth actively by going to work and earning a wage.


The second-best way to create wealth is to cut your costs. It is the gap between your income and expenses that creates wealth. We cannot stress this enough. Do not let society pressure you into spending unnecessarily. If you need to track your expenses to understand your spending better, use our free budget app, Budget by Koody.


The third-best way to create wealth is to improve your skills. One of our favourite quotes is by best-selling author Hal Elrod. He wrote, "Your level of success will seldom exceed your level of personal development because success is something you attract by the person you become."


It is when you have created wealth that you may invest and grow your wealth in the stock market. Wealth can be anything from £1 to £1 billion or more, depending on your circumstances. Today, many investment platforms will allow you to start investing with as little as £25 per month. Some even accept £1 per month.


3. How do I research what to invest in?

There are many ways to research what to invest in. We recommend the following websites for company news, research and commentary: Motley Fool, ADVFN, Hargreaves Lansdown, Interactive InvestorCharles Stanley Direct and Citywire. Additionally, have a look at this Spot the Dog guide by Bestinvest - it shows underperforming funds that you probably want to avoid.

4. How much money should a beginner invest for the first time?

As a beginner investing for the first time, you can invest as much or as little as you feel comfortable with. Most investment platforms and robo advisors will allow you to start investing with as little as £25 a month, and some even accept £1 a month.

5. How can I invest with little money?

Here are some of the best ways to invest with little money:


  1. Robo Investing: Robo investing is automated financial planning offered by robo advisors. It is a simple way to invest in hundreds of stocks, bonds and funds directly from your smartphone without dealing with the hassle of picking individual stocks, shares or other types of investments. You can start robo investing with as little as £1.

  2. Automatic Investing: When you sign up for auto-investing, you give a finance app permission to invest your spare change in the stock market regularly. Automatic investment apps use their technology to estimate how much you can afford to invest and automatically invest it for you.

  3. Direct Debits (Regular Investing Service): Most investment platforms give you the option to invest small amounts regularly using their regular investing service. Tip: Regular investing dealing fees tend to be cheaper than standard dealing fees. Some platforms don't even charge a fee for regular investing.

6. What are the best investment platforms for beginners in the UK?

Here are some of the best investment platforms for beginners in the UK:

  • Plum - Low cost; automatic investing; beginner-friendly
  • Moneyfarm - Mid-price range; offers advice and ethical investments
  • InvestEngine - Low cost; commission-free ETFs
  • eToro - Commission-free trading; fractional shares; cryptocurrencies
  • Stake - Commission-free trading; fractional shares; analyst ratings
  • Chip - Low cost, automatic investing; ethical investments
  • Circa5000 - Ethical investments only, auto-investing; beginner-friendly


For more information on how to invest, check out these investing books.


You might also like 🤓

  1. Best Stocks and Shares ISA
  2. Best Share Dealing Accounts
  3. Best Investment Apps
  4. Best Automatic Investment Apps
  5. Best Pension Providers
  6. Best Money Saving Apps
  7. Best Budgeting Apps
  8. Compare Investment Platforms
  9. Compare Trading Platforms
  10. Compare Robo Advisors

Credits

  1. Gov.uk
  2. Money Advice Service
  3. The London Stock Exchange

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