06 Apr 2024

Investing for beginners

Many of us believe that cash is a safe way of saving. It is indeed very important to have an easily-accessible ‘rainy day’ fund – but with inflation rates rising, your cash savings might soon start losing value. If you’re worried about that, investing in a stocks and shares ISA can offer the potential for better returns, helping you beat inflation.

But many of us also worry about the challenges of investing. It can seem very complex and confusing. The value of any investment can go down as well as up, so you might end up losing money rather than saving it. In fact our recent research shows that nearly 1 in 5 of us are scared of making the wrong investment decisions1.

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Want to learn more about investing?

Our Stocks and Shares ISA makes investing simple. Find out how you can start from just £20 a month.

As Lorna Shah, Managing Director of Legal & General Retail Retirement, says:

Knowing where to start is hard – especially in turbulent times. People will understandably be feeling unsure about the future at this moment in time.” But she goes on to make a reassuring point: “The key thing to remember is that investing is for the long term. With time on your side, you can potentially balance out the ups and downs of the market.

We’re going to build on her advice in this article. We’ll explain some basic investment concepts and introduce a good starter investment product: the Stocks and Shares ISA. That’ll help you decide if you want to invest your savings and hopefully set you on the road to success if you do.

What are stocks and shares?

Stocks and shares are units of ownership in a company. Companies sell them to shareholders to provide funding to grow their business. Some companies have millions of shareholders, who all own a tiny piece of the company; others have just a handful. People buy and sell shares on stock markets like the London Stock Exchange (LSE).

How stocks and shares can beat inflation

There are two ways for shareholders to “earn” money:

  • Selling their shares for a higher price than they paid for them
  • Holding onto their shares in return for a payout from the company, known as a dividend.

That can create a return that’s higher than the rate of inflation, which is how the right investment can help you beat inflation.

Of course if there are concerns about the company’s growth or performance and demand for shares is low, the value of your shares will go down and you may get back less than you invested. There’s no guarantee on dividends either. In a poor year, the directors may decide there isn’t enough money for a payout. As Lorna says, it’s always worth remembering that investing is for the long term.

How to invest in the stock market

There are three ways to invest in the stock market. You can:

  • Choose the individual shares yourself
  • Employ an expert to choose the shares for you
  • Invest through an investment fund, where a fund manager chooses the shares on behalf of all the investors in the fund.

Good investments for beginners

There’s plenty to consider if you’re new to investing, like:

  • How high to set your budget
  • How long you’re likely to be investing
  • Your attitude to risk
  • How much you’re willing to lose if things don’t work out.

In our podcast episode, Take your first investment steps, host Kia Commodore chats to Timi Merriman-Johnson aka Mr Money Jar about how he wishes he had started investing sooner.

A little bit richer podcast: Take your first investment steps

A little bit richer podcast: Take your first investment steps / 01: 05

I wish I could have started sooner because a key component of investing is compounding.

So the great thing about the fact that you started so early is that even starting with just small amount and investing regularly gives your investments a longer period of time to grow and compound over time.

And compounding is basically where you get growth on top of the growth that you already have. 

There's an exercise I like to do when I give talks. I'll say to people - what would you much rather have, 10 million pounds today or one pound coin that doubles every day for 30 days.

And people can tell that it's a trick question so they'll go for the one pound coin.

I'm like, yeah you're quite right, if you take the 10 million pounds, fair enough you're a multi-millionaire but if you double one pound 30 times then you're a billionaire because that's how compounding works.

With each additional day your money is doubling and it can grow exponentially.

Compounding is the way - let your money grow, put your money in and the growth can be on top of that growth. We love that.

A stocks and shares ISA is a simple, easy-to-use investment product that can help you understand more about the stock market and how investments work over time. Like any investment, your ISA’s value could fall as well as rise and isn’t guaranteed. You may get back less than you invest, especially over a shorter period of time.

How to invest in stocks for beginners with little money

If you don’t have a big lump sum, you can still invest. Our Stocks and Shares ISA can be opened with a £100 lump sum or just £20 per month, making it a really accessible way to start investing.

The more you contribute, the more you could see in return. But remember, with higher potential returns comes more uncertainty, so you should make sure you select the risk level that works best for you.

How much are stocks and shares ISA charges?

Every provider sets their own fees. These will often cover managing your funds and will also depend on whether you have chosen to use a financial adviser. Generally, the charges will be based on:

  • How much you have invested
  • Service and fund charge
  • It may also incur transaction costs.

Our annual charge will be deducted straight from your investment, so you won’t need to worry about paying for it through direct debits or annual transfers. 

What other ISA options are available?

You can also put your money into other types of ISA, including:

  • Cash ISA
  • Innovation ISA
  • Lifetime ISA (if you’re aged 18-39)

You can put your money into a combination of all four ISAs, as long as you don’t invest more than the ISA annual allowance. We currently only offer a stocks and shares ISA.

Listen to our new podcast

Join Kia Commodore and her guests as they aim to make you A Little Bit Richer with their bite-sized financial tips. Covering a range of topics which include understanding ISA's, learning about your payslip and saving to buy your first home - it’s all part of helping you make the best financial decisions for you.

Learn more about investing

We know that many people are nervous about investing. Our research indicates that 15% of people don’t understand how it works, or they don’t know where to start. Our Stocks and Shares ISA page has lots of information about how your money is invested, and how you can choose the right level of risk for you.

1Opinium survey of 2,001 adults in the UK conducted between 4 and 8 February 2022

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