Beginners guide to investing money

Investing is a way to put a little money aside and have it work hard for you so you can reap the rewards. But, if you’re just dipping your toe into the world of investing all the jargon can feel a bit alien. There are a few basics you definitely need to know before you get started and by the end of our beginners guide to investing money you’ll be ready to start your investment journey.

Graphic showing stocks and shares

Beginners guide to investing money 

Investing is putting money away for the future. When you invest you’re buying something that you believe will increase in value over time. However, there are no guarantees with investments, the value of your purchase can go up and down at any time. So you might get more money than you invested back, but you also might get less money.

What can I invest in?

You can invest in just about anything, from the more traditional stocks, shares and gold to unusual investment opportunities like cars, cryptocurrency and wine. There are a lot of intricacies to investing and there are lots of things you can invest in and we’ve mentioned some below.

Bonds
A bond is a contract between two parties. Government or companies issue bonds because they need to borrow large amounts of money. They issue bonds and investors buy them, meaning at one point they will have to be paid back. 

Real Estate
You can invest in real estate, otherwise known as property. This is obviously a much larger investment

Commodities
This means an investment in physical things like gold or oil.

However, for this beginners guide to investment, you only really need to know about two types of investment to start off with, shares and funds.

When you buy shares you’re buying a tiny stake into a company. If the company performs well you earn a profit. If the company does badly your investment may not grow and you could even lose money. Share prices are always usually affected by other factors in the economy like supply and demand.

Whereas, if you buy funds, you’re buying into a ready-made basket of investments. Some funds are even managed for you by an investment professional. Funds include a whole host of investments rather than just one. 

How does the stock market work?

Shares exist so companies can grow and build profits. So, in very simple terms, a stock market is a place where buyers and sellers meet to sell shares. In return for your money, a business offers you a share in its future, so you own a teeny tiny bit of that company.

The reason why share prices rise and fall on the stock market, is that on any given day the price of the share initially given can fluctuate. Share prices are determined by several factors like poor financial results, the economic health of the country and sentiment. The sentiment means if city buyers think it will struggle prices can go down but if the company doubles its growth in a year the price could rise. 

The stock market shown on an app

What’s the difference between savings and investment?

Saving is a very broad term, but generally saving can help you reach short term goals and you can access your money, usually, whenever you want it. It’s also a sure-fire way of keeping money aside without the fear that it might fall in value. When you save into savings account any growth in your money will come from the interest your savings pay. 

When investing, you can choose to put your money in things such as stocks and shares, government and company bonds, or property. The risk involved in investing is much higher than regular cash savings, however, long term they often perform better than cash, which is why investing is so popular.

Why should I invest?

The whole point of investing is because you then get access to a diverse range of assets. This diversity is what gives your money the potential for a better return in the future. 

Taking your first steps in investing money

Start young

The first step in starting out in the beginners guide to investing money is to start your investment journey when you’re young. This is the best way to give you better returns on your money and it means that you’ve got many years to ride the fluctuations in the stock market and much longer to see your money grow.

Set aside an investment budget

Just like you’d set a target and an amount for regular cash savings you need to think about how much you want to set aside for investing.

Assess the risk

When thinking about starting your investing journey it’s important to recognise the risk involved. There’s no such thing as a risk-free investment, only that the amount varies between different types. 

Cash savings might lose value because interest rates won’t always keep up with inflation (rising prices). On the other hand, stock market investments might beat inflation and interest rates over time, but you run the risk that prices might be low at the time you need to sell, resulting in a poor return. 

When you start your investment journey, it’s usually a good idea to spread your risk by putting your money into a number of different products. This is called diversifying.

Open an investment account

Next on the list is opening an investment account.

Moneybox is a savings and investment app that makes investing easy. With Moneybox you can set up a Stocks and Shares ISA or General Investment Account in minutes and starting from as little as £1. You can then contribute to your investment accounts through a weekly direct debit, spending round-ups or a payday boost.

You can also shop around the more traditional banks to find the best investment account options for you, or to make it even easier just open an investment account with your the bank you use every day.

Use your retirement account

Another way to invest in stocks is through your retirement account. Your employer might offer a 401(k) or 403(b) retirement plan as part of the benefits package. These accounts invest your money for retirement, but the choices are often limited to the ones your employer has already chosen.

That’s how you get started in investing. Remember investing doesn’t need to be daunting and our four golden rules of investing (below) are an easy way to remember everything we’ve spoken about.

Four golden rules of investing money

  1. Don’t put all your eggs in one basket. Try to diversify as much as you can to lower your risk exposure
  2. Invest for at least five years, so it gives your investments time to grow. 
  3. Review your portfolio regularly. If you don’t, you could end up with a share account which loses money.
  4. Don’t panic when investments go up and down. Don’t be tempted to sell or buy shares just because everyone else is. 

So, we hope you learnt a lot in our beginners guide to investing money. Now you can get started, it’s time to go out there and start investing. Good luck!