It has never been easier to start investing in the stock market and put your money to work.
But with dozens of investing platforms to choose from, 1,500 companies listed on the UK stock market, and more than 4,000 investment funds available, new investors often end up baffled by choice.
The key to success when it comes to investing from scratch is to keep it simple and keep costs down.
There is no need for investing to be complicated and nowadays it can also be phenomenally accessible and cheap.
DIY investing platforms let you invest around the world at a low cost and with very little hassle, using your computer or your phone. You can pick your own investments or be hands-off and let someone else do it.
Even a small monthly investment can make a big difference. If you invested £100 a month for 20 years, with an average 7 per cent annual return, you could build a pot worth £52,000.
The simplest and cheapest way to do this is to combine a low-cost investing platform with a fund that invests in shares and government or company bonds.
Warren Buffett, the world’s most famous investor, says most people should invest through a simple, cheap tracker fund
When you invest in shares, you take ownership of a small slice of a company and if it does well then the share price should rise and your stake will go up in value.
Bonds are essentially IOUs issued by companies and governments, which borrow money from investors over a period of time in return for a set interest payment each year. They are considered lower risk than shares, as the return is more certain. You should get paid unless the government or company that issues the bond goes bust.
Kyle Caldwell, from Interactive Investor, says: ‘Building your own portfolio takes time and effort, which can be a bit daunting for some first-time investors. However, for those who would prefer a more hands-off approach, there are shortcut options in the form of multi-asset funds.
‘This type of fund makes the investment decisions on your behalf, splitting your money across a mix of different assets, mainly shares and bonds.
‘The theory is that different types of investments are unlikely to all outperform or underperform at the same time, which reduces the volatility of your overall portfolio.’
For easy investing, he recommends funds such as Vanguard LifeStrategy, BlackRock MyMap, Legal & General Investment Management Multi-Index, which offer different risk levels that you can choose from depending on what suits you.
Why investing matters
But before you jump in, it’s important to consider why investing matters and how much you can afford to invest.
Investing has historically proven to be the best way to grow your wealth and beat inflation.
The most recent Barclays Equity Gilt study, which looks at long-term returns going back to 1899, shows that if you had invested £100 in the UK stock market in 1945, by the end of 2024 it would have risen to £326,231, with dividends reinvested.
In contrast, that £100 saved in cash would have been worth £7,123, thanks to the interest paid and compounded over the same period.
Your investments could fall in value in a way that cash savings won’t but over the long-term you should be rewarded.
Due to this extra risk, you shouldn’t invest your rainy-day fund or money you need in full in the short-term. This should be kept safely in readily accessible cash savings.
But savings over and above this can be diverted to investing to boost your chance of inflation-beating returns.
Make investing a habit
You can invest a lump sum, make regular investments, or do a combination of both. You don’t need a large amount to start investing and some platforms offer regular investing of £25 per month or less.
The advantage of regular monthly investing is that it builds a habit, allowing you to steadily build up your portfolio and avoid a sudden downward lurch in the market that could have a damaging impact on a large lump sum invested.
Slow and steady wins the race over the long-term when it comes to investing and regular monthly investment can really pay off
Join the discussion
Is investing in the stock market really the best way for ordinary people to secure their financial future?
Investing in shares vs funds
You also need to decide how engaged you want to be. This will inform where you choose to invest, as platforms range from those with a full DIY offering, where you can pick shares around the world, to do-it-for-you services that will select your investments.
Investing in individual company shares may sound exciting, but it requires a lot of time and effort. You need to fully research companies you invest in, learn how to read company reports and balance sheets.
Share investors need to build a diversified portfolio, which experts typically recommend should hold at least 20 stocks in a broad spread of companies.
The work involved in share-picking, means beginner investors are usually advised to spread their risk and outsource their investment decisions by using a fund.
Funds pool your money with other investors to invest across a range of assets, which can include shares, bonds, property or other investments.
The term ‘funds’ is widely used as a catch-all term to refer to a number of different ways of doing this, which includes investment funds, investment trusts, and exchange traded funds.
Funds to pick for easy, low-cost investing
All funds will have a stated aim and depending on what they invest in and how they do that, they will be rated as more or less risky.
Some are known as active funds and have a fund manager picking investments that they think will do best. Others are known as passive funds and aim to follow a set basket of investments, referred to as an index, such as the FTSE 100, the stock market index of the UK’s 100 biggest companies.
Passive investing tends to be a considerably cheaper option than active management and there is a huge debate as to which is better.
Active fund managers will tell you that their expertise is worth paying for. However, while some do outperform consistently, many others fail to beat the market or cheaper passive funds.
Rob Morgan, from Charles Stanley Direct, says: ‘Funds that track the global stock market are a great hassle-free way to get started, giving you convenient ownership of the world’s largest listed companies.’
He recommends Fidelity Index World, which has ‘very low’ 0.12 per cent annual fee, but warns that the global stock market has become dominated by a handful of very large US tech companies and relies on these doing well.
Morgan says: ‘An actively managed fund will invest where the manager sees value, rather than according to how big the company is, and it will often avoid marked sector or geographical biases.
He recommends JOHCM Global Opportunities Fund, which has about a third invested in the US, compared with over two-thirds for a tracker fund. Its managers focus on durable businesses with strong balance sheets and consistent cash generation. Morgan says: ‘It could be a steadier option that holds up better than a tracker in more difficult market conditions.’
Caldwell likes Scottish Mortgage Investment Trust, which is higher risk and backs disruptive growth companies such as Elon Musk’s SpaceX, set to float in the US.
Watch out for fees
When it comes to fees you need to consider three main things: fund charges, account fees and dealing costs.
Fund charges come from the fund manager, and passive funds and ETFs tend to have the lowest costs.
Account fees are charged by platforms either as a flat fee or percentage of investments, while dealing costs come from buying and selling funds and shares.
These can vary substantially, for example, Hargreaves Lansdown has a 0.35 pc account fee and charges £1.95 to buy funds and £6.95 to buy shares, while Interactive Investor charges £5.99 per month for accounts up to £100,000 and £3.99 to buy and sell shares and funds.
Trading 212 has no account fee or charges to buy and sell shares, ETFs and investment trusts, but does not offer funds.
There are also platforms that specialise in picking investments for you, such as JP Morgan Personal Investing, Moneybox, Wealthify and InvestEngine.
Fees and services can vary substantially. For example, JP Morgan Personal Investing charges 0.97 per cent for its fully managed service, whereas InvestEngine charges 0.36 per cent
Read our best investing platforms for beginners guide for a full breakdown of costs.
