New to investing?

Here's what you need to know to get your investment plans off to a flying start.

How to get started

Before you invest, it’s vital to know why you want to invest and what you hope to achieve – and get familiar with some useful investment dos and don’ts.

Guide circle image 7

Your goal


One of the most important decisions when investing is to understand what you’re investing for – your goal. Is it to grow money over the long term for something like a pension, a house, or to pass on to your children? Or are you looking to get an income from your investments? Perhaps it’s a combination of the two?

Answering this question will help you know what to look for when choosing your investments.

Speaking to a financial adviser can help you define your investment goal.
There’s more on getting financial advice later in this guide.


Before you invest icon

Before you invest

Step 1
Understanding the risk
If you’re new to investing the first thing to do is to familiarise yourself with the basics. In particular, it’s important to get an idea of risk.

  • Investing in the stock market is risky. When you invest you could lose money.
  • Investing gives you a chance to make more profit than you’d get by putting your money in a bank. Savings in a bank often lose value over time due to inflation. However, they are very secure.
  • More risky investments should be held for the long term. This gives your investments time to recover if they perform badly. You should plan to invest for 5, 10, or even 20 years, especially if the investment is very high risk.

Step 2
Your current situation
Look carefully at your current financial situation. You need to work out how much you can afford to invest. To do this, you will need to consider your income and how much you spend.

You’ll also need to think about your assets (things you own, such as property, stocks or cash in the bank) and liabilities (debts or a mortgage).

A financial adviser can help you work out what you can afford.

Step 3
What you invest in makes a big difference to the performance of your portfolio.

To make informed choices, you need to understand how different investments tend to perform over time. You should get a feel for the main types of assets: equities (also called stocks or shares), bonds, cash and property.

It’s a good idea to read a variety of financial publications, websites and books to get a feel for investing. Don’t rely on information on social media.

You may also want to make sure that any investments you make are in line with your principles, values or beliefs.

tips for investment planning icon

Top tips for investment planning

Don’t risk going further into debt. If you’re in debt, think carefully before you make an investment in stocks or shares.
You might find it wiser to pay off the debt first. Remember, investment is not suitable as a way to get out of debt.

Before you invest, make sure you have some “rainy day” money.
Keep an appropriate amount of cash in a bank or building society so you can access it quickly for any unexpected outgoings or emergencies.

All investments involve risks. To be truly comfortable investing you should be able to survive any losses.
You’re after a profit, obviously, but your finances shouldn’t be crippled if you make a loss. This is closely linked to your timeframe for investing. How long can you afford to have your money committed to an investment?

common mistakes

Common mistakes

Many new investors end up making similar basic mistakes. To help you avoid some of the pitfalls of investing, here’s what not to do:

Invest in lots of different things, either by choosing the investments yourself or by investing through a fund. This is called diversification. It means that if one asset type or investment does badly you’ve got others to fall back on.

Do your own research, or get professional financial advice.

Make sure that you understand the implications of any financial advice you’re given.

At least compare a few options first.

There are bound to be ups and downs in an investment. Re-evaluate your objectives and reasons for investing before making a decision to dispose of your investment.

Work out how much you’re going to invest and what you want to put into savings, and stick to it unless your circumstances change.

High-risk investments are only a good idea if you could still get by if they failed.

Income from an investment isn’t fixed and may fall.

Inflation affects the purchasing power of your money. If you’re not keeping up with inflation, you’re actually losing money. Take stock from time to time, and re-think how much you save or invest.

You might not actually be able to buy or sell at this price. The price in financial publications may be the official last close price, buy price or selling price, all of which are different – sometimes very different. In some cases, you might not be able to sell all your shares in one go.

risk vs reward

Risk vs. reward

It’s a central principle of investing – the higher the risk, the higher the potential rewards

There is always a degree of risk in owning investments. In extreme circumstances you could even lose all your money, so it’s natural
to want to know exactly what the risks are, and which ones you should take.

How much risk should you accept?

Roughly speaking, the level of risk you might be prepared to accept depends on how long you can afford to tie up the money and how much you can afford to lose. If you’re planning to invest for 10 years or more you may be able to take relatively more risk in exchange for the possibility of higher returns.

It’s not easy to make a precise assessment of risk. Markets are unpredictable. Sectors that look unhealthy may start performing strongly and steadily, and companies that look dominant may suddenly reveal hidden weaknesses.

We’ve explained some of the risk factors you should look at lower down this page, but remember, it’s impossible to draw up hard and fast rules about the risk levels of a particular kind of investment. You need to look at the whole picture and might want to get an opinion from a financial adviser.

Where to get advice on risk

You can get general information about financial services from the Financial Conduct Authority (FCA).

The FCA is an independent watchdog set up by the government to regulate financial services and protect your rights. It provides free and independent information about financial matters. You can get free, unbiased money advice online and over the phone from Money Helper.

Understanding risk and reward can allow you to aim a little higher with your investments.

What are funds and why invest in them?

What are funds?

A way to invest in different assets and spread risk. 

A fund is a collection of lots of different people’s money. The money is managed by a professional fund manager who invests it across a range of different assets, like shares, property or other assets depending on the fund.

There are many types of fund such as investment companies, unit trusts and exchange traded funds (ETFs).

They make a profit by buying, holding and selling investments. When you invest in a fund your investment is spread across all the fund’s assets. It’s a simple way of expanding your portfolio and spreading your risk.

When you invest in a fund you become one of its investors.

how a fund works diagram

With a fund:

  • you gain access to a wider range of investments than you could normally buy yourself
  • your investment is managed by an expert fund manager
  • your money is spread across a number of different investments, giving you a diversified portfolio and spreading risk
  • you gain economies of scale as the fund management and admin costs are spread amongst the investors in the fund
  • you can invest small amounts starting from around £50 a month
  • depending on the fund you choose, you can invest in specific markets, industries or even small unlisted businesses which are at an early stage in their development
  • you can choose a fund which invests in line with your personal values and beliefs

Put all these benefits together and you find that collective investments are a handy way to invest in a wide range of different assets.

Guide circle image 8