Thanks to recent technology, investing has become super simple, cheap, and available to everyone. The best bit – experts can do everything for you, you just put your feet up and watch your money grow on a phone app. Perfect for beginners.
What is Investing?
Simply put, investing is using money to make more money. This is usually done by buying things that will go up in value in the future, like successful businesses or property. The money it makes is called a ‘return’, and if done correctly, can generate life changing amounts over the years.
Investing is really the main difference between how the rich make money and how everyone else makes money (by working). But here’s the crazy thing, thanks to new technology in recent years anyone can start investing. All you need is your phone, the internet and about £10 to your name.
The best bit – you don’t need to know a thing about investing whatsoever. Experts can do it all for you. Or, you can do it all by yourself, or a mix of both. It’s entirely up to you.
The key point to understand is that wealth is created from owning assets like stocks and shares (which are small ownership stakes in businesses) in successful companies, that go up in value over time. Rather than trading your time for money (working in a job).
Put it this way, rich people make money even when they are sleeping. And now you can too.
Just think about house prices over the last 50 years, they’ve skyrocketed! Asset prices (the house) have risen to such an extent they’re now so high that it’s near impossible for many people to buy a home. That’s a form of investing, and it happens with all types of assets – things like stocks and shares. Imagine buying shares in Amazon or Google back in the day!
However, the right strategy is needed, and it’s often not a good idea to make every investment decision yourself. Luckily help is there, with a click of a button, all free or super cheap too. We’ll get into this later.
You don’t need a huge amount of money to get started either. In fact you can start with very little (we’re talking as low as £10), and could end up very wealthy. All thanks to what’s called compound interest, the 8th wonder of the world… (according to Albert Einstein).
So what is compound interest? As you start making a return (interest) on your investments, the interest you make, will be reinvested to make even more money.
Investment return is often measured in years. So, let’s say in the first year you invested £500, and you made a 10% return (a £50 increase), meaning your total value of investments is now worth £550.
In the next year, if you again made a 10% return, instead of making £50, you’d now make £55. And the next year, you’d earn £60.50, you get the idea. This builds and builds over the years (it compounds), and over time you’ll have a significant sum of money. Nice!
In fact, if you started with £1,000 and made 5% return each year, and were able to add £300 per month for 25 years, you’d end up with a whopping £184,134.20!
Another 10 years and it would almost double, to £346,561.45!
This is how pensions work too, and why it’s so important to start your pension early (if you don’t have a pension yet, it’s never too late.
The world is quite literally your oyster when it comes to investing – there are lots of opportunities to invest and grow your money. For instance property, stocks and shares, even starting your own business is a form of investing.
But not everything is suited to beginners, in fact a lot of it can be complicated – the good news is that it doesn’t matter. There’s an easy way! Here’s how to get started if you’re a beginner…
The best way to start investing for beginners
We’re going to be talking about hands-off investing (the most popular form of investing), which is mostly investing in stocks and shares, with everything handled for you by experts – all super easy, you just sit back, relax and put your feet up. Sounds good right?
As technology has developed over the last few years, you can now invest in minutes, all from your phone, or from a website. It’s super easy, can make you a lot of money and it’s cheap.
Companies like Moneyfarm¹ allow you to deposit your hard earned cash, and their experts will invest it for you, thanks to their expert knowledge and experience. You’ll be able to track your performance within the app and website whenever you like too.
So quite literally, they do all the work, and you make all the money (minus a fee of course). It’s becoming hugely popular as a way for ‘everyday’ people to invest their savings and start benefiting from investing and compound interest.
These companies are often called ‘robo advisors’, but there’s no robots involved – it’s all managed by professionals who know what they’re doing. Technology is involved, but that’s to give you complete transparency over your money and so you can check it any time, either on an app on your phone or via their website.
The experts will invest mostly in stocks and shares, which are small ownership stakes of businesses, and these shares trade on stock exchanges all over the world. As economies (countries) and businesses grow over time, so do the value of the stocks and shares, and therefore the value of your investments.
The experts also specialise in something called ‘risk management’, which is making sure your money is carefully managed so that it grows over the long term in a nice and secure way.
There’s always ups and downs when looking over a short time-frame (like a couple of years), but the key to successful investing is looking at it with a long-term view, as the value of where your money will be invested has always gone up (trended up) over time.
Why? Because economies like the UK and US, plus other countries across the world are always growing, and your money is usually spread out across the economy in various types of businesses and you benefit from that growth too.
These apps are called expert-managed investment apps. And if you’re keen to get started, we’ve done the hard work to research and review the best ones, they are…
The best expert-managed investment apps
Moneyfarm is like a financial advisor on your phone (or website), their experts will work with you to determine the best investment strategy. It’s low cost, with an excellent investment track record and great customer service.
You’ll pay one simple fee that decreases the more you save.
With the best investment apps, you’ll have a few simple options for what type of account you’d like to invest your money in.
As an added bonus, there’s certain types of accounts that are tax-free! Yep, you pay absolutely no tax on the money you make. Which means you make even more money over the long term thanks to that lovely thing we discussed called compound interest.
Stocks & Shares ISA: invest up to £20,000 per year, and everything you make is tax-free, forever! Almost all investment companies (like apps) have this option for their customers as it’s the best.
Note: however, you can only open 1 Stocks & Shares ISA per year, so choose wisely! Stick with our recommended apps above if you’re new to investing.
Stocks & Shares Lifetime ISA: if you’re under 40, you can open one of these. They’re designed for saving a deposit for your first home.
They’re exactly the same as a Stocks & Shares ISA, so everything you make is tax-free, but you also get a massive 25% bonus from the government on everything you put in!
There’s a limit of £4,000 per year though, but if you’re investing more, you can have this as well as a regular Stocks & Shares ISA.
Important: you must use it to buy your first home, or you’ll have to wait until you’re 60 to access the money (without facing hefty fees).
Stocks & Shares Junior ISA: if you’ve got kids, this one’s for you. You can save and invest up to £9,000 per year for each kid, all completely tax-free. Separate to your own allowance (£20,000).
Note: they’ll be able to access the money when they’re 18 (it’s their money!).
You can get a Junior ISA with all of our recommended investment apps, such as Moneyfarm¹.
Personal pension (self-invested personal pension): take control of your retirement by opening a personal pension and also get a bonus of 25% from the government (or 40% if you’ve paid higher rate tax on your income).
Note: you can’t access the money until you’re 55, but it’s a perfect way to boost your income for retirement.
You can get a personal pension with all of our recommended investment apps, as well as specific pension companies such as PensionBee (here’s our PensionBee review).
General investment account (GIA): this is your standard account, there’s no bells or whistles, and no tax-free benefits. If you’ve used up your £20,000 allowance or your ISA(s) are with another provider, you can use this account to still invest. You’ll have to pay Capital Gains Tax on anything you make over £12,300, which is 20%.
How much should a beginner start with?
The best bit about using an investment app is that you don’t need much money to get started at all, and you can add more money whenever you like, such as regular monthly payments, or adding your birthday money, it’s all up to you.
We recommend starting with as much as you comfortably can. The more you add, the better job the experts can do with your money and manage risk properly (more on this below), which they do by spreading it out across different investments (called diversification). You’ll also have the potential to make more money too.
If you’re able to start with £500, that’s great, and more is even better. But if you’re not comfortable, start with a smaller amount and see how you get on, you can always add more later (some apps like Moneybox let you start with just £1).
Once you’re up and running, the best method is to keep paying in a regular amount of your income each month – as much as you comfortably can. Treat it like a savings account, because that’s exactly what it is – except much better than the one your bank would offer you. This one is working for you!
Is investing risky?
When investing for long-term returns, and by letting the experts handle everything, investing is not risky at all. And this is what we recommend.
At the core of every investment strategy is something called ‘risk management’, and it’s what the experts are, well, experts at. And it’s this management of risk that makes you money over the long run.
Businesses can fail or stop growing, and investments can lose money, but this is not the same as your investment portfolio losing money (your investment portfolio is all of your investments grouped together).
Your portfolio, which is built, managed and updated all the time, by the experts (if you are using an expert-managed investment app), and is put together so no single investment can have any impact on your money. If one business failed within your portfolio, you wouldn’t even notice.
It’s the combination and range of investments, across the whole economy (and world), that aims to grow your money over time, and benefit from the power of compound interest.
Investing is not betting your money on a single business that might have crazy growth, that’s just gambling!
Trust the experts – consistent growth over time with sensible investing using good risk management is a tried and tested method that works. And that’s what the best investment apps do for you.
How much can I expect to make?
Unfortunately, there’s no overnight success with investing. Success is long-term, using the power of compound interest over time. And over a long period of time, the amount of money you could make will be pretty unbelievable!
As a rule of thumb, you can expect to make around 8% per year on average (which is a lot more than your regular savings account at your bank).
This means some years you might even lose money, but some years you could make way over 8%.
But over the long term, as the economy grows, and your investments grow with it, expect around 8% per year.
Typical fees when investing
Investing is not typically free, there is a cost. Fees can vary too, depending on how you’re investing and who you are investing with. But don’t let it put you off, done correctly, you’ll be making more than enough to cover the fees. And if you choose the right company the fees are often just a small portion of your money invested.
However, with expert-managed investment apps, the recommended way for beginners to invest, the fees are some of the cheapest available.
Investment apps typically charge a management fee, which is for simply managing the investments for you – so all the expert advice and buying and selling investments. You don’t have to lift a finger.
And as your money is mostly invested in stocks and shares, this is typically done through something called an investment fund, and more specifically, an exchange-traded fund (ETF) - which are bought and sold (traded) on a stock-exchange.
And then as the experts buy and sell funds, they’ll have to pay a hidden fee called a spread fee. This is the difference between the price they buy the investment for, and the price they could sell it for (at the same moment in time).
It’s a bit confusing, but it's a fee that is reflected in the valuation of the investment itself rather than paying a fee to someone.
Here’s a breakdown to recap of all the fees:
Type of fee
Typical cost per year
0% - 0.75%
The investment fund(s) fee
0% - 0.35%
Cost to buy a fund (spread fee)
0% - 0.09%
0% - 1.19%
So overall, expect to pay somewhere in the region of 0% to 1.19%. Anything higher than 1.19% and you are probably overpaying.
More established companies like Hargreaves Lansdown¹ are very expensive. You may be tempted to use their services, which are great, but you are paying a lot when you don’t need to, and for effectively the same service as our recommended apps like Moneyfarm¹ (who handle everything for you and have expert advisors you can speak to for free), and Nutmeg, (who will also handle everything for you). Both are some of the cheapest investment companies in the UK.
With typical face-to-face and over-the-phone Investment advisors, they can often charge huge fees. You’re paying for their one-to-one service, but the strategy would be the same as the best investment apps.
Fees can be as much as 5% to get you started, plus annual management fees – that could wipe out your entire year's gains. There’s a reason why investment advisors are making lots of money.
Because the best investment apps are new and efficient, they combine all of their customers' money together, which makes management and investments cheaper. You could expect to pay around 1% per year. And as the value of your investment grows, the management fee reduces – making you even more money!
Making your own investments
Once you’re familiar with investing and how expert-managed investment apps work, you might like to try making your own investment decisions.
We don’t recommend this immediately for beginners, it’s very hard to make more money than the experts without a solid investment strategy. But there might be some stocks and shares you’d like to invest in, in addition to your expert-managed investments.
There’s nothing wrong with that at all, and we encourage you to learn as much as you can about investing, and part of that is trying things out yourself.
Just make sure you are researching the companies and the foundations of their business before investing, and start slowly. Remember long-term growth! (There’s more on how to research below).
Here’s the best apps to start managing your own investments.
The best self-managed investment apps
Best trading app
eToro is a hugely popular trading platform. Not just because of it’s awesome trading features and being completely commission free, but because you can join a community of traders from all over the world, to trade, chat and learn together.
It’s also got the largest range of assets to trade, including stocks, ETFs, crypto, CFDs, currencies and commodities (such as gold).
68% of retail investor accounts lose money when trading.
Stocks & Shares ISA
Freetrade are taking the UK by storm and fast becoming one of the top places to buy and sell (trade) stocks and shares for free. The range of investment options is huge, including US and European stocks. An ISA costs just £3 per month and you can manage everything from an app on your phone.
There's currently a deal for our readers, get a free share worth up to £200 when you sign up with Nuts About Money.
Research is essential when investing for yourself. You need to determine if you think a company (stock) is the right investment for you, and your investment strategy. There’s a whole range of investment strategies out there, and of course you can create your own, but here’s some common ones you might like to research further:
Buy and hold investing
One of the best way to learn about companies to invest in, and investing in general, along with things like crypto (Bitcoin and Ethereum), is through apps like Finimize (here’s our Finimize review – and with a nice discount for our readers).
They break down small topics into easy to understand advice and analysis, and have a great community of other investors to learn from, including Whatsapp groups.
It’s much more modern and easier than trying to understand and digest things like the Financial Times, which can be confusing and expensive.
And that’s the basics of investing
Much simpler than you thought, right?
Investing is the best way to grow your money over time, and have a richer future (or save for your kids future!). You can let the experts handle everything, or take control yourself – or a bit of both.
The important thing is to keep your money invested (don’t sell if the value drops, that’s the time to invest more, to give yourself an even bigger return in the long term), and ideally keep adding to it regularly to benefit from compound interest. You’ll be surprised by how much your savings are worth in a few years! And even more beyond that.
And with that in mind, there’s no time to waste! Get started with our best investment apps. Good luck!
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