How to invest

Now you can turn investment ideas into investment action.

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Ways to invest

Investing in an investment company means buying its shares on the stock exchange. There are various ways to go about it:

  • Investing with or without financial advice.
  • Investing regularly – e.g. monthly, or in lump sums now and then.
  • Investing within a special account with tax benefits – like an individual savings account (ISA) or self-invested personal pension (SIPP).

If you invest without advice you’ll need to select your own investment company. You can do this by buying your shares directly through an investment platform.

Find out about getting financial advice.

Investing regularly

Instead of investing a lump sum you can choose to invest regularly – as little as £50 per month.

Investing regularly is one way of reducing the risk of investing in the stock market. To understand why, imagine that you have a large lump sum to invest. If you happen to invest this sum just before markets fall, you’ll immediately suffer a loss. Splitting that lump sum into several smaller amounts means that if markets do fall, you’ll benefit from investing some of the money at lower share prices.

This effect is sometimes called ‘pound-cost averaging’. This means that when prices are high you’ll buy fewer shares and when prices are low you’ll buy more shares, but because you’re investing regularly the difference will even itself out.

ISAs, Junior ISAs and self-invested personal pensions (SIPPs)

These aren’t investments in themselves. Instead, they’re accounts in which to buy and hold stocks and other investments. They offer tax breaks to encourage people to save and invest, so they are sometimes called ‘tax wrappers’.

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Getting financial advice

If you’re not sure whether investment companies are for you,
the right financial adviser can help.

What types of financial adviser are there?

Since 1 January 2013, financial advisers can either be ‘independent’ or ‘restricted’.

  • An independent adviser (IFA) must consider a wide range of suitable investment products (including investment companies) to determine which best meets your needs.
  • A restricted adviser may only recommend a limited range of investments, or investments from just one provider.

You should ask any adviser about the range of investments they recommend. If an adviser calls themselves independent and does not recommend investment companies, you should ask why.

Advisers must be registered with the Financial Conduct Authority (FCA) and may also belong to a professional body like the Chartered Institute for Securities & Investment (CISI). They need to have minimum qualifications and have a duty to maintain their professional competence.

Some financial advisers call themselves financial planners. This means they are likely to put a lot of emphasis on how you manage your income and expenditure through your life to meet your personal and financial goals.

What advice do they give?

An independent financial adviser’s job is to offer impartial advice on anything from tax planning to investments to insurance.

  • They give advice that’s specific to you – their first task is to understand your particular financial situation and goals.
  • They help you plan for the future and make the most of your opportunities.
  • They’ll explain the best way for you to make any investment they might recommend.
  • By seeing an adviser you are making no commitment to buy anything.

What does advice cost?

Advisers must charge you directly for their advice – they are not allowed to accept commission, which could influence the products they recommend.

The website suggests that the cost of financial advice can vary from £500 to £5,000 or more depending on the adviser and the type of advice. Frequently, advisers charge a percentage of the assets that they advise on, which could be 1 or 2 per cent.

Many financial advisers are happy to have an initial phone chat or meeting with you without any charge: however, you’ll need to check this with each firm.

Finding an adviser

There are several organisations which can give you details of advisers in your area. (Because these are not AIC sites we can’t vouch for their accuracy.)

Preparing to talk to an adviser

Financial advisers can’t make your decisions for you, or take away the risk of investing. They can only give you the facts as clearly as possible, help you to clarify your own thinking and give you advice.

Ultimately it’s your money and your choice. That’s why it’s a good idea to do some preparation before you meet:

  • Know why you’re investing. Are you looking for an income or do you want to build a lump sum? Do you want a specific amount of money at a defined date, e.g. for school fees?
  • Know how much you can invest and when. How much have you got to invest? Will you be adding to the amount regularly? When will you need the money?
  • Know what financial commitments you have. That includes debts, savings, life insurance, personal health/critical illness insurance, pensions and mortgage.
  • Prepare some questions first. Here are a few questions you may want to ask:
    • What services do you offer?
    • What will your services cost?
    • What investments do you generally recommend?
    • Do you recommend investment companies? 
      (The financial adviser may know them as investment trusts)
    • What are the pros and cons of each suggested investment?
    • What risks are involved with each suggested investment?
    • What am I committing myself to?
    • What are the problems if I change my mind or need the money earlier than anticipated?
  • Don’t feel pressurised. Remember that you don’t have to decide there and then. Plan on giving yourself time to consider. If you’re still unsure, you can get a second opinion – but you may have to pay extra for the advice.

What to expect when you meet your adviser

After you contact an IFA, he or she will usually make an appointment to meet you. When you meet you’ll discuss why you’ve decided to invest, what you’re hoping to get out of investing, and your attitude towards investment risk.

  • You’ll need to describe your financial situation, usually by completing a questionnaire.
  • Your independent financial adviser will look carefully at your finances, your commitments and your objectives, and will explain your options.
  • They’ll give advice about which investment products would suit you, and whether investment companies could be your best option.
  • You can ask as many questions as you like.

If you decide to follow the advice, your adviser can also help you decide on the best way to arrange your investment.

Platforms make it easy to hold lots of different investments – all in one secure online place.

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Most individual savers will need to use a platform to invest in investment companies.

Platforms are online services that allow you to buy, hold and sell investment company shares. They also allow you to hold other investments such as individual company stocks and open-ended funds, so you can manage all your investments in one place.

Many platforms offer you the ability to hold your investments inside an ISA, SIPP or Junior ISA. All platforms will also offer an ordinary trading account with no special tax benefits (sometimes called a ‘general investment account’).

How to choose a platform

Before you choose a platform, think about these questions:

  • Does the platform offer all the investments you want to buy? (Note that a few platforms do not offer investment companies).
  • Does the platform offer you the tax wrapper(s) you need, such as an ISA, SIPP or Junior ISA?
  • What are the platform’s costs? (Such as dealing fees and annual admin charges.)
  • Does the platform provide other services that you may need? (Such as telephone dealing).

If you can, it is a good idea to talk to someone who already uses the platform.

The AIC publishes a range of information that is designed to help investors choosing a platform.

Alternatives to platforms

A few investment company managers offer savings schemes. Like platforms, these schemes have their own costs and charges. Unlike platforms, they will typically be limited to the investment companies managed by the group that runs the scheme.

Find out more about investment company saving schemes.

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ISAs, SIPPs and saving for children

Individual Savings Accounts (ISAs)

A tax-efficient way to save or invest up to £20,000 this tax year, with a huge range of investment options to choose from.

ISAs were launched in 1999 and have become one of the most popular ways to save. It’s easy to see why. ISAs allow your savings and/or your investments to grow free from tax. You pay no income or capital gains tax on the investments you hold in them and you don’t even have to declare the ISA on your tax return.

You can hold two main types of investments in ISAs:

  • Cash – including bank and building society savings accounts and National Savings. Cash ISAs provide a very safe home for your money but offer low rates of interest, often below inflation.
  • Stocks and shares – including shares and collective funds such as investment companies and unit trusts. Stocks and shares ISAs are more risky, but can offer the chance of better returns over the long term.

For more information, read our ISA guide.

Self-invested personal pensions (SIPPs)

Saving for your retirement could well be the biggest financial commitment you will ever make.

As the name suggests, self-invested personal pensions (SIPPs) give you a high degree of freedom to choose the investments that go into your pension. SIPPs are generally for more experienced investors who have larger sums to invest. If you are less experienced, you may be better off with another type of pension, such as a Stakeholder Pension.

For more information, read our SIPP guide.

Saving for children

Because of their strong long-term performance record, investment companies are a good option to consider when you invest for a child.

Read our saving for children guide.

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