Nervous about investing? Start here…
Investing does not have to be intimidating, nor does it require a strong interest in financial news! It simply requires clarity, a plan, and the willingness to start even if you do not feel entirely ready.
Focus on the fundamentals and keep things deliberately simple, so you can build an investment strategy that supports both your current life and your future self without unnecessary stress. Here are 8 steps to help get you started.
Start with a financial review
Begin by getting a clear picture of your finances. Gather three core documents: your yearly budget, your emergency fund, and a list of all your debts ranked from highest to lowest interest rate. This review aims to show you how much money is available once you have covered essential expenses, cleared high-interest debt, and built an emergency buffer. What remains is your excess, that is the money you can direct toward saving and investing.
Set clear saving priorities
Next, take your excess (income minus expenses, including debt repayments) and decide what you want it to achieve. Allocate it across these time horizons: Short term (1–3 years), medium term (3–5 years) and long term (5+ years).
Typically, your short-term savings should be in cash and easily accessible. Your medium-term can be in less accessible but higher-interest-rate assets. Your long-term savings usually belong in pensions and investments.
Review pensions and tax efficient wrappers
Now is the time to review your pension and ensure you are contributing enough for your future self. For money allocated to medium- and long-term goals, make full use of the £20,000 annual ISA allowance, which allows your investments to grow tax-free. (See our article on ISAs for more details.)
Understand tolerance to risk
Once you have allocated to your pension account, you can now use any remaining money for investing in the stock market. Before investing, be honest about your attitude to risk. Consider your age, and think about your long-term financial needs. Investing in the stock market involves risk. Higher risk may translate to higher returns but come with a higher possibility of loss. It is essential to think about how of your ‘excess’ you are willing to commit to investment on a regular basis.
Define your time horizon and return expectations
The longer your time horizon, the greater your chance of achieving inflation-beating returns. Long-term investing allows your money to benefit from compounding. Your money earns not only on your original investment, but also on the returns it generates over time.
Choose an investment account
Select an investment platform that offers low fees and access to a broad range of products. Fees matter as they directly affect how much of your return you get back. So, understanding them is crucial. (Which? offers an excellent guide to help you compare the platforms and understand the fees they charge.
Start small and build confidence
Set up your investment account, start with small amounts and focus on learning as you go. Read about the investment products available and use the information provided by platforms and regulators. Index funds are often a strong starting point, as they provide diversification by spreading your money across many companies rather than relying on just one. Our guides on ETFs and Stocks & Shares ISAs, along with resources from the FCA and MoneyHelper, are a great place to start.
Keep it simple
The stock market is simply a marketplace where buyers and sellers trade shares. Simplicity is your strongest ally. If you do not understand how an investment works, the risks you are taking, or how it generates returns, do not invest until you do. Take the time to learn first, then move forward with confidence. Investing is not about quick wins or clever timing, it is about clarity, consistency and time.
By getting clear on your finances, setting priorities, and investing with intention, you can create a strategy that supports both your short-term and your long-term goals. Always remember that the value of your investments can go down as well as up.
This article is not financial or personal advice. We are not financial advisers. The information contained in this article is designed for educational and informational purposes only. It is provided solely to enable you to make your own choices. Always remember that if you choose to invest, the value of your investments can fall or rise, so you could get back less than you invested. So, it is essential to seek advice from a qualified, authorised and registered professional. Note also that past performance is not a reliable indicator of the future performance of any investment.
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