How to Start Investing: A Beginner’s Guide to Growing Your Wealth
Understanding Investing and How to Begin Your Journey
Investing is a smart way to grow your money and reach your financial goals over time. It might seem complicated at first, but starting small and being consistent can make a big difference. Whether you want to save for retirement, earn extra income, or protect your money from losing value over time, learning how to invest can help you feel more secure about your future.
It's important to remember that investing always carries some risk. The value of your investments can go up or down, and you may not always get back what you put in. Understanding how investing works and being aware of the risks involved is crucial before you start.
This guide will explain the basics of investing, how to start, and what to consider to invest wisely and confidently.
What is Investing?
Investing means putting your money into things that can grow in value over time. These can include stocks, bonds, property, or funds. Unlike saving, which is about keeping your money safe, investing carries some risk but also offers the chance to earn more money in the long run.
Different Types of Investing
There are several ways you can invest your money, and each type comes with its own level of risk and potential rewards:
Stocks: Buying shares in a company gives you a piece of that company. If the company does well, your shares may increase in value.
Bonds: Lending money to a company or government in exchange for regular interest payments. Bonds are generally lower risk than stocks but offer smaller returns.
Property: Buying real estate, such as houses or commercial buildings, which can increase in value or generate rental income.
Funds: Pooled investments where your money is combined with others and invested by professionals. These include mutual funds and ETFs (Exchange-Traded Funds), which spread your money across different assets to reduce risk.
Understanding the differences between these investment types can help you decide which options suit your goals and risk tolerance best.
Why Should You Invest? Understanding Investing vs. Saving
Investing is different from saving. When you save, you put money away to keep it safe and use it later. When you invest, you try to grow your money over time. Here’s why investing can be important:
Building Wealth: Investing helps your money grow over time so you can reach big financial goals, like buying a house or retiring comfortably.
Keeping Up With Inflation: Prices go up over time. Investing can help your money grow faster than prices rise, so it keeps its value.
Earning Passive Income: Some investments, like rental properties or stocks that pay dividends, can give you extra money without much effort.
Planning for Retirement: Investing for the long-term with pensions or ISAs can help you save enough money to live comfortably when you stop working.
Define Your Financial Goals
Before you start investing, it’s important to know what you want to achieve. Your goals will help you decide how much risk you’re willing to take and how long you want to invest for. Some common goals include:
Short-term (1–3 years): Saving for a holiday, a car, or other big purchases.
Medium-term (3–10 years): Saving for a house deposit or paying for education.
Long-term (10+ years): Saving for retirement or building wealth for the future.
Assess Your Risk Tolerance
Investing always involves some risk. It’s important to understand how much risk you can handle. This is known as your risk tolerance. Knowing your risk tolerance helps you choose the right investments for you.
Low Risk: Savings accounts, government bonds, or cash ISAs that are safer but may grow slowly.
Medium Risk: A mix of stocks, bonds, and property that can grow more but also have some risk.
High Risk: Stocks, emerging markets, or special investments that can grow quickly but can also lose value.
A balanced, diverse portfolio can help you reduce risk while still aiming for long-term growth.
Build a Diversified Portfolio for Long-Term Growth
Diversification means spreading your money across different types of investments. This helps lower risk because if one investment does poorly, others may do better.
A balanced portfolio might include:
Stocks: Shares in companies that can grow over time.
Bonds: Loans to companies or governments that pay you interest.
Property: Investing in real estate to earn rental income or sell for profit.
Funds: Pooled investments like mutual funds or ETFs (Exchange-Traded Funds) that invest in lots of different assets at once.
Start Small and Stay Consistent
You don’t need a lot of money to start investing. Many platforms let you begin with as little as £25 per month. Adding money regularly, even in small amounts, is called pound-cost averaging. This helps reduce risk by spreading your investments over time.
Staying consistent and patient is key - even small investments can grow a lot over the years.
Use Tax-Efficient Investment Accounts
Using tax-efficient accounts can help you save money and grow your investments faster. In the UK, popular options include:
Stocks and Shares ISA: Lets you grow your money tax-free on investments up to £20,000 per year.
Self-Invested Personal Pension (SIPP): Offers tax relief on contributions and is designed for long-term retirement savings.
Lifetime ISA (LISA): Gives a 25% government bonus on contributions up to £4,000 per year. This is useful for first-time home buyers or retirement savers.
Avoid Common Investing Mistakes
Even experienced investors make mistakes. Knowing what to avoid can save you time and money:
Emotional Investing: Making quick decisions based on panic or excitement.
Trying to Time the Market: Predicting when prices will go up or down is very difficult.
Not Doing Enough Research: Always understand what you’re investing in and the risks involved.
Not Diversifying: Putting all your money into one type of investment increases risk.
Seek Professional Financial Guidance
If you’re new to investing or feel unsure, getting advice from a financial adviser can help. They can guide you through:
Building an investment plan that suits your goals.
Understanding tax-efficient investment options.
Assessing your risk tolerance and planning for the future.
Final Thoughts
Investing doesn’t have to be complicated. By starting small, being consistent, and making informed decisions, you can build your wealth over time. Make sure your investments match your goals and risk tolerance.
The value of units can fall as well as rise, and you may not get back all of your original investment.
The tax treatment is dependent on individual circumstances and may be subject to change in future.
Approved by In Partnership FRN: 192638 10/04/2025