What investing means
Investing means buying shares in a company to own part of it. When you buy shares, you become a part-owner of that business.
You can also buy an index fund. An index fund owns shares in many companies at once. This spreads your money across hundreds or thousands of businesses.
You have other options too. You can have your money managed for you by professionals. You can invest in crypto or startups through platforms like Crowdcube.
This guide focuses on investing in companies and index funds.
Investment risks you need to know
You can lose money when investing, especially in the short term. Share prices go up and down daily. Some years savings accounts can even outperform stocks.
Over long periods, investments typically beat savings accounts. The average return on the stock market between 2012 and 2021 was 14.8% annually. But this isn’t guaranteed every year.
The FCA and banks must tell you about the risk of losing money. It’s the law. They have to warn you even though patient investing has worked well historically.
Should you invest your money
Only invest money you won’t need for at least 5 years. Investing works best when you leave your money alone for the long term.
Check your finances first
Build emergency savings before investing. Save enough to cover emergency expenses and other unexpected costs. Most experts suggest 3 to 6 months of living costs as a starting point.
If you’re saving for your first house, focus on that instead. Getting on the property ladder might be more important than investing right now.
Understand the commitment
You should only invest money you can afford to not touch. Not because you will lose it. But because taking it out early can hurt your returns.
Withdrawing money early interrupts your investment growth. It can lock in losses during market downturns. Leave your investments alone to grow.
How to invest your money
Start with a Stocks and Shares ISA
The best way to invest for most people is through a Stocks and Shares ISA. All profits and growth are tax-free.
You can deposit up to £20,000 each year in the 2025/26 tax year. You won’t pay tax on any money your investments make.
Choose an index fund
If you’re starting out, invest in an index fund. The Vanguard FTSE All World is a common choice for beginners. It holds shares in thousands of companies worldwide.
Index funds make investing simple. You don’t need to pick individual companies. You don’t need to make trading decisions. The fund does the work for you.
Set up regular investing
Invest a fixed amount every month. This strategy is called pound-cost averaging. It helps smooth out the ups and downs of the market.
Set up a direct debit from your bank account. Automatic investing removes emotion from your decisions.
Check your ISA provider
Different providers charge different fees. Fees can eat into your long-term investment returns. Compare costs before you choose.
Many providers now let you open multiple ISAs of the same type. You could use multiple stocks and shares ISAs to invest in different assets. Just stay within your £20,000 total limit.
Stay calm during market drops
Don’t check your investments every day. Daily checking causes stress. Share prices move up and down constantly.
When prices drop, don’t panic. Don’t sell your holdings. Market drops are normal. They’re part of investing.
Remember you’re investing for the long term. Short-term drops don’t matter when you’re investing for 10 years or more.