Uk Investment Strategies: A Beginner's Guide To Getting Started

Investing is when you put money aside for the future, with the hope that it will increase in value over time. There are no guarantees when it comes to investing, and while your money could grow, it could also decrease in value. It's important to remember that investing is not the same as putting your money in a savings account, as there is no security of guaranteed returns.

There are several different ways to invest, and many people choose to invest in shares, cash, property, or fixed-interest securities. When investing in shares, you're buying a small stake in a company, and the value of your investment rises and falls with the company's share price. With cash, you're putting your money into a bank or building society account. Property investment involves buying a physical building, and with fixed-interest securities, you're loaning money to a company or government in exchange for an IOU.

Before investing, it's recommended that you have an emergency fund to cover 3 to 6 months' worth of living expenses, and that you're prepared to invest for the long term (at least 5 years). It's also important to research any fees or costs associated with investing, as these will impact your overall returns.

Stocks and shares

There are two ways to make money from stocks and shares:

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

How to invest in stocks and shares

To invest in stocks and shares, you'll need to open an account with a stockbroker. You can then use their trading platform to buy and sell shares and funds.

Here's a step-by-step guide to investing in stocks and shares:

Choose a broker or robo-advisor

You can either choose a broker if you want to pick stocks and funds yourself, or a robo-advisor if you want a service that invests your money for you for a small fee.

Pick a type of investment account

You'll need to choose the type of investment account you want to open. For example, a Roth IRA comes with significant tax benefits, whereas a standard brokerage account does not.

Learn the difference between investing in stocks and funds

You can either invest in individual stocks, or in stock mutual funds or exchange-traded funds (ETFs). Mutual funds let you purchase small pieces of many different stocks in a single transaction, whereas with individual stocks, you'll need to do more research and have a larger investment budget.

Set a budget

The amount of money you need to buy an individual stock depends on how expensive the shares are. Some brokerages allow you to invest with fractional shares, which means you can invest a certain amount of money even if it's less than the share price.

If you want to invest in mutual funds but have a small budget, an ETF may be the best option as these trade like a stock and can cost less than $100 per share.

Focus on long-term investing

Stock market investments are typically a long-term game, so it's best not to check how your stocks are doing several times a day.

Manage your stock portfolio

You'll need to revisit your portfolio a few times a year to make sure it's in line with your investment goals. For example, if you're approaching retirement, you may want to move some of your stock investments over to more conservative fixed-income investments.

Risks and fees

It's important to remember that investing in stocks and shares is risky – the value of your investments can go down as well as up, and there's a chance you might lose money.

There are various fees to consider when investing in stocks and shares, including share trading fees, annual fees, and foreign exchange fees.

Cash savings accounts

There are several types of cash savings accounts available in the UK, each with its own features and benefits. Here are some of the most common types:

• Easy Access Accounts: These accounts offer flexibility, allowing you to withdraw your money with little or no notice. However, the interest rates tend to be less competitive compared to other types of savings accounts.
• Fixed-Rate Bonds: These accounts usually offer a set interest rate for a specified period. They often provide higher interest rates than easy access accounts, but they may charge a penalty fee for withdrawals during the fixed term.
• Cash ISAs: These accounts allow you to take advantage of your annual tax-free Individual Savings Account (ISA) allowance. You can invest up to a certain amount each year without paying tax on the returns. Some cash ISA accounts also let you transfer money from the previous tax year to maximise tax-free savings.
• Fixed-Rate Cash ISAs: This type of ISA offers a guaranteed interest rate for a set period. It is a good option if you want to maximise your tax-free cash ISA allowance and can lock away your savings for a few years.
• Notice Accounts: Notice accounts typically offer higher interest rates than easy access accounts, but withdrawing your money takes longer. They are suitable if you don't need immediate access to your funds but want the option to withdraw them with some notice.
• Children's Savings Accounts: These accounts are designed to help children develop good financial habits and earn interest on their savings.
• Offshore Savings Accounts: Offshore savings accounts are useful for individuals who live abroad or earn money in a different currency. However, they may not be protected by UK compensation rules.
• Business Savings Accounts: Business owners can benefit from a business savings account to help manage their finances more efficiently.

When choosing a cash savings account, it is important to consider your financial goals and needs. Additionally, regularly review the interest rates offered by different providers to ensure your money is working hard for you. It is also worth noting that the first £85,000 you have with an authorised bank or building society in the UK is protected under the Financial Services Compensation Scheme.

Property

When you invest in property, you are putting your money into a physical building, which can be either commercial or residential.

Returns on Property Investment

There are several ways to make a return on a property investment:

• Rent
• Capital gains or losses (the difference between the price you pay and the price you sell for)

Risk Factors

Tips for Property Investment

• If you are a first-time investor, consider starting small to test the waters.
• Be prepared to invest for the long term (at least five years).
• Diversify your investments to spread the risk.
• Do your research and seek independent financial advice if necessary.

Fixed interest securities

Fixed-interest securities are a type of debt instrument, such as a bond, debenture, or gilt-edged bond, that investors use to loan money to a company in exchange for interest payments. They are also known as "gilts" or gilt-edged securities when issued by the UK government and corporate bonds when issued by companies.

Fixed-interest securities offer a specified rate of interest that does not change over the life of the instrument. The interest is payable on specific dates until the bond matures, at which point the face value is returned. This means that investors know with certainty how much interest they will earn for the duration of the bond's life.

For example, an investor who purchases a bond security paying a fixed rate of 5% will receive interest payments of £6 per year for each £100 of stock they own.

Fixed-interest securities are considered less risky than equities because, in the event of a company liquidation, bondholders are repaid before shareholders. However, they are still subject to interest rate risk. Since their interest rate is fixed, these securities will decrease in value as interest rates rise. On the other hand, if interest rates fall, the fixed-interest security becomes more valuable.

Fixed-interest securities are typically purchased by risk-averse investors seeking a stable source of income payments at predictable intervals. Examples include government bonds, corporate bonds, step-up securities, and term deposits.

Investment apps

Investment Platforms

• EToro: A multi-asset investment platform that offers investing in stocks and crypto assets, as well as trading CFDs. eToro provides users with real-time access to thousands of stocks, ETFs, indices, commodities, forex, cryptocurrencies, and NFTs from top global exchanges. It caters to both beginners and expert traders by providing a range of fundamental and technical analysis tools. eToro also offers over 40 fully allocated and balanced investment portfolios based on market segments. It is free to open an account, and all registered users receive a $100,000 demo account for practice. However, a currency conversion fee applies for non-USD deposits and withdrawals, and there is a $5 withdrawal charge.
• InvestEngine: A low-cost ETF investment platform that provides a choice of managed portfolios or commission-free DIY investing. Users can invest in over 500 ETFs from brands like iShares and Vanguard. There are no setup, dealing, ISA, or withdrawal fees. The platform fee for the managed portfolio is 0.25% per year, while the DIY portfolio has no platform fees.
• Hargreaves Lansdown: This app allows users to invest in funds and shares. It also offers ready-made portfolios for less confident investors. The app has a decent rating of 4.7 on the Apple store and 4.2 stars on Google Play. However, Hargreaves Lansdown's platform and trading fees are higher than some competitors.
• AJ Bell: With this app, users gain access to thousands of stocks, ETFs, and funds, making it ideal for diversifying portfolios. The app scores 4.7 on the Apple store but drops to 3.2 stars on Google Play.
• Trading 212: A commission-free platform offering over 13,000 stocks, ETFs, and investment trusts in the UK, US, Europe, and other countries. Trading 212 also offers fractional shares, but there is a 0.15% foreign exchange cost for converting money to foreign currency.
• XTB: A user-friendly, fully customisable European trading platform known for its extensive CFD and forex trading offerings. XTB provides instant access to hundreds of global markets and over 5,800 instruments, including stocks, ETFs, forex, indices, commodities, and more. It offers a Passive Investment Plan for beginners, which allows users to build a portfolio of ETFs and invest regularly through pound-cost averaging.

Robo Advisors (Automated Investing)

• Moneybox: A UK investment app that offers investing in tracker funds, exchange-traded funds (ETFs), exchange-traded commodities (ETCs), and US stocks. Moneybox provides two forms of investing: ready-made portfolios for beginner investors or those who prefer a lower-risk approach, and a range of funds, ETFs, ETCs, and US stocks for advanced investors to build their portfolios. Moneybox also allows users to invest their spare change by rounding up card transactions. A currency conversion fee of 0.45% applies to US stocks.
• Nutmeg: A robo-advisor that provides a personalised investment plan based on users' risk preferences and goals. Nutmeg offers seven risk-rated portfolios comprising cost-efficient exchange-traded funds (ETFs) and other passive index trackers. It also provides ethical investment options. Nutmeg charges an annual management fee ranging from 0.75% to 0.35% and an average annual fund management fee of 0.20%.
• Moneyfarm: A London-headquartered online investment platform offering products such as ISAs, GIAs, and pensions. Moneyfarm provides a personalised investor profile based on investment knowledge, wealth, and attitude to risk. It offers fully managed portfolios and a free pension drawdown service. Management fees range from 0.30% to 0.75%, with an average annual fund fee of 0.20%. There are no setup or trading fees.
• Plum: A UK money management and investment app that helps users manage their money and build an investment portfolio. Plum offers investment in up to 21 funds and over 3,000 UK and overseas stocks, including ethical and ESG investment options. Like Moneybox, Plum allows users to invest their spare change by rounding up card transactions. It charges a monthly subscription fee ranging from £2.99 to £9.99 and a 0.45% product provider fee.

Trading Apps

• Freetrade: A popular app for investing in UK and overseas stocks, offering access to thousands of stocks, ETFs, and investment trusts. Freetrade has a slick and easy-to-use interface and is suitable for both beginners and experienced investors. It offers commission-free deposits, trading, and withdrawals (other charges may apply), and users can invest in fractional shares with as little as £2. There is an FX rate of 0.99% + spot rate for US stocks. Freetrade offers three subscription plans: Basic (£0/month), Standard (£5.99/month), and Plus (£11.99/month), each providing access to different account types.
• Wealthify: An online saving and investing service that allows users to start investing from just £1. Wealthify offers a managed fund option where experts manage investments and a mobile app for users to manage their funds. There is an annual management fee of 0.60% and fund charges of 0.16% for original plans and 0.70% for ethical plans.
• AJ Bell Dodl: A low-cost investment app offering a range of ready-made themed funds. Users can invest from £100 or £25 per month

Frequently asked questions