How to start investing: a beginner’s guide

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Starting out in investing can feel daunting. It’s easy to feel overwhelmed by the jargon, the range of choices, and the risk involved. Isn’t it better to stick to safe, dependable cash?

In short: no. While cash ISAs and savings accounts are less risky in the short term than investing in stocks and shares, cash is a poor way to grow your wealth over the long term, because it barely keeps pace with inflation.

Analysis from AJ Bell showed that £1,000 saved into a cash ISA when they were first introduced in 1999 would have been worth £2,016 by the end of 2024. But that doesn’t account for inflation. Rising prices over that period means that £1,000 in 1999 had the same spending power as £1,856 today.

Of the £1,016 uplift in value from cash, inflation wipes out 84%.

As MoneyWeek’s digital editor Kalpana Fitzpatrick says in her book Invest Now: The Simple Guide to Boosting Your Finances, “with inflation eroding your money’s potential spending power, you must ask yourself if saving in cash is a risk itself”.

Investing that £1,000 into the UK stock market instead would have left you with £3,300. Your wealth would have doubled, even accounting for inflation.

Stock markets go down as well as up over the short term, but they tend to outperform cash considerably over the long term. They don’t carry cash’s almost-guaranteed risk of losing out to inflation.

Investing is key to getting your money working as hard as possible for you over the long term. Pensions are a form of investing: you’ll already be invested in the stock market through your pension if you have one, but making your own investments could help grow your wealth for spending before you reach retirement age.

Here, we’ll go through some of the questions that beginner investors ask, and explain how you can get started in your own investing journey.

This article is intended as information and inspiration for beginner investors, but nothing within it should be considered investment advice. Conduct your own thorough research before you start investing, and speak to a financial adviser if you are able to.

What is the difference between saving and investing?

Saving is about short-term wealth protection, while investing grows wealth over the long term.

“Saving is for stability, investing is for growth,” says Rob Morgan, chief investment officer at Charles Stanely. “When saving the aim is to build up a buffer, either for emergencies or for planned spending.”

Cash holdings are suited to this short-term cover because, whatever happens, your savings will be worth at least as much a year from now as they are today.

Investing means taking more risk over the short term for greater rewards over the long term.

“The key ingredient is time,” says Morgan. “The shorter period you invest over the higher chance of loss rather than gain, which is why investing only becomes reliable over a five-to-ten-year horizon – and ideally longer.”

Even if your investments fall in the short term, they will likely more than recover those losses, and beat inflation, over the longer term.

The global economy is cyclical: busts naturally create the conditions that lead to the next economic boom, and the stock market reflects this cycle. The dot-com bust – the longest stock market downturn in the last century – lasted just two and a half years.

That doesn’t mean that all investments are created equal. Where you choose to put your money makes a big difference. But luckily for beginner investors, some of the simplest investments are often the best.

Should beginners pick stocks or invest in funds?

A ‘share’ is a unit of ownership of a company that entitles the owner to a share of the company’s profits. ‘Stock’ – as in ‘the stock market’ – technically refers to all of a company’s shares, though it is used interchangeably with ‘share’. ‘Equity’ is another word for stocks and shares, referring to the part of the company that shareholders own.

A fund, meanwhile, is a bundle of shares (and/or other asset types). For beginner investors, funds generally represent a safer approach to investing because they are more diversified.

If you buy a share, you own X. If you buy a fund, you own (some of) X, Y, and Z. This diversification reduces the risk of your investment losing money.

Even for professional investors, picking individual stocks that will perform well is difficult. In his book A Random Walk Down Wall Street – a recommended read for any beginner investor – Burton Malkiel asserts that “a blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by experts.”

But ‘the stock market’ is a very different thing from an individual stock, and over the long term, stock markets tend to increase in value ahead of inflation. Funds that track the stock market are a simple way for beginner investors to tap into this trend.

ETFs and tracker funds for beginners

There are several types of fund, including:

Each has its advantages and disadvantages. But the simplest and most relevant for beginner investors are ETFs.

An ETF is a fund that trades as a single share on a stock exchange. Its price changes in real time according to changes in the price of the assets it tracks. You can buy and sell it in a stocks and shares ISA, just as if it was a stock.

There are ETFs for almost everything, but beginners might be particularly interested in ETF index funds. These track a specific index, such as the UK’s FTSE 100 or the US’s S&P 500.

“If you’re not sure which companies you wish to own, you may want to consider a tracker fund, or an ETF,” says Exley. “These will allow you to hold a small amount of, for example, every company listed in the FTSE 100.”

Index funds are usually low-cost: because they just track an index, there’s not much to pay by way of management fees.

Best of all, they usually outperform more active stock-picking strategies. AJ Bell’s December 2024 Manager versus Machine report found that only 33% of actively-managed funds (IE, those where the manager decides when to buy and sell stocks, rather than just tracking an index) outperformed a passive alternative.

How much money do you need to start investing?

One widespread myth about investing is that you need to have a lot of money to start out with to make it worthwhile.

As long as you have a savings buffer in place, there is no minimum level that is worth investing.

“People usually think about investing once they have sufficient cash savings for emergencies,” says Claire Exley, head of financial advice and guidance at J.P. Morgan-owned digital wealth manager, Nutmeg.

“That includes having a savings buffer to cover unexpected expenses – typically three to six months’ worth of outgoings,” adds Chris Beauchamp, chief market analyst at IG.

This ought to cover any emergencies or large purchases you’re considering within the next five years.

It is also worth minimising any high-interest debt before you start investing. “‘Bad debt’ – like high-interest credit cards, BNPL arrangements or overdrafts – drains your finances and should be paid off quickly,” says Morgan.

But once this is in place, investing any excess, even very small amounts, “can build confidence and knowledge, providing the life skills to successfully build wealth over time,” Morgan adds.

How old do you have to be to start investing?

There is no upper or lower age limit on investing. The earlier you get started, the better, as your investments will have longer to compound and earn you money. “It’s like a snowball rolling downhill,” says Morgan. “The earlier you start, and the longer you let it roll, the bigger it gets.”

But even those approaching retirement age, or already retired, can benefit from sound investing.

“Someone in the 80s or 90s may be investing for their heirs rather than themselves. You can therefore start – or continue – investing at any age,” says Morgan.

He adds that investment strategy should evolve with age.

“For example younger investors can typically afford to take more risk and focus on long-term growth.” Older investors or those approaching retirement generally favour a more conservative approach.

Where to start investing as a beginner

If you think you’re ready to start investing, it’s easy to get started using an investment platform.

Some will offer a selection of ready-made portfolios, allowing you to select a given risk profile – usually low, medium or high. These are known as robo-advisers.

Alternatively, once you have opened your stocks and shares ISA with your chosen provider, you can start investing into the funds, stocks and trusts of your choice.

As with savings, it pays to start an investing habit. “There are benefits to investing gradually over time,” explains Exley. You can set up a direct debit to pay a set amount in each month, or pay in a lump sum if you prefer.

Some platforms may have a minimum monthly amount or lump sum to pay in to get started, but many will let you start with a pound.

Where can you find out more information about investing?

Throughout this article we’ve linked to descriptions of terms that might seem confusing for beginner investors, but for a more complete list of financial terms and descriptions, see MoneyWeek’s financial glossary.

Some good reads for beginner investors include:

• Invest Now by Kalpana Fitzpatrick;
• A Random Walk Down Wall Street by Burton Malkiel;
• The Psychology of Money by Morgan Housel.

Keep educating yourself to improve your investing confidence. “You don’t need to become a market expert overnight,” says Beauchamp, but “understanding the basics will help you feel more confident in getting started.”