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 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.
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:
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.
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.
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.
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.
Here is a breakdown of how to start investing in the stock market and a handy video on how to invest in funds (ETFs specifically) with InvestEngine:
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.
Here's a video on how to invest in funds (ETFs specifically) with InvestEngine:
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.
Here are our seven top tips for investing in the stock market:
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 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 themselves.
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 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. Capital at risk.
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.
Capital at risk.
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. Capital at risk.
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). Capital at risk.
Promo: Click the button below to access a £5 welcome bonus. Terms apply.
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 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 an ISA or SIPP. Capital at risk.
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.
DEGIRO is an award-winning investment broker that allows you to trade in stocks, bonds, ETFs, options, futures, warrants, certificates and more across 50 international exchanges. It offers tens of thousands of regulated financial instruments that enable investors to diversify their portfolios worldwide. With DEGIRO, you can invest in up to 200 commission-free ETFs. This means you may not have to pay a dealing charge when you invest in just ETFs (terms apply). Dealing in UK stocks costs £1.75 + 0.014% per deal, while US stocks cost €0.5 + $0.004 per share and Irish stocks are €4 + 0.05% per deal. To make sense of the charges, click here. DEGIRO currently has over 1 million customers across 18 countries. It is suitable for both beginner and advanced investors, and you can access the platform on any device via the web portal or mobile app. DEGIRO does not offer an ISA or SIPP.
Capital at risk.
XTB is an easy-to-use, fully customisable European trading platform and one of the largest stock exchange-listed FX & CFD brokers in the world. It provides retail traders instant access to hundreds of global markets. With XTB, you can trade in stock CFDs, ETF CFDs, forex, indices and commodities. XTB also has an extensive library of educational materials containing videos, webinars and courses suitable for both beginners and experienced investors, which you can find here. When you sign up, you will have access to a dedicated account officer who will help you understand your needs and how XTB works. It’s free to open a trading account with XTB. Deposits in GBP and EUR are free of charge, but withdrawals below £60 have £12 processing fee. Inactive accounts also attract a monthly fee of €10.
XTB has offices in over 13 countries, including the UK, Germany and France, and over 315,000 customers worldwide. XTB does not offer an ISA or SIPP.
Please note: Contracts for Difference (CFDs) are leveraged products and carry a significant risk of loss to your capital, as prices may move rapidly against you, and you may be required to make further payments to keep any trades open. Between 74-89% of retail investor accounts lose money when trading CFDs. These products are not suitable for all clients. Therefore please ensure you fully understand the risks and seek independent advice.
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 buy and sell almost any type of investment with them.
Compare some of the best investment platforms in the UK below.
Capital at risk. Other charges apply.
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). Capital at risk.
Promo: Click the button below to access a £50 welcome bonus. Terms and conditions apply.
eToro is a multi-asset platform that offers both investing in stocks and crypto assets, as well as trading CFDs. 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. If you prefer to pick individual stocks or cryptocurrencies, eToro has a wide range of investments for you to choose from. It is entirely free to open an account with eToro, and all registered users receive a US$100,000 demo account for free. Withdrawals incur a fee of US$5, and FX rates apply to non-USD deposits and withdrawals. eToro does not offer an ISA or SIPP.
Please note: Cryptoassets are a highly volatile unregulated investment product. No UK or EU investor protection. Your capital is at risk. Additionally, 68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
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.
Capital at risk.
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.
Capital at risk.
To make sense of the charges, use our investment platform comparison table.
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.
Yes, you can make a lot of money from investing in stocks, but you can lose a lot of money too. Always 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.
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 Investor, Charles 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.
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.
Here are some of the best ways to invest with little money:
Here are some of the best investment platforms for beginners in the UK:
For more information on how to invest, check out these investing books.
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