Nutty

What’s the best way to invest money?

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Fact checked.
Updated
May 19, 2024

In a nutshell

The best way to invest money is simply using the right tax-free investing account, saving regularly, and letting the experts handle your money. As simple as that. It's also cheaper than you might think, and your money could grow (very) large over time.

Looking to get started, or already investing and want to check you're using the right strategy? You’re in the right place. Here’s the best way to invest money in 3 easy steps.

1. Make use of tax-free accounts
2. Save and invest regularly
3. Let the experts manage your money

What’s the best way to invest money?

Sounds simple right? And it can be. Let’s run through each step in more detail.

Best way to invest

Check out InvestEngine – it’s very low cost, and their experts can handle the investments.

Visit InvestEngine¹Visit InvestEngine¹

1. Make use of tax-free accounts

In the UK, there’s two main tax-free accounts to help you save and invest – a Stocks and Shares ISA and a self-invested personal pension (SIPP). And, if you’re saving for your first home, you could also invest within a Stocks and Shares Lifetime ISA (LISA). (We’ll cover each below.)

Saving and investing tax-free means your money can grow much quicker – not only will you not pay tax (which can be a lot), but the money you save from not paying tax will have a big impact on your savings thanks to compound interest. 

What’s compound interest?

Compound interest is where the money you make starts to make money too, and this snowballs over and over, and over time this has a massive impact. Small savings now, can result in some serious money in the long term.

Imagine you add £300 per month to your account, and it increases by 5% per year – over the first few years, it would grow slowly, and take quite a long time to reach £50,000...

However, as time goes on, all the money you make in interest, is making interest too, and this has a huge impact in the future – where your money would grow much faster, and the time to reach the next £50,000 would be much shorter. Long term investing really pays off over time.

Compound interest

Note: investing outside of an ISA or pension would be within a General Investment Account (GIA), and some of the profit you make could be taxed (if you make over £3,000 per year, and sell investments). You can have as many of these as you like. These can also be called share dealing accounts.

General Investment Account (GIA)

Stocks and Shares ISA

A Stocks and Shares ISA (also often called an Investment ISA), is a type of investment account that allows you to save up to £20,000 per tax year (April 6th to April 5th the following year) completely tax-free. That means that any money you make from your investments, would be tax-free, forever!

Stocks and Shares ISA

Note: your £20,000 ISA allowance is split across all types of ISAs, for instance a Cash ISA, and Lifetime ISA (maximum £4,000).

The tax you could pay is Capital Gains Tax, Income Tax, and Dividend Tax.

Capital Gains Tax is a tax you would pay on any profit you make from selling investments within a tax year – although you only pay this if your profits exceed £3,000 per year (your Capital Gains Tax allowance).

Capital Gains Tax

Income Tax is paid on things like your salary, but investments can also pay an income, so you might have to pay Income Tax on any income you might make from your investments too.

Dividend Tax is paid if a company pays out some of its profits to its shareholders (the owners of the company). This can happen regularly with large, profitable companies such as Apple. There’s currently an allowance of £500 in dividends before any tax is paid.

Dividends

If you’re keen to avoid paying these taxes and want to invest within an ISA, check out the best Stocks and Shares ISA. The best option where the experts handle things is Moneyfarm¹ or InvestEngine¹.

And, if you want to make your own investments, check out Trading 212¹ (for stocks and shares, use code NUTS to get a free share worth up to £100) or InvestEngine¹ (for ETFs).

Self-Invested Personal Pension (SIPP)

A self-invested personal pension, also called a SIPP, is a pension where you can invest and your money will grow tax-free, but you’ll also get a free 25% bonus from the government on everything you pay in. We’re not joking!

Self-Invested Personal Pension (SIPP)

And if you’re a higher rate taxpayer (earning over £50,270, and paying tax at 40%), or additional rate taxpayer (earning over £150,000, and paying tax at 45%), you can claim some of that tax back too (by simply filling out a Self-Assessment tax return).

This ‘free money’ is to refund the tax you’ve paid on your income already, as saving for a pension is intended to be tax free.

Important: your money will be locked away until you’re at least 55 (57 from 2028), but after that, when you decide to withdraw it, 25% will be tax-free, and with the remaining, you might pay Income Tax, just like your salary now.

Pension tax-free

With a SIPP, you can invest in a range of investments, such as stocks and shares, and investment funds (covered below). You can even let the experts handle everything for you, such as with PensionBee¹ (5* rated).

Lifetime ISA (LISA)

If you’re saving for your first home, you could also save within a Stocks & Shares Lifetime ISA. This is where you save up to £4,000 per tax (which counts as part of your £20,000 ISA allowance), and you get a free 25% bonus from the government on all your contributions.

Lifetime ISA (LISA)

However, you can only use this to buy your first home, and only if it’s under £450,000. If you don’t use it for this, you’ll have to pay a hefty 25% fee to get your money back (which works out as more than your free bonus), or wait until you’re 60 years old.

Nuts about Money tip: if you’re keen to invest in a LISA, here’s the best Stocks and Shares Lifetime ISAs.

2. Save and invest regularly

Unless you’re a professional investor, you probably don’t want to spend all your time and effort looking for new investments, and tweaking and managing your investments daily (your portfolio).

And, there’s no guarantees that you might be making good investments.

As a general rule, it's best to save and invest regularly (for instance each month when you get paid), and either let the experts handle things, or if you’re confident, select a range of investments that are suited to long term growth (we’ll cover this below).

By investing regularly, you are buying investments whatever the price might be at that particular time, this means sometimes it might be high (more expensive), and sometimes it might be low (cheaper) – but over time, the average price you are getting will often work as great value when looking back in the future. This is called pound cost averaging (or more commonly dollar cost averaging).

Pound cost averaging

Nuts About Money tip: this isn’t always a good strategy for individual stocks and shares – it’s typically for long term focused investments.

InvestEngine¹ makes saving regularly easy with their ‘Savings Plan’ option, where your money will be automatically invested within your set investment portfolio – so you don’t need to do a thing, it’s all handled for you.

3. Let the experts manage your money

We also recommend letting the experts handle things when it comes to investing (unless you know what you’re doing). The experts have a lot of experience in managing investments for people, and growing money over time.

Now, we’re not talking about financial advisors – although if you have large amounts of savings getting advice is a great idea. We mean using an investment platform (website or app) that has an option to simply let the experts manage your money.

You can benefit from their knowledge and skills, and great investment strategies to grow your money over time. We’ll cover the best options just below.

Or, if you do want to invest yourself (and usually pay lower fees), you could consider investing with investment funds designed for long term growth over time, or funds that historically grow in value over time, such as index funds, including the FTSE 100 (top 100 largest companies in the UK) and S&P 500 (top 500 companies the US).

You can do this easily with an investment platform such as InvestEngine¹ – who provide a great option to invest in ETFs (investment funds) fee free, all within a tax-free Stocks and Shares ISA.

Best expert-managed investment platforms

The best investment platforms where experts manage your money.

Offer icon

Welcome bonus up to £50 & up to £2,500 bonus for transferring an ISA.

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Cheapest (ETFs only)
InvestEngine rated 5 stars

InvestEngine

InvestEngine is great for investing in exchange-traded funds (ETFs). That’s all they do – and they're very good at it.

It's so low cost, there's in fact no InvestEngine fees at all (to make your own investments).

And for the experts to manage your investments, it's only 0.25% per year.

There's a great range of ETFs (over 550), and the app is pretty great too.

Learn more

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Capital at risk. (T&Cs apply.)

Offer icon
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Expert advice
Moneyfarm rated 5 stars

Moneyfarm

Moneyfarm is a great option for saving and investing (both ISAs and pensions). It's easy to use and their experts can help you with any questions or guidance you need.

They have one of the top performing investment records, and great socially responsible investing options too. Plus, you can save cash and get a high interest rate.

The fees are low, and reduce as you save more. Plus, the customer service is outstanding.

Learn more

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Pros

  • Great for beginners and hands-off investors
  • Easy to use
  • ISA
  • Pension
  • Free personal investment advisor
  • Great track record for growing money
  • Socially responsible options
  • Invest cash for a high return

Cons

  • Have to invest at least £500
  • Not much else!

Capital at risk.

Best way to invest

Check out InvestEngine – it’s very low cost, and their experts can handle the investments.

Visit InvestEngine¹Visit InvestEngine¹

Best self-managed investment platforms

The best investment platforms where YOU manage your own investments.

Best way to invest

Check out InvestEngine – it’s very low cost, and their experts can handle the investments.

Visit InvestEngine¹Visit InvestEngine¹
Offer icon

Welcome bonus up to £50 & up to £2,500 bonus for transferring an ISA.

Trophy icon
Cheapest (ETFs only)
InvestEngine rated 5 stars

InvestEngine

InvestEngine is great for investing in exchange-traded funds (ETFs). That’s all they do – and they're very good at it.

It's so low cost, there's in fact no InvestEngine fees at all (to make your own investments).

And for the experts to manage your investments, it's only 0.25% per year.

There's a great range of ETFs (over 550), and the app is pretty great too.

Learn more

Dropdown arrow icon

Capital at risk. (T&Cs apply.)

Offer icon

Free share up to £100 - use code NUTS

Trophy icon
Best ISA
Trading 212 rated 5 stars

Trading 212

Trading 212 is a platform built for everyone in mind – there's over 2,000,000 customers! It’s great for beginners to get started, and perfect for experienced investors too with a huge range of investment options.

It’s also the cheapest platform out there, completely commission free, and the lowest fees when buying foreign stocks.

Learn more

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Not investment advice. Investments can rise and fall, and your capital is at risk.

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Best traditional
AJ Bell rated 5 stars

AJ Bell

AJ Bell is well established, with a good reputation.

It's one of the cheapest traditional stock brokers out there (charging a low annual fee).

There's a huge range of investment options – pretty much every investment out there (including both funds and shares).

The customer service is great too.

Overall, it's one of the best options.

Learn more

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Types of investments

If you’re not quite sure about all the different types of investments you could invest in, don’t worry – not many actually do! That’s why we often recommend letting the experts handle things. Let’s run through them now.

Stocks and shares

Stocks and shares are where you buy and own part of a company, you buy a ‘share’ of a company. Shares are traded on stock exchanges all over the world (stock market), such as the London Stock Exchange (LSE) in the UK, and the New York Stock Exchange (NYSE) in the US.

Stocks and shares

All the shares of a company combined equal the total value of the company, and typically, when a business grows (it makes more money), the value of the company increases, and so does the share price.

Profitable companies can also pay out their profits to shareholders, which are called dividends.

Dividends

Investment funds

Investment funds are a group of investments (such as shares of a range of different companies), all pooled together into a single investment. This makes it much easier to buy a wide range of investments, and can be a lot cheaper than buying all the shares individually. They’re also often called mutual funds.

Investment fund

Investment funds are managed by an investment manager (known as a fund manager), and can be actively managed (investments chosen by the fund manager), or they could track certain groups of things (known as an index), such as the top 100 companies in the UK (FTSE 100). Or, even things like companies that pay dividends – there’s a huge range of different options.

Investment funds can be bought and sold on stock exchanges, just like shares, so bought and sold whenever you want to (during opening hours of the stock market), and if they can be, they’re known as exchange-traded funds (ETFs).

Note: instead of investing money in things such as shares, investment funds can also deposit their money with high interest savings accounts and earn interest instead. These are called money market funds, or cash funds.

Bonds

Bonds are where you effectively loan your money to a government (government bonds) or large corporations (corporate bonds), in return for interest payments. The bond (loan) will have a date it matures, at which point, you’ll get your money back, plus all the interest during that time.

Commercial property

Commercial property such as offices and shops can also be an investment – and can make up part or all of an investment fund. This can provide a regular income (in the form of rent).

Building your own investment portfolio

If you’re just getting started and want to make your own investments and create your own investment portfolio (your collection of investments) – it’s typically a good idea to start with investment funds, rather than individual stocks and shares.

Investment funds have a huge range of different structures and goals – all suited to different investors, but the best way to invest money is simply for long term growth (especially if you’re a beginner).

Investment funds for long term growth are kind of like a pre-built investment portfolio, which can be well diversified (a range of well suited, different investments), with investments selected for long term growth.

Trying to pick individual stocks and shares yourself, or buying the next trending stock (such as Tesla), can work out as a great short term investment, but typically not suited for long term growth. It’s a strategy more suited to day trading (lots of short term trades).

InvestEngine¹ is a great option to invest in funds (ETFs), there’s a huge range, and it’s fee-free.

Is it safe to invest money?

Yes, it’s very safe to invest money if you follow our recommendations.

All financial services companies need to be authorised by the Financial Conduct Authority (FCA). They’re the people who make sure companies are looking after their customers and their money.

Financial Conduct Authority (FCA)

This also means that your money is protected by the Financial Services Compensation Scheme (FSCS), which means you could be compensated (up to £85,000), should the company holding your money go out of business.

Financial Services Compensation Scheme (FSCS)

However, this doesn’t mean you can’t lose money – your investments could go down in value. But with a focus on long term growth (rather than short term investments), which experts typically have, your money should grow over time (with ups and downs along the way).

Investing

Alternatives to investing

If you’re not sure investing is right for you, don’t worry, it’s not for everyone, and you do have other options – although typically, sensible investing has the best results over the long term.

You could simply save your money as cash, and earn interest on it each year. There’s two options for this, a savings account, and a Cash ISA.

Savings account

A savings account is a great option to earn interest on your money, you simply sign up, add money to the savings account, and you’ll start earning interest (money).

There’s a few different types of savings accounts depending on when you might need the money back.

A popular option is an easy access savings account, where you can get your money back whenever you like, here’s our best easy access savings accounts to learn more. 

Or, you could lock your money away for a set period of time, anywhere from 7 days to 5 years, in exchange for what can be a higher interest rate (but not always). These can be called notice accounts (where you give notice to get your money back), or simply fixed term savings accounts.

With a fixed term account. you won’t be able to access your money without hefty fees. Check out the best savings accounts to learn more about all your options. An easy access account can often be a better option for most people.

Note: you might have to pay tax on your interest, depending on how much you make – typically you’ll have to earn over £1,000 in interest before paying tax (your Personal Savings Allowance).

Cash ISA

With a Cash ISA, all of the money you earn (interest) is tax-free – which means your money could grow more over time.

Cash ISA

However, the interest rates are typically much lower than a regular savings account, and you may not end up paying tax on your interest anyway (thanks to the £1,000 tax-free, Personal Savings Allowance).

Let’s recap

Well, there we have it – the best way to invest money. Simpler than you think? Let’s run through it again quickly.

So, there’s 3 simple steps to investing the best way (in the UK):

1. Make use of tax-free accounts
2. Save and invest regularly
3. Let the experts manage your money

Making the most of tax-free accounts such as a Stocks and Shares ISA, or a self-invested personal pension, can mean your money grows tax-free, saving you a small fortune in tax, but also means your money can grow much quicker, thanks to compound interest (money earning more money).

With a pension, you’ll also get a 25% bonus on your contributions – added to your pension automatically. How great is that? But hold your horses, you will have to pay tax when you start withdrawing your money (depending on how much you earn at the time). Although 25% will always be tax-free.

Saving and investing regularly is the key to building up your savings. You’ll benefit from compound interest again – so even small amounts every month can have a big impact in the future.

And finally, simply let the experts handle your investments, unless you know what you’re doing.

Experts know what they’re doing (it’s their job!), and know the right investment strategies to grow your money sensibly over time. It can also save you a lot of time and effort.

We recommend simply using an investment platform that offers expert-managed investing, and offers a tax-free investment ISA, such as Moneyfarm¹ (expert advice) or InvestEngine¹ (very low cost) – they’re both great options and very popular.

Although if you do want to manage your own investments, check out InvestEngine¹ (they offer both options), they’ve got a great range of ETFs, and it’s fee-free.

If you’re only looking to save for a pension, check out PensionBee¹, it’s easy to use, low cost, and has a great track record of growing money over time.

And that’s it. All that’s left to do is wish you all the best with your investing!

Best way to invest

Check out InvestEngine – it’s very low cost, and their experts can handle the investments.

Visit InvestEngine¹Visit InvestEngine¹
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Best way to invest

Check out InvestEngine – it’s very low cost, and their experts can handle the investments.

Visit InvestEngine¹Visit InvestEngine¹

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