Investing for beginners
Many of us believe that cash is a safe way of saving. It is indeed very important to have an easily-accessible ‘rainy day’ fund – but with inflation rates rising, your cash savings might soon start losing value. If you’re worried about that, investing in a stocks and shares ISA can offer the potential for better returns, helping you beat inflation.
But many of us also worry about the challenges of investing. It can seem very complex and confusing. The value of any investment can go down as well as up, so you might end up losing money rather than saving it. In fact our recent research shows that nearly 1 in 5 of us are scared of making the wrong investment decisions1.
As Lorna Shah, Managing Director of Legal & General Retail Retirement, says:
“Knowing where to start is hard – especially in turbulent times. People will understandably be feeling unsure about the future at this moment in time.” But she goes on to make a reassuring point: “The key thing to remember is that investing is for the long term. With time on your side, you can potentially balance out the ups and downs of the market.”
We’re going to build on her advice in this article. We’ll explain some basic investment concepts and introduce a good starter investment product: the Stocks and Shares ISA. That’ll help you decide if you want to invest your savings and hopefully set you on the road to success if you do.
Finding the best cash ISA
If you’re going for a cash ISA, some good next steps are to:
Confirm that you want to invest for five years or less. There’s no fixed term for cash ISAs, but they’re generally a better choice for shorter-term saving.
Make sure that you can’t get a better interest rate or more tax relief with a standard savings account. That’ll depend on how much you’re saving and your personal income.
Decide which of the four types of cash ISA is best for you. You can choose between:A fixed-rate cash ISA, which earns a set rate of interest for a fixed period. Once your money’s in your ISA it can be costly or even impossible to add any in or take any out.
A notice cash ISA, which only lets you take money out after a fixed notice period (usually 30, 60 or 90 days).
A regular cash ISA, where you have to pay in a fixed amount each month. You’ll need to be sure you can make that payment for the life of your ISA.
An instant-access cash ISA, which let you take money out whenever you want. They can offer lower interest rates and restrict how you can take money out .
Finding the best stocks and shares ISA
If you’re going for a stocks and shares ISA, some good next steps are to:
Be sure you want to invest for five years or more. There’s no fixed term for this kind of ISA but they’re usually better suited to mid- to long-term saving.
Confirm that you can afford to lose some money if you need to pull some or all of your investment ISA when the markets are doing badly and it’s lost value.
Compare different stocks and shares ISAs, looking at factors like:any costs – they can make a big difference to the amount you get back. Providers can charge in different ways, including:a percentage of your investment amount
a flat fee
transaction charges
a combination of all three.
If you can change how your money’s invested, for example by switching it into a different fund. Be sure to understand how that works and again check for any costs.
the type and range of investments that are available for you to choose from.
As with cash ISAs, comparison websites will help you see what’s out there. But if you’re new to investing, they might not give you all the help you’ll need. If you’re not sure about your choices, you should speak to a financial adviser. Our ’Investing for Beginners’ article might also be helpful.
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If you’re looking for a simple choice, it could be worth checking out stocks and shares ISAs that let you put your money into an investment fund. You choose the type of fund, so you could go for one that invests in a particular type of company or offers a particular level of risk and potential return.
That’s how our own Stocks and Shares ISA works. You can open one today with £100 – or set up a direct debit for just £20 per month. We offer five diversified fund solutions based on your risk appetite, and an extended fund range. To choose between them, you need to understand your own appetite for risk. That’s a very personal decision that only you can take. Our Understanding Risk page will help you with it.
