How to start investing

Investing is the crucial first step towards a financially secure future. Learn how to start investing in this beginners guide.
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Updated: Oct 12, 2022
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This page offers the key advice you need before embarking on your investing journey. Learn about investments, stocks, the stock market, alternatives to stocks, and how to ultimately invest with the approach that is best for you.

What is investing?

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Investing is the act of allocating your money and putting it into investment options with the aim of growing its value over time. The goal is to buy assets and try to sell them later for a higher price than that at which you bought them. Investments can be anything that you expect shall increase in value but some of the most popular ones are stocks, funds, and bonds. 

You can invest either through an investment account (i.e. an ISA) or a brokerage account. The key 3 step rule to increase your potentiality of return is: invest as soon as you can, stay invested for as long as possible, and diversify your investments.  It is a good idea to invest your money as money in a bank account is a sitting duck, likely to lose its value to the growing rate of inflation every year. 

What are stocks?

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A stock is a fractional stake that you own in a publicly traded company when you buy its shares on a stock market. When a company issues their shares on the market, they hope that investors will buy their stock and thereby increase their capital. The investor that buys their stock now owns a fractional stake in a publicly traded company’s assets and revenues and thereby becomes a ‘shareholder.’  

How does the stock market work?

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If a company is a pie, a stock is a slice, and a stock market is the bakery where you can buy the number of slices you want at a price that works for your budget. A stock market holds a collection of exchanges and venues where the issuing and consequent sales/purchases of stocks take place. For example, the US stock market features the largest stock exchange, New York Stock Exchange (NYSE). There are several global stock markets and therefore, many exchanges. 

A stock market is like a live auction house where companies sell their shares. Companies are able to issue shares – as dealers would display their goods – on a stock market at a certain price. Investors can then bid for the shares by placing orders through a stockbroker, and the market price is set when buyers and sellers agree on a value.

How to start investing – a step-by-step guide

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A new investor needs their starting blocks to lay a safe foundation. We have outlined the following steps as a guide to making your first investment.

  1. Decide how much to invest. The key is to set a budget to figure out your options, and then to stick to that budget in order to make a profit. You should never invest more than you can afford to lose. Your budget determines how much of what you can invest in, i.e. a smaller budget limits your options and a larger budget expands your options.
  2. Research the different types of investment. You have to do your own due diligence when reviewing your options and deciding what to invest in and how. 
  3. Find a broker. In order to invest in the stocks market, you will need to register with an online broker. 
  4. Set up an account and transfer money. After registering with your choice of online broker, you must set up and transfer money into your brokerage account to purchase stock market shares.
  5. Search for what you want to invest in. Every company has its own unique ticker that you must search for when logged into your online brokerage account. 
  6. Make your investment. You must decide on the trade size based on your budget and risk appetite. There are different options for order type when purchasing shares, for example: Market orders guarantee immediate purchase but do not guarantee your preferred price, and limit orders guarantee your preferred price but do not guarantee immediate purchase.

What should I invest in?

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There is a wide range of investment options available to the new investor. To make life easier when starting your investment journey, we have outlined the pros and cons of each below:

  • Stocks. Stocks give you a small ownership stake in a company. You can buy stocks in all sorts of companies and picking your own stocks gives you the most flexibility and offers the most potential for return in the long-term. 
  • Robo-advisors. Robo-advisors are automated financial advisers that you can access online. Robo-advisors are a much lower-cost alternative to human advisors and unlike wealth management firms, often do not require a minimum investment balance, so are ideal for new investors or those with a smaller budget.
  • ETFs. ETFs are baskets of shares or bonds that are traded on exchanges, like individual stocks. ETFs can be very tax-efficient and a low-risk investment due to the fact they own a diverse range of stocks, which is ideal for investors who do not have the time to cherry pick stocks. 
  • Mutual funds. Mutual funds are professionally managed investment portfolios that contain many different securities. Mutual funds offer largely similar advantages to ETFs, in that they are fairly priced, convenient, and lessen risk to the passive investor. 

Top tips for successful investing

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In order to be a successful investor you should consider following our top tips below:

  • Invest regularly over time. Drip feeding money into your investments makes you less susceptible to the risk of market volatility. It also grows your budget and therefore the potential of your return over the long term.
  • Think long term. The stock market will generally outperform other methods of wealth building in the coming decades. You must be patient with your investments, do not waste time and money aiming for hard and fast returns.  
  • Diversify your portfolio. Do not put all your eggs into one basket. Spreading your budget across a multitude of investments means there is less risk of a single stock failing, which could cost you all your money. Diversification is an effective long-term strategy.
  • Use tax-free accounts like ISAs. There are certain tax-free accounts (i.e. ISAs that lets you invest up to £20,000 tax-free in the UK) that enable you to take advantage of government allowances. Do your due diligence on how to construct a tax-efficient portfolio of investments that is ideal for you.

Is investing right for me?

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Investing is usually a good idea for everyone but your specific strategy should dependon your personal circumstances. If you want to be an active investor, you must do your research and dedicate the time to stay on top of your investments. If you do not have neither the time nor the expertise, it is best to entrust a fund manager or an ETF with your money.

How much money do I need to start investing?

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You can start investing with as little as £1 in your pocket. You do not need a large sum to start; a small lump sum or frequent small amounts are fine but your strategy should be determined by your budget. Investing differs from saving in that you need a risk appetite; you need to be prepared to take on a level of risk in order to generate the potential growth of your money. 

For a longer-term investment, you can start off with a small lump sum and add more if and when you have spare cash. Even with a small starting amount, it’s best to diversify as a single lump sum that suffers an early dip is hard to bounce back from if it is your entire budget.

Regular small amounts of money invested into the market is a better strategy if you can afford it. Small but frequent drips into funds over a long period of time (i.e. 5 years or more) are much more likely to produce positive returns. This strategy enables you to benefit from pound-cost averaging; investing the same amount regularly over time so that you buy more shares when the price is lower and less when the price is higher.

When should I start investing?

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You should start investing as soon as you can. Rather than trying to time market conditions, you should invest when you are comfortable with your budget and tolerance of risk. A well-timed investment can, literally, pay dividends in the long run.

In precarious times, like the global pandemic, it is necessary to invest with care in a climate of uncertainty in both the market and the economy. You should drip feed money in to start growing your investments and take advantage of the pound-cost average in phases where the market turns red. 

How much can I make from investing?

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You can make any amount from your investments, but you should note that you can lose money as well as the market never guarantees a consistent return. Amateur investors looking for a hard and fast return should look the other way because it takes time to build wealth. The stock market has outperformed other investments in the long run, so investors need both discipline and patience.

Furthermore, how much you make from your investments also depends on your risk appetite. The greater the risk taken, the higher the return if all goes to plan. Taking high risks in anticipation of a faster return is not always the best investment strategy, however, as it can very easily go the other way.

Where can I start investing?

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To start you off on your investing journey, we have selected the best brokers in the market. All brokers listed in the table below are beginner-friendly and offer easy-to-use interfaces.

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1
$ 10
Best offer
10
Up to $240 bonus!
Deposit with ACA, Wire, Pay with my bank
Invest for dividends and get payout on stocks on Ex-Dividend day
:
Bank Transfer, Credit Card, Debit Card, PayPal, Wire Transfer
:
CySEC, FCA

Cryptocurrency is offered by eToro USA LLC (“the MSB”) (NMLS: 1769299) and is not FDIC or SIPC insured. Investing involves risk, and content is provided for educational purposes only, does not imply a recommendation, and is not a guarantee of future performance. Invezz.com is not an affiliate and may be compensated if you access certain products or services offered by the MSB.

2
$ 100
Best offer
9.9
Trade +2000 CFDs on Shares, Options, Commodities & more
Unlimited risk-free Demo Account
0 commissions & attractive spreads with up to 1:5 leverage
:
American Express, Apple Pay, Bank Transfer, Credit Card, Debit Card, Discover, Google Pay, Mastercard, PayPal, SEPA, Trustly, Visa, , skrill
:
ASIC, FCA, FSA, MAS, cysec-250-14-regulator, isa-regulator

82% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

3
$ 0
Best offer
9.7
Diverse stock selection providing investors with a diverse array of options for their portfolios.
Advanced trading tools aiding in executing trades with precision in the dynamic stock market.
Easy portfolio management.
:
ACH, Bank Wire, Check
:
CFTC, FCA, FINRA, IIROC, NFA, NYSE, SIPC
Interactive Brokers (U.K.) Limited is authorised and regulated by the Financial Conduct Authority. FCA Register Entry Number 208159. Products are only covered by the UK FSCS in limited circumstances.

A quick recap

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Investing is the act of spending money now to make more later. You can invest in all sorts of assets ranging from stocks and bonds to property and funds. Your budget should determine your strategy and it is up to you entirely – you can get started with as much or as little money as you would like.

The best way to invest is to take a long term view and think in terms of years and decades rather than weeks and months. Drip-feeding small and steady amounts into your investments on a regular basis is generally the safest approach to take. You can start investing right now by setting up an account with an online broker.

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Srijani Chatterjee
Financial Writer
Srijani was a Financial Writer for Invezz covering stocks, investment funds, securities, and commodities. She is UK law-qualified and has worked in both the legal industry... read more.