How to invest

A step by step guide to investing your money

If you want to invest but haven’t a clue where to start, you’re in the right place.

For most people, when we talk about investing we’re referring to buying stocks and shares rather than things like fine wine or art.

And sit tight as we explain exactly how to invest your money, step by step.

Some articles on the site contain affiliate links, which provide a small commission to help fund our work. However, they won’t affect the price you pay or our editorial independence. Read more here.

Here at Be Clever With Your Cash, we’re not regulated to give you financial advice. We aim to give you the facts about a provider or investment but it’s up to you to decide if it’s suitable for you. If you’re looking for more personalised guidance, find a financial adviser who can give you specific advice. Remember that your capital is at risk when investing — don’t invest more than you are prepared to lose. 

Make sure your finances are in order

While investing can be exciting, before you jump straight in you may need to do a bit of financial prep first. 

We’ve covered this in more detail in another article, Investing for beginners, but essentially you want to make sure you’ve paid down any expensive debts, sorted out your emergency fund (about three to six months’ outgoings) and considered relevant insurance. 

Decide how much you want to invest and your financial goals

Have a think about what you can afford to invest and how this fits in with what you are trying to achieve. 

Now, this isn’t necessarily something like ‘become a millionaire in five years’ (chance would be a fine thing) but maybe you’re trying to grow your wealth for the retirement of your dreams in 20 years or to help pay for your children’s university fees in 10 years? 

Whatever the goal, it’s a good idea to set a target sum and decide how long you hope to invest to get there. This will help you work out how much you may need to invest to achieve it.

As a rule of thumb, when you invest your money it should be for at least five years, to give you a better chance of riding out the bumps in the market. But the longer the better. 

When considering how much to invest, this will depend on your financial circumstances, your goals and the level of risk you’re comfortable taking. You don’t have to have loads of money – you can start investing with small sums – but don’t invest anything you can’t afford to lose. 

You can invest a lump sum at the start, or set up monthly regular investments, or a do a combination of both.

To give you a rough idea of how much to invest, either as lump sum or monthly payments, you could try an online investment calculator although remember, investment returns are never guaranteed and can’t be predicted.  

Pick a platform

Now, you can buy investments from different providers, but the easiest and cheapest way is to usually go through a platform. These are websites or apps that allow you to buy and hold different investments in the same place. Back in the day you might’ve heard them called ‘fund supermarkets’ which gives you a bit of an idea of how they work.

You’ll need to pay the platform’s fee, usually a management or custodian fees for keeping your money safe, but also potentially extra fees for using tax wrappers such as ISAs and pensions, and fees for buying and selling investments. It can be tricky to work out how to get the best value as a cheaper platform might charge more for buying and selling investments – so you’ll need to consider both costs. 

If you’re investing a large lump sum, say £15,000 or more, you might want to consider a platform that charges a flat fee rather than a percentage of your investments so you keep more of your returns. If you’re investing smaller sums, do the opposite. 

But price is just one factor. You’ll also want to think about what investment options the platform offers (some have more choices than others), whether you’d prefer a bit more hand-holding from a platform, such as a robo advisor that offers a ready-made portfolio, or if you’re after one that offers pure simplicity. 

You’ll also want to pick a platform that is covered by the Financial Services Compensation Scheme. This means up to £85,000 of your money is protected if the platform runs into financial trouble or goes bust. However, this compensation doesn’t apply to the investments that lose value – that’s one of the potential risks of investing.

We’ve got a number of detailed reviews of our favourite investment platforms on the website to help you decide which one’s right for you.

Open an account

You’ve got a platform, and next you need somewhere to keep your investments. The main options are Stocks & Shares ISAs, General Investment Accounts (GIAs) and Self Invested Personal Pensions (SIPPs).

We’ll assume that you’re using your workplace pension for retirement planning, so the next best place for most people is to invest via a Stocks & Shares ISA. 

This keeps your returns, such as profits and dividends, free from tax. Everyone has an ISA allowance of £20,000 each tax year which can be split between different types of ISA (eg Cash, Stocks and Shares, and Lifetime ISA) or used on just one.

You’ll usually need to provide basic information including:

• Your name, address and mobile phone number
• Date of birth
• Debit card or bank account details
• National Insurance number

What happens next will depend on the platform. You could be shown some ISA information which you’ll need to read carefully and also be asked some questions about your understanding of investing and your approach to risk. 

You’ll then need to wait for your account to be verified which can take a couple of days.

If you’ve already used up your ISA allowance for the year you can also invest in a General Investment Account (or GIA), where you can hold as much as you like but you may need to pay capital gains tax or income tax on profits. 

Choose your investments

Picking investments can feel overwhelming, but it doesn’t have to be.

One way of making it easy is to invest in an index fund or an Exchange Traded Fund (ETF), which would be our first choice. 

Funds are a collection of investments – they can invest in lots of different companies at the same time, from the massive established corporations to tiny start-ups. You’ll get a good spread of investments without any effort, which helps reduce the risk of losing money. The idea is that if that part of your portfolio falls in value, another part will be successful and bring your investments back up. But there are no guarantees.

These are a good choice for investors, especially beginners, as they are relatively low cost and there’s not much work involved. You simply pick the fund and add money to it. 

Alternatively, if you’ve picked a robo advisor platform or one of the main platforms, like Vanguard or AJ Bell, you can opt for one of its ready-made portfolios or let it recommend investments to you. These are often the simplest options.

Another approach is to pick companies you like and build your portfolio that way, however this can be time-consuming and not particularly cost effective, as you’ll be paying a fee for each investment. It also requires a lot more work on your part.

Also, most platforms have a list of recommended funds that you can use to whittle down your choices. You’ll have to monitor them though. 

Get investing!

Your approach to investing will depend on your financial circumstances and how you feel about it.

Some people set up a monthly direct debit to ensure they’re investing regularly (this can be a good way to get started with small sums and takes the emotion out of investing) or invest a larger lump sum, if they have the money and want it to have ‘more time in the market’. As we said earlier, the longer your money is invested, the more time it has to grow.

However you approach it, it doesn’t need to be complicated. Happy investing!