Investing for beginners

10 need-to-knows to get you started

Are you thinking about investing for the first time? Our guide takes you through the 10 things you need to know about investing, including what and where to buy, and how much risk to take.

There are no guarantees when you're investing

Investing comes with risk, as the value of your investments can go down as well as up. If you decide to do it, it's recommended you invest for the long term (five years or more), as the longer you invest, the longer you have to ride out any bumps in the market.

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The 10 need-to-knows

  1. With investing, you're taking a risk with your money

    Investing is a long way from putting your cash in a savings account where it sits to earn interest. Instead of the security of guaranteed returns, you're taking a risk with your money. The hope is that you make a lot more than you put in (a juicy profit), but there's the possibility you end up with less (a nasty loss).

    You can invest in almost anything, from the most mainstream popular targets...

    • Shares
    • Bonds
    • Funds
    • Government bonds (gilts)
    • UK property market

    ... to the rather more exotic, such as...

    • Farmland
    • Vintage cars
    • Wine
    • Fledgling technology firms
    • Fine art

    For most, investing means putting money in the stock market

    This guide is first and foremost about investing in stock markets – it's most people's first experience of investing. And putting your cash into these markets is exactly what it says on the tin: you buy shares in one or more companies with the aim of making a profit.

    And although there are different ways to do it, such as funds (see below), the principle of investing remains the same: you're taking a gamble with your money as there's no guarantee you'll get it all back. In the worst case scenario, you could lose it all.

    This message is so crucial, it's worth repeating:

    Investing in stock markets is a risk: while you could earn small or earn big, you could lose small or lose big – and end up empty-handed.


    While the concept of stock markets may trigger images of young brokers yelling "Buy! Sell!", heads in hands one minute and fist-pumping the next, the reality of long-term investing tends to be rather more mundane – pick a few shares or funds, keep an eye on them and then cash them in when you need to.

    This is not the racy, glamorous or high-adrenaline action you see in Hollywood films where fortunes are made and lost in minutes – and thank goodness.

    For the vast majority, it's about nurturing a reasonable and calm attitude to the stock market in a bid to generate decent investment returns that can weather downturns and ride out wild surges.  

  2. A stock market is like a supermarket where you can buy or sell shares

    To keep it as simple as possible, and for the purposes of this guide, a stock market is simply a place where buyers and sellers meet to sell shares – each one a tiny part of a company listed on an exchange (see below).

    Why do shares exist in the first place? To grow, and hopefully boost profits to turn a business into a financial success, firms offer investors the chance to back them with their own cash.

    Enter a stock market: in return for your cash, a business offers you a share in its future – so you essentially own a tiny slice of that company and become a 'shareholder'.

    And if you wish, this slice of the company you own can then be traded with anyone who wants to buy it.

    Why does a company share price rise and fall?

    The price is initially set by the firm offering shares, but its price on any given day can be determined by poor financial results, the UK's economic health and so-called 'sentiment'. This is the general mood or attitude among investors – for example, if City buyers think a firm will struggle, its price can fall. Or if a company doubles its growth in a year and prospects look rosy, then its price will likely rise.

    Here in the UK, on a daily basis, people buy and sell billions of pounds' worth of shares on the London Stock Exchange. You can trade in any number of roughly 3,100 different types of companies. Shares are listed on an 'index' and the UK's biggest is the FTSE 100 – the 100 biggest firms.

    • How does a company get listed on the stock exchange?

      In industry jargon, 'going public' – or becoming a listed company on a public stock exchange where anyone can buy your shares – means striking a deal.

      In return for access to investors' cash (called 'capital') used to plough into staff, development and expansion, a firm takes on new responsibilities to investors, employees and the market itself.

      To actually be listed, a firm must hire an adviser – usually an investment bank – to draw up a so-called 'admission document'. This sets out why the firm wants to list, its targets for expansion, and a long-term strategy. Once a level of interest from backers is set, an initial share price is agreed, and trading can begin.

  3. You can make money, but you can also lose it all - there are no guarantees

    What kind of growth can I expect from investing? This is usually the question that most investors want an answer to – potential growth drives most people's decision to put their cash into the stock market. We'll be blunt: we can't actually tell you what you will get (and don't believe anyone who says they know – they're lying). But we can give you an idea of what can be achieved.

    Fixed-rate savings bonds are among the surest ways to see growth on your savings – in return for locking away your money for a set amount of time, banks will pay a fixed amount of interest, determined at the start and guaranteed until maturity. Though whether interest rates are high or low, they rarely outperform inflation by much, if at all. Understandably, the incentive to look elsewhere for decent returns remains strong.

    Of course, everyone would prefer to make 10% on their cash but only if you take the right level of risk to suit you. We've said it above but there's no harm in repeating this till we're blue in the face...

    Warning: Investing is risky and any money you put in could fall in value. Put bluntly, you could lose it all. There's a reason you'll see the phrase 'Past performance is no indicator of future success' – you've no guarantee your investment is going to do well.

    To show how the market fluctuates, let's take a look at the S&P 500, an index fund on the stock market made up of 500 large US companies. It's one of the most popular funds to invest in globally and has seen an average annual return of 10.7% since it began in 1957.

    However, this has been far from a fixed rate of return year on year. Some years see sharp spikes, such as in 2019 when the S&P 500's annual return was 31.5%. Other years have experienced deep troughs, like during the financial crisis of 2008. In the 12 months ending February 2009, the S&P 500 returned -43%.

    This serves to back up our point about investing for the long-term and our other golden rules...

    5 golden rules.

    ALWAYS remember the five golden rules of investing:

    1. The greater return you want, the more risk you'll usually have to accept.

    2. Don't put all your eggs in one basket. Try to diversify as much as you can to lower your risk exposure – in other words, invest in different companies, industries and regions.

    3. If you're saving over the short term, it's wise not to take too much of a risk. It's recommended you invest for at least five years. If you can't, it's often best to steer clear of investing and leave your money in a savings account.

    4. Review your portfolio. A share might be a dud or you might not be willing to take as many risks as you did before. If you don't review your portfolio regularly, you could end up with a share account which loses money.

    5. Don't panic. Investments can go down as well as up. Don't be tempted to sell or buy shares just because everyone else is.

  4. Only you can decide if investing is right for you

    It doesn't matter if you're about to buy your first share or pick a stock market fund for the first time, always ask yourself WHY you're looking to invest.

    Over the long run, historically stocks and shares have outperformed money in savings accounts.

    But that's no guarantee they'll do so in future. It's all about your personal circumstances. For example, you might be one of the many who have despaired at how interest on savings accounts is eaten away by inflation and are prepared to take a risk in the hunt for bigger returns.

    Or you may have drawn up a well-researched plan to save £10,000 over the next decade to help pay for your children's school fees. In both cases, investing could offer a way for you to achieve your goals.

    Be careful if somebody offers you advice

    If a friend has suggested a share tip in the pub, or a family member or friend has suggested you "bung a few quid" into a hot share or fund that is currently – in industry jargon – "shooting the lights out", it's probably best to think twice unless you've money to spare that you can afford to lose.

    Take a good, honest look at your finances 

    If you're struggling to keep up with credit card payments, say, or have taken on an expensive remortgage and have little savings, it's time to step back and think again.

    This might sound like basic housekeeping, but the lure of quick gains in the stock market can prevent many people from seeing how dire their overall financial situation might be.

    If this is you, far better to try to sort out your personal debts than turn the risk of making them far worse: see our Debt Help guides. Or if on reflection a savings account would be a far better home for your money, see our guides to putting money away in a cash ISA or top savings account.

  5. You should never invest more than you can afford to lose

    Too many people think you need to have a load of cash to be able to invest in the stock market – you don't, and many smaller investors who 'drip-feed' in small sums on a regular basis can do much better than those who simply dump a big lump sum into the market.

    As a rule of thumb, you should never invest more than you can afford to lose. This is because, in the event of a stock market crash, you could face losing a huge chunk of your wealth if you have too much of your money invested. Many financial advisers would suggest you invest for at least five years. This allows enough time to ride out any bumps in the market that might see you make a loss on your money.

    Remember, as we say above, if you've little savings and are heavily indebted, gambling on stock markets could be bad for your financial health. If you've built up a nest-egg, though, and are fed up with savings rates being eaten up by inflation, putting a chunk of it (that you don't need to rely on for living expenses) on the stock market could be a decent way to try to earn bigger returns.

    Many fund managers allow you to invest a regular small monthly sum – typically £25 a month – which will help build up a larger sum over time, as well as being more manageable for your finances.

  6. The cheapest way to invest in stocks is through a website, often called a platform

    You can buy shares or funds from different providers, but for the cheapest offers you'll want to do it through a website, often called a platform.

    Sell. Buy.

    It's actually a two-stage process. First you need to pick which platform to buy your shares or funds from, then you need to decide what investments to buy.

    It's like buying bread. You first need to pick where you want to buy the bread (decide which platform to use), then choose which bread you want to buy (your shares or funds).

    As a rule, you'll be charged for using the platform and buying the investment. To stretch the analogy somewhat, imagine each bakery charges a different price for its shopping bags.

    Some bakery's bags are cheaper than others, but the ones that have the most expensive bags may sell the cheapest bread. So it's a combination of the two factors that needs to be taken into consideration to get the most for your dough (sorry!).

    Note that while the platform fee is charged by the platform you choose, the company buying the shares on your behalf or running the funds will be charging you for its service.

    A stocks & shares ISA is a good place to start your investment journey. 

  7. A share is a small unit of the value of a company

    A share is simply a divided-up unit of the value of a company. For example, if a company is worth £100 million, and there are 50 million shares, each share is worth £2. Those shares can, and do, go up and down in value for various reasons.

    Companies issue shares to raise money and investors (that's you) buy shares in businesses because they believe the company will do well and they want to 'share' in its success. See our Shares guide for a full rundown, and remember what you choose will be down to your attitude to risk.

    Shares can pay dividends too

    There are two ways you make money from investing. One is when the shares increase in value (and you profit when you sell), the other is when they pay dividends.

    These are a bit like interest on a savings account. If a company makes a profit, it gives some of it back to you – it could be on a regular basis or as a one-off. And just as you have a personal savings allowance for interest on savings, you also have a dividends allowance each tax year where the first £1,000 you receive is tax-free. (This allowance will drop to £500/year from April 2024.) See a full rundown in our guide.

  8. A fund is where lots of investors pool their money together to invest in lots of different shares

    A fund is simply another way to buy shares – but instead of you buying a slice of a company directly, you give your cash to a specialist manager who pools it with money from other investors (like you) to go and buy a job lot of shares in a stock market.

    Each fund is made up of 'units' so if you want to invest, you'll need to buy units – and these come at a cost which varies from day to day.

    The value of each unit will rise or fall depending on demand in the market for the fund. Say you want to invest £1,000 in a fund; if each fund unit costs £2, you can buy 500 units. Six months later, if each unit is now worth £2.50, your investment is worth £1,250.

    Share certificate.

    Funds can invest in almost anything – countries, energy, gold, oil, even debt

    All funds have a theme – anything from geography (European, Japanese, emerging markets), industry (green companies, utility firms, industrial businesses), types of investment (shares, corporate bonds, gilts), to the size of the company. What you choose will be down to your attitude to risk.

    Say the fund focuses on 'fledgling biotech companies in emerging markets', all the elements involve a high degree of uncertainty. So if it goes well you could be in for massive gains, but if it goes badly, massive losses.

    Alternatively, it could be a FTSE 100 tracker, where the fund simply invests in the UK's 100 biggest companies, and therefore is much more mainstream.

    Here, while there can still be substantial ups and downs, the fluctuations are likely to be smaller. See our Funds guide for a full explanation.

  9. Investing in an ISA should ALWAYS be your first port of call

    Everyone in the UK over 18 has a £20,000 annual ISA allowance – which means you don't have to pay any tax on any stock market gains you may make.

    You can choose to use all of this ISA allowance for a stocks & shares ISA, or you can put some in a cash ISA and the rest in a stocks & shares ISA. 

    Read our full guide for the lowdown on how it works, plus see our Lifetime ISA guide if you're saving for your first home.

  10. Research, research, research!

    If you're not sure what type of investment to pick, or concerned you might take on too much risk, there are plenty of free websites packed full of detailed fund and stock market information.

    Here are our top picks to get up-to-date, in-depth and easy-to-read information on shares and funds – and they'll help you keep an eye on performance too... 

    Hargreaves Lansdown.

    Hargreaves Lansdown

    It has a helpful and easy-to-navigate website jam-packed with free information about funds – and you can make the most of this whether you sign up to buy funds or not.

    You can search for shares or funds by name, company and sector to find out more about them. Or start by reading about the type of investment sector you're interested in investing in; for example Asia, the US, smaller companies in the UK or the so-called 'Equity Income' sector.

    For each, you can find an overview of how it's performed over specific time periods as well as reviews of specific funds within the sector and an explanation of how the sector itself works.

    Its research team have compiled the Wealth Shortlist – a collection of funds selected for their performance potential – a great place to get started. 

    Interactive Investor.

    Interactive Investor

    Interactive Investor has a wide range of information, including beginners' guides on a range of investments and a glossary of terms you might come across while you're researching investments.

    In particular, Interactive Investor's research team has produced tables showing the top 10 funds, the bottom 10 funds and the 10 most traded funds on its website in each monthly period.

    If you sign up for an account you'll also be able to access the more in-depth technical insight section. Here, once you're logged in, you'll be able to select specific funds and review performance and see any patterns that have emerged over time.



    Bestinvest's research team looks at more than 85,000 funds and compiles research on a monthly basis.

    The website has a huge range of guides available to download for free, covering everything from how to spot the worst performing funds to the top-rated funds and general information on how stocks & shares ISAs and other products work.

    Bestinvest's Premier Guide is a summary of all the top funds (in Bestinvest's opinion) and breaks down how it chooses them and rates funds as well as in-depth information on all the top performers.

    You'll also find stock market news and a tool that allows you to search for particular fund managers by their performance and track record.

    Charles Stanley Direct.

    Charles Stanley Direct

    The market data section of this website breaks down lists of FTSE companies and allows you to check performance for any time period from one day to three years. 

    You can also check which companies have risen and which have fallen, or view any changes by whole industry sector. All the information is updated every 15 minutes so you get an accurate feel for what's going on in the market.

    There's also a news section on the website which is split by news, comment and fund research – so there's plenty of reading you can do before you get started.

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