Investing for beginners UK

Fact checked icon
Fact Checked.
Updated on
September 18, 2022

In a nutshell

Thanks to recent technology, investing has become super simple, cheap, and available to everyone. The best bit? Experts can do everything for you while you just put your feet up and watch your money grow on a phone app. Perfect for beginners!

Nutty

What is Investing?

Thinking of investing? Good choice. But what actually is it? Simply put, investing is using money to make more money. Sounds good right? It’s 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, investing 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. An asset is something that has value, such as a house, or a business. Assets tend to increase in value over time – and so your wealth increases over time too. Winning!

Owning assets means you are less reliant on trading your time for money (like most of us do when going to work every day!), and can start earning money without you having to do anything.

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 (which are small ownership stakes of businesses). Imagine buying shares in Amazon or Google back in the day!

Investing for beginners (UK)

Put it this way: rich people make money even when they’re sleeping. And now you can too! 

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.

Remember how we said you only need £10? Well, even starting with as little as that could make you very wealthy over time. All thanks to what’s called compound interest, the 8th wonder of the world… (according to Albert Einstein – yep, He really said that!).

Compound interest

The money you start to make from your investments is called interest. Compound interest refers to the fact that any interest you make will be reinvested to make more money – so your interest is making interest!

Making money is also called making a return (on your investment), and it’s often measured in years. So, let’s say in the first year you invest £500, and you make a 10% return (a £50 increase). That means your total value of investments is now worth £550.

In the next year, if you again make 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, let’s bump the number’s up a bit now and imagine you start with £1,000. If you make a 5% return each year, and you can also add £300 per month for 25 years, you’ll end up with a whopping £184,134.20!

Another 10 years and it will almost double, to £346,561.45!

Compound interest explained for beginners

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).

Check out our guide to starting a pension. Or, if you’re wondering who to use, check out our comparison table of personal pensions (wait, what's a personal pension?), and take a look at PensionBee, our favourite, easy-to-use, pension company – here’s our PensionBee review.

What can you invest in?

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.

Here’s a breakdown of the most popular types of investments (it can get a bit complicated, but there’s an easy to invest without knowing anything – just skip ahead):

Stocks & Shares

Stocks & shares are tiny portions of ownership of a company (a business). So if you own some shares, you own some of the business! 

They’re bought and sold (traded) on a stock exchange (or stock market), such as the London Stock Exchange (LSE) in the UK, or the New York Stock Exchange (NYSE) in the US. There is at least one stock market and sometimes a few stock markets in each country across the world.

By the way smaller and less developed countries are called emerging markets in finance and investing.

Sometimes businesses will pay out a share of their profits to shareholders, and these are called dividends.

Exchange-traded funds (ETFs)

Exchange-traded funds are slightly more complicated than stocks, they’re actually a group of investments, which are often stocks, pooled together into one easy to buy investment, called a fund (or investment fund).

These funds can represent a whole stock market itself, or a part of it. For instance in the UK, you can buy a fund which represents the top 100 companies in the UK – called the FTSE100, and in the US you have the S&P 500.

Or, a fund could represent a theme of companies, which could be something like clean energy businesses all pooled together into a clean energy fund.

These funds are bought and sold on a stock market, just like shares, and that’s why they’re called exchange-traded funds (ETFs). Other types of funds are mutual funds, or hedge funds, which can be private, and not traded on stock exchanges.

There’s 2 main categories of funds: passive funds or actively managed funds.

A passive fund would simply track a portion of a market, such as the top businesses in the UK (and often called a tracker fund or an index fund).

Actively managed funds are managed by a professional fund manager who will aim to grow the value of the fund more than a passive fund, and buy and sell investments regularly to do so, depending on the investment objectives of the fund.

Funds can also invest in government bonds and corporate bonds, which are loans that pay interest, and seen as safer than buying stocks (also called equities).

All investment funds would charge a fee based on the total amount of money within the fund, but passive funds can be a lot cheaper.

The best way to start investing for beginners

The good news is that it doesn’t really matter if you understand the different types of investments. There’s an easy way to invest with no decisions! Here’s how to get started if you’re a beginner…

We’re going to be talking about hands-off investing (the most popular form of investing). That’s 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?

Expert-managed investment apps for beginners

As technology has developed over the last few years, you can now invest in just minutes – all from your phone, or on a website. It’s super easy, can make you a lot of money and it’s cheap.

Companies like Moneyfarm 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 (a stock exchange is a place to buy and sell shares of companies – they’re all virtual now). 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 stock markets in general have always risen in value.

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, so you benefit from the economy growing too.

Going back to the best way to get started, we recommend investment apps, which are managed by the experts. 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

Trophy icon
Best overall

Moneyfarm

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.

Rating:

Moneyfarm rated 5 stars

Get up to £500 cashback when you sign up before 28th October. Hurry!

Trophy icon
Cheapest (ETFs only)

InvestEngine

InvestEngine is great for investing in exchange-traded funds (ETFs), and that’s all they do. It’s a cheap way to invest your money, in fact the only cost you’ll pay is the fund fee. There’s no InvestEngine fees!

The app is great to track your investments too.

Rating:

InvestEngine rated 5 stars

Get £25 for free when you sign up with Nuts About Money.

T&Cs apply

Trophy icon
Popular

Nutmeg

Nutmeg's investment track record is good, and it’s simple to set up and manage your money. Just sit back and watch your money grow.

Rating

Nutmeg rated 4 stars

There's currently a deal for our readers: get your first 6 months with Nutmeg fee-free!

Types of investment accounts

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 are 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: 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.

Learn more about Stocks & Shares ISAs.

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 on how much you can pay in each year, £4,000. But if you’re investing more, you can have this as well as a regular Stocks & Shares ISA (but it counts towards your overall £20,000 allowance).

Lifetime 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).

Learn more about Lifetime ISAs.

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. This is separate to your own ISA allowance of £20,000.

Junior ISA explained

Note: your kids will 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 Moneyfarm.

Learn more about Junior ISAs.

Personal pension

Take control of your retirement by opening a personal pension (a type of private pension) and also get a bonus of 25% from the government (or 40% if you’ve paid higher rate tax on your income).

Self-invested personal pension (SIPP)

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 most investment platforms, and our best private pension providers UK, as well as specific pension companies such as PensionBee (here’s our PensionBee review).

General Investment Account (GIA)

This is your standard account. There are no bells or whistles, and no tax-free benefits (sorry!). If you’ve used up your £20,000 allowance or your ISA(s) are with another provider (so you can’t open a new one just yet with a new provider), you can use this account to still invest. You’ll have to pay Capital Gains Tax on anything you make over £12,300 per tax year, which is 20% – but don’t forget, only on your profit, you still keep the other 80%.

Learn more about General Investment Accounts with our guide.

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. You might want to set up regular monthly payments, or just add 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 the more they can manage risk properly (more on this below). Generally, they do this by spreading your money out across different investments (called diversification). You’ll 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 hard for you!

Is investing risky?

When investing for long-term returns, and when 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. It’s this management of risk that makes you money over the long run.

Yes, 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 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. 

In other words, investing is not betting your money on a single business that might have crazy growth. That’s just gambling!

Investing in many companies compared to a single company

Trust the experts – consistent growth over time with sensible investing and 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.

What tax do I pay?

When investing, if your money goes up thanks to great investment decisions, your capital would increase, and therefore when you sell your investments you’ll have to pay Capital Gains Tax, which you could expect to be around 20% of your profits. 

However, you’ll only pay this if you make profits of over £12,300 per tax year (April 6th to April 5th), and only if you sell your investments (such as selling shares or an exchange-traded fund).

If you have shares that pay dividends (a share of the profit), this is slightly different and has its own tax called dividend tax. The first £2,000 is completely free, and then it’s linked to what income tax you pay.

  • If you’re a basic rate tax-payer (20%), you’ll pay 8.25% tax on dividends
  • If you’re a higher rate tax-payer (40%), you’ll pay 33.75% tax on dividends
  • If you’re an additional payer tax-payer (45%), you’ll pay 39.35% tax on dividends

However, if you’re just getting started (beginner investors), don’t worry about tax too much at the start – don’t let it put you off!

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 this 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. So, what can you expect them to charge you?

  • Management fees
  • Investment fund fees
  • Cost to buy a fund

Investment apps typically charge a management fee, which is for simply managing the investments for you – that means all the expert advice and buying and selling investments so you don’t have to lift a finger.

And then the investments themselves often have fees (investment fund fees), and as the experts buy and sell investments, they’ll be a hidden fee too, 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).

ETF spread fee explained for beginners

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
Management fee 0% - 0.75%
The investment fund(s) fee 0% - 0.35%
Cost to buy a fund (spread fee) 0% - 0.09%
Total 0% - 1.19%

How to know if you’re overpaying

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 Lansdown 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 Moneyfarm (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.

Check out the best online stock brokers in the UK too.

Other investment companies, such as face-to-face and over-the-phone investment advisors 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% just to get 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.

Self-managed investment apps

There’s nothing wrong with that at all. 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 are the best apps to start managing your own investments.

The best self-managed investment apps

Trophy icon
Cheapest (ETFs only)

InvestEngine

InvestEngine is great for investing in exchange-traded funds (ETFs), and that’s all they do. It’s a cheap way to invest your money, in fact the only cost you’ll pay is the fund fee. There’s no InvestEngine fees!

The app is great to track your investments too.

Rating

InvestEngine rated 5 stars

Get £25 for free when you sign up with Nuts About Money.

T&Cs apply

Trophy icon
Best trading app

eToro

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).

Rating

eToro rated 5 stars

68% of retail investor accounts lose money when trading.

Trophy icon
Simple app

Freetrade

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.

Rating

Freetrade rated 5 stars

How do you research investments?

Research is essential when investing for yourself (and not letting the experts do it for you). 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 are some common ones you might like to research further:

  • Value investing
  • Growth investing
  • Momentum investing
  • Dividend investing
  • Buy and hold investing

Want to learn more about investing, including which companies to invest in and things like crypto? One of the best ways to learn 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.

Finimize is 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 and the best investment platforms UK. Good luck!

Find the right investment company for you

Check out the best investment apps and platforms and find the right one for you.
Learn more
Fact checked icon
This article has been fact checked

This article was written by the team at Nuts About Money, and fact-checked by 2 independent reviewers. You’re in safe hands.

Find the right investment company for you

Check out the best investment apps and platforms and find the right one for you.

Learn moreLearn more

Free monthly money saving email

Get the latest deals, guides and loopholes straight to your inbox, free!

Related articles