- Complete guide to investing
- What is investing?
- Why do we invest?
- What can I invest in?
- Should I buy premium bonds?
- Are you ready to invest?
- How to start investing in the UK
- Best apps for investing UK
- Funds or DIY investing?
- How to invest in funds
- How to invest in the stock market
- Guide to Stocks and Shares ISAs UK
- Guide to General Investment Accounts (GIA)
- Lump sum or regular investments?
- How to understand your attitude to risk
- Guide to investment fees
- How can I start investing with little money?
- Ethical investing
- How do I invest a specific amount?
- How do I become a millionaire?
- Is it a good time to invest?
- Investing for your retirement
- How Claro can help
Complete guide to investing
If you’d like to start investing in the UK but don’t know how to invest money in a way that works for you, this guide contains everything you need to know.
What is investing?
Investing is essentially using your money to buy something you think will increase in value, that you’ll be able to sell for more money later down the line.
Common things to invest in include shares of companies, bonds, property and precious metals.
Investing is different to saving in cash, because there’s a risk that what you buy might decrease in value meaning you lose money.
However, investing isn’t gambling either. You can manage your risk levels by diversifying your investments and investing for long periods of time.
Why do we invest?
There are a number of reasons why people invest. Two of the most common reasons are to take advantage of compound interest and to counteract the effects of inflation.
Compound interest means earning interest on money that was previously earned as interest.
When this happens, your money can grow exponentially over time. It means small amounts invested over a long period of time can end up becoming large amounts, known as the ‘snowball’ effect.
Inflation is when the cost of goods and services increases over time, causing the spending power of your money to decrease.
It’s why our parents could buy a house for £60,000, but we’re forced to cough up hundreds of thousands of pounds. Or why Freddos used to cost 10p, but have tripled in price since 2005.
In the UK, the government has set the Bank of England an inflation target of 2%. This means they’re aiming for things like food, fuel and clothes to rise 2% in price a year. Our actual inflation rate is currently 2% (July 2021).
What can I invest in?
Wondering what to invest in? Whether you’re looking for the best short-term or long-term investments, we’ll run through some of the most popular investment options below.
Equity (stocks and shares)
Owning stocks and shares means you own a small part of a company. The most easily accessible stocks are from publicly listed companies, like those in the FTSE 100 in the UK or the S&P 500 in the US.
Advantages of buying stocks
On the plus side, if you invest in stocks and shares, you can collect some of a company’s earnings through dividends and you stand to gain if the share price goes up. Stocks also usually offer the greatest chance for higher returns over the long term.
Disadvantages of buying stocks
Researching and choosing good companies to invest in can be time-consuming. Plus, the price of shares goes up and down depending on the behaviour of the market, or how many people are looking to buy and sell. This makes them riskier than other investments.
A fund is a pool of money taken from different investors. A fund manager then invests that money on their behalf. Funds can be made up of stocks, bonds or other securities.
The benefit of funds is that they’re managed by specialists who are trained to make informed investment decisions after doing thorough research on the field.
It’s also less risky to invest in a fund than picking stocks, as this way you’re not putting all your eggs in one basket (known as ‘diversification’). This makes them popular for beginner investors.
The disadvantage of funds is you’ll have to pay a fee for someone to make the investment decisions for you, so it’s more expensive than doing it yourself.
A bond is essentially an ‘I owe you’ (IOU) that companies and governments issue to raise money. You lend them money, and in return, they give you regular interest payments (also known as coupons).
Governments issue bonds to fund expenses, infrastructure, military expenses, or to pay back the interest on their existing loans.
For companies, it’s a great way to raise cash and it doesn’t involve issuing new stock and giving up ownership.
Advantages of bonds
One advantage of investing in bonds is that they are considered safer than stocks and shares. They offer fixed income and return your capital at the end of the term.
They’re great for a diverse portfolio as they tend to move in the opposite direction to stocks and shares. So if your shares go down, bonds can help to balance things out.
Disadvantages of bonds
Bonds are more likely to be affected by inflation and changes in interest rates.
A bond that pays less than the rate of inflation is technically losing you money.
If interest rates set by central banks are higher than the bond yield, then the price will go down to make its yield more attractive on the secondary market. Falling interest rates will have the opposite effect.
Rising interest rates (mean lower prices) = higher yields.
Falling interest rates (mean higher prices) = lower yields.
There are short-term bonds of between 1 – 3 years. These are considered to be less risky and you are more likely to get your money back, but you get lower interest rate payments; however, the risks involved are usually different
There are also long-term bonds of over 10 years. These have more risk but higher interest rate payments.
Bonds have risk ratings, like a credit score. For example, government bonds are usually AAA or AA rated. This means they have higher credit ratings and are generally safer investment options than those rated at lower levels, or even some corporate ones.
Should I buy premium bonds?
Premium bonds are a form of saving, not investing. National Savings and Investments (NS&I) Premium Bonds are a way of saving where you have the chance to win tax-free prizes each month.
Every month, NS&I pays out about three million prizes, ranging from £25 to £1 million. The more bonds you own, the higher your chances of winning.
Note that premium bonds do not earn you interest – the interest is used to fund the prize draw every month.
|Premium bonds might be for you if:||Premium bonds might not be for you if:|
|You want to keep your money somewhere safe, where it’s not exposed to the stock market||You want a regular income|
|You want to keep your money somewhere safe, where it’s not exposed to the stock market||You want guaranteed returns|
|You want to make the most of tax-free saving||Saving this money towards my first home will stand me in better stead for retirement, by which time I hope to have paid off my mortgage.|
|You want to buy a savings gift for children under 16||You’re concerned about inflation (premium bonds offer no interest, just the prize draw)|
Investing in property is one of the most common types of investment. You might invest in a buy to let property, commercial property, or buy a second home abroad.
If you’re thinking about investing in real estate, one benefit is that, generally, it’s a very stable investment as property prices tend to grow over time. And if you’re renting out the property, this can generate an additional income for you.
On the downside, property is much harder to sell than an investment like stocks and shares. There’s also a high entry cost, as you need to be able to afford to buy property in the first place. So it’s not for everyone.
Alternatives: cryptocurrency, wine, precious metal
You can invest in pretty much anything. From wine and precious metals to cryptocurrency and fine art.
Cryptocurrency (or ‘crypto’) is a virtual currency that uses cryptography as a means of security. Examples include Bitcoin, Ethereum, and Dogecoin.
Crypto operates on an open network. This means you buy the digital currencies peer-to-peer rather than from a bank or other central authority. The benefits of decentralised currency are that you don’t have to pay central processing fees and mining fees are generally lower. It’s also a cross-border currency as opposed to a border-locked currency.
Unlike physical payment methods, like cash, crypto is stored and traded electronically. But because it’s not based on an actual asset, it doesn’t have any traditional tangible value. Instead, supply and demand determine its value. So it’s only worth as much as a buyer is willing to pay (this is known as ‘speculation’).
If you’re wondering how to get into cryptocurrency, we’ve written all about this.
Is gold a good investment?
So, is gold a good investment? As always, this depends on how much risk you want to take and your time horizon. But generally, gold is seen as a good long-term investment. It tends to remain strong when other investments fall (such as during a global financial crisis) and it even makes gains when inflation is rising.
Are you ready to invest?
Are you ready to invest? Make sure you tick off our checklist before you make the leap.
- Have you paid off your high interest debt?
- Have you got an emergency fund?
- Are you paying into your pension?
- Are you paying into your pension?
- Are your goals more than 3 years in the future?
- Do you know your level of risk?
Have you paid off your high interest debt?
If you have any debts with particularly high interest (such as a credit card or payday loan), you should pay these off before you start investing.
This is because any returns you make on your investments are unlikely to consistently exceed the interest fees on your debt, so you may still find yourself losing money overall.
Have you got an emergency fund?
It’s vital to have an emergency fund in easy-access savings while you’re investing. If your car breaks down or your boiler breaks, for example, you won’t be able to rely on immediate access to the money tied up in your investments.
Are you paying into your pension?
Many people don’t realise that their pension is actually an investment. It’s a tax-efficient way of growing your money as you won’t pay tax on the returns you make. You can invest up to £40,000 into your pension each year (for the tax year 2020/21) so it’s sensible to maximise your tax-free allowance before investing elsewhere.
Are your goals more than 3 years in the future?
When you invest, you should go into it with the mindset of playing the long game. That’s because the stock market tends to outperform cash in the long term. So when you invest, be prepared to leave it for a minimum of 3 years to give your money the best chance of earning decent returns.
Do you know your level of risk?
If you choose to invest on Claro, we’ll ask you a few suitability questions to assess your appetite for risk. This helps us to know how adventurous or cautious you want to be with your investments so that we only show you products that are appropriate for you.
Download the app to find out your risk level.
How to start investing in the UK
Check out our guide to investing money for beginners, from what to consider when choosing a platform to the ready-made portfolios available on Claro.
Choose a platform
Investing platforms are like supermarkets, offering a variety of investments for you to choose from. They vary in many ways: the types of investments on offer, the amount of choice available, their fees, their service, the user experience, their target market, etc.
Here are some things to consider when choosing a platform:
- The investments on offer
- Service and user experience
Open an investment account
There are various different investment accounts for different purposes:
|Stocks & Shares ISA||A tax-efficient investment account where you won’t pay income tax or capital gains tax on any returns you make. You can invest up to £20,000 in a Stocks and Shares ISA (for the tax year 2020/21).|
|GIA||A GIA (General Investment Account) lets you hold investments outside of tax wrappers, such as ISAs or pensions. But unlike ISAs, there’s no limit to how much you can invest in a GIA. You might want to open a GIA if you’ve used up your tax-free ISA allowance.|
|LISA||The Lifetime ISA is a type of ISA (Individual Savings Account) used to help you save for your first home or for retirement. Certain restrictions apply, so make sure you read these before applying.|
|JISA||The Junior ISA is a tax-efficient way to save up to £9,000 each year for your child. You can choose between a Stocks and Shares JISA or a Cash JISA (or both). The money can only be accessed by your child when they turn 18 years old.|
|SIPP||One of the most tax-efficient ways to save for retirement is a SIPP (Self-Invested Personal Pension). It’s ideal if you’re a freelancer and don’t have a workplace pension, or if you have a vested interest in where your pension is invested.|
Choose your investments
On Claro, you can choose from our range of hand-picked portfolios. Ready-made portfolios are a mixture of funds, diversified and optimised for your risk level.
|Conscious Lifestyle||Invest in funds with the highest graded (ESG) Environmental, Social and Governance track records.|
|American Allstars||This fund tracks the performance of the S&P Index. This is made of 500 of the most powerful companies in the US.|
|Good Energy||Make a positive impact by investing in 30 companies leading the way in clean and green energy sources.|
|Big Tech||Invest in companies that are constantly innovating and changing the way we live today, such as Apple.|
|Mega Mix||Invest in some of the best businesses from across the globe, from Nestle and Toyota to Sony and Nintendo.|
|Great British Business||This fund tracks the performance of the FTSE 350. This is made of the 350 top companies in the UK.|
|Innovation||Invest in the future. This fund includes fintech, next-gen internet, the healthcare revolution, robotics and more.|
|Millennial Values||Put your money into companies with a “millennial” ethos, such as eco-friendly brands, health and fitness, travel and more.|
|Warren Buffet||Invest like one of the most successful investors, with this portfolio of blue-chip companies with strong balance sheets.|
Deposit some money
You’ve got two choices when it comes to depositing your money.
Either, you can deposit a lump sum of cash straight away if you want to be fully exposed to the market from the get go. If you choose this route, you could stand to make substantial gains in the long run thanks to the snowball effect of compound interest (where you earn interest on money that was previously earned as interest).
Or, you can drip feed money into your investments. This is known as pound cost averaging. This approach is designed to help you ride out market highs and lows by depositing your money little and often. This might be a more sustainable approach to investing and can be particularly beneficial to people who are prone to being guided by their emotions when it comes to investing.
On some platforms, you can start from as little as £1. On Claro, you can invest in a portfolio with just £10.
Best apps for investing UK
When it comes to the best apps for investing, it’s very much down to personal preference.
Claro – The UK’s first digital financial coaching app, helping you save and invest to reach your goals. Speak to a financial expert, get help making a plan for your money and invest from as little as £10.
Nutmeg – With a range of diversified portfolios and easy to understand fees, you can invest in a pension, ISA or GIA with Nutmeg.
Wealthify – Choose what type of investor you want to be, from cautious to adventurous, and Wealthify will build an investment plan and manage it for you.
Plum – Save without thinking about it, invest in what matters to you and save on your bills, thanks to Plum’s smart algorithm.
eToro – When you trade on eToro – the world’s leading social trading platform – there are no limits on commission-free trades and you can buy fractional shares.
Freetrade – Whether you’re a beginner or an experienced investor, you can choose from a wide range of investments, covering different sectors and markets worldwide.
Moneyfarm – Grow your wealth with top-performing portfolios, a dedicated consultant and a smart app that lets you invest the simple way on Moneyfarm.
Wealthsimple – The creators of investing on autopilot, Wealthsimple lets you invest in an intelligent portfolio of low-fee funds that’s designed to meet your financial goals.
Moneybox – If you want an app that helps you save and invest towards your future, Moneybox rounds up your everyday purchases and invests the spare change.
Funds or DIY investing?
There are two types of investing: funds or DIY. When you invest in a fund, the fund manager will pool your money and that of other investors into a fund that they’ve heavily researched. With DIY investing, on the other hand, you’re essentially picking stocks.
The advantage of investing in a fund is that the fund manager is specially trained to invest your money where they think it will have the best chance of growing. However, there are usually fees for this as you’re paying for the fund manager’s time.
Stock picking allows you to invest in companies that align with your values or that you think are set to grow in value. But timing the market is incredibly difficult which makes DIY investing much riskier, as you could lose your money by buying/selling at the wrong time.
How to invest in funds
If you want to find out more about what index funds and ETFs are, we’ve rounded up everything you need to know here.
What is a mutual fund?
A mutual fund is an investment company that pools money from lots of investors. The investment manager then invests that money into different assets, like stocks, bonds and commodities.
Mutual funds are an easy way to diversify your investments, by not putting all your eggs (stocks) in one basket. It’s less time-consuming for you, the investor, as the investment manager will be responsible for monitoring your money instead of you.
The downside is that investment managers usually charge fees for their services, and a lot of funds have a minimum investment requirement, so it might not be the cheapest option.
What is an ETF?
An exchange-traded fund (ETF) is a fund made up of different assets like stocks and bonds. You can then buy shares in the ETF on the stock exchange.
The difference between ETFs and mutual funds is that ETF share prices fluctuate all day as the ETF is bought and sold on the stock exchange, whereas mutual funds only trade once a day after the market closes. They also tend to be more cost-efficient and more liquid.
You can get ETFs to track pretty much any financial market, and each type will come with its own mix of assets carrying varied risks and rewards.
ETFs tend to cost less than buying all the stocks in the portfolio individually. You’ll also have fewer broker fees since you’ll only need to make one transaction to buy an ETF and one to sell.
What is an index fund?
An index fund is a type of mutual fund or exchange-traded fund (ETF) with a portfolio constructed to match or track the components of a financial market index, such as the Standard & Poor’s 500 Index (S&P 500).
Investing in an index fund is a good way to minimise risk, as they track a market index which – historically – rises in value over time. Plus, the fees are usually lower than with mutual funds.
What is a passively managed fund?
A passively managed fund is a fund that follows a market index. It doesn’t have a management team making investment decisions.
What is an actively managed fund?
An actively managed fund is a fund where an investment manager or a team makes decisions about how to manage the investment money. The investment manager will try to beat the market index.
They usually come with high fees and it’s by no means guaranteed that you’ll actually beat the market. That’s because past performance isn’t an accurate indicator of future performance. Don’t forget that you’ll typically pay a flat fee regardless of how your fund performs.
How to invest in the stock market
Find out everything there is to know about how to start investing in stocks, from how stock prices are determined to what the UK stock market looks like after Brexit.
Stock market for beginners
What is the stock market? The stock market is where investors come together to buy and sell shares in a public space.
You’ll usually buy stocks in an online marketplace rather than a physical stock trading venue. The best thing is that you don’t need to be an experienced investor – the stock market is open to pretty much anyone who’s interested.
It works through a network of exchanges, where buyers and sellers negotiate the prices of investments and make trades.
How are stock prices determined?
By and large, stock prices are determined by supply and demand. When there’s a large supply of a particular share, it becomes less desirable and so the price goes down. If that same share suddenly becomes scarce, demand will go up, pushing the price up with it.
The stock price is roughly indicative of a company’s value. So it only represents a percentage change in a company’s market capitalisation (calculated by multiplying the company’s stock price by the number of shares outstanding) at a point in time.
What is a dividend in shares?
A dividend is a portion of a company’s profits that’s paid out, in either cash or shares, to the business’ shareholders. So a dividend in shares is when, as a stakeholder, you receive profit in the form of shares.
What’s the difference between stocks and shares?
Stocks is a more generic term. People often use it interchangeably to refer to a slice of ownership in one or more companies. ‘Shares’, on the other hand, relate to ownership of a particular company.
In simple terms, a share is the smallest possible denomination of a company’s stock.
Guide to Stocks and Shares ISAs UK
If you’re not sure how a Stocks and Shares ISA works, what the rules are or how many you can open at any time, keep reading.
What is a Stocks and Shares ISA?
A Stocks & Shares ISA is a type of ISA used for investing in stocks and shares (as the name suggests). In this account, you can hold a range of investment assets such as shares, funds, bonds, and cash.
What are the advantages and disadvantages of a Stocks and Shares ISA?
Pros of a Stocks and Shares ISA:
- You won’t pay tax on any returns you make.
- Stocks and Shares ISAs tend to deliver higher returns than Cash ISAs over long periods of time (as the stock market usually outperforms cash in the long term).
- You can transfer your ISA if your goals change or you want your money in one, easy-to-manage place.
- You can pass on an ISA to a spouse or family member when you die and they’ll get income and Capital Gains Tax (CGT) benefits.
Cons of a Stocks and Shares ISA:
- You can expect to pay a fee to your ISA provider for managing your investments.
- Stocks and Shares ISAs can be more complex than Cash ISAs as they need monitoring.
Stocks and Shares ISA vs Cash ISA
A Stocks and Shares ISA is an investment, whereas a Cash ISA is a savings product.
Because a Stocks and Shares ISA involves investing, it’s inherently riskier than a Cash ISA. The value of your investment can go up as well as down, whereas with a Cash ISA, your money isn’t exposed to the stock market.
Struggling to decide which one to choose? You might want to look into the differences between saving and investing – read our article on why we invest as a starting point.
What’s the best Investment ISA in the UK?
The best investment ISA depends on which type of platform you want to use.
There are a number of ‘do it yourself’ platforms, as well as the ‘do it for me’ platforms. So it depends how hands-on you want to be.
If you’re new to investing, you might want to choose a ‘do it for me’ platform, which allows you to pick a ready-made portfolio.
Can I transfer a Stocks and Shares ISA?
Yes, you can transfer your Stocks and Shares ISA – either to a cash ISA or another ISA.
If you want to switch your current or previous year’s ISA to a different provider while keeping future tax benefits intact, you’ll need to transfer it rather than selling and reinvesting. If you just close one ISA and open another, rather than transferring, you’ll lose the tax advantages.
If you’re transferring an ISA that you’ve paid into during the current tax year to a new provider, you must transfer the whole balance. For ISAs from previous years, the amount you transfer is up to you.
Bear in mind that all ISA providers have to allow transfers out, but they won’t all allow you to transfer in, so it’s best to do your research.
How do I withdraw money from a Stocks and Shares ISA?
Most of the time, ISAs are pretty flexible when it comes to withdrawals. With a Stocks and Shares ISA, you can sell the shares and funds that you have invested at any time and transfer the proceeds into your bank account.
But remember that you may end up losing money if the market conditions are not favourable and the value of your investment falls.
Reinvestment isn’t quite as simple. Even if you withdraw money and reinvest it within the same financial year, it gets added to the annual allowance for that tax year.
Don’t forget that you might be charged a fee to withdraw your money – check with your provider first.
How many ISAs can you open?
You can split your £20,000 annual ISA allowance across four different types of ISA, but not into more than one ISA of the same type in the same year. That means you can open four separate ISAs in each tax year.
Guide to General Investment Accounts (GIA)
A General Investment Account (GIA) is an easy way of investing more of your money once you’ve maxed out your annual ISA allowance. Find out how they work and whether it’s the right investment choice for you.
What is a GIA?
A GIA is a General Investment Account. It’s a simple way of investing once you’ve reached your annual ISA allowance.
Like a Stocks and Shares ISA, you can hold a range of assets in a GIA, such as shares, funds, bonds and cash.
What are the advantages and disadvantages of a GIA?
Pros of a GIA:
- Contribute as much as you want – there’s no limit.
- Open as many as you like.
- You won’t pay dividend tax on any income you receive under the £2,000 annual allowance.
- You won’t need to pay capital gains tax on any profit you make under the £12,300 threshold (but this does include any profit you make in the tax year, for instance, if you own a business or have a second home).
Cons of a GIA:
- Unlike an ISA, you’ll pay capital gains and dividends tax if you go above your allowance
- GIAs usually count as part of your estate when calculating inheritance tax (IHT)
GIA vs Stocks and Shares ISA
Unlike a Stocks & Shares ISA, you will pay capital gains tax and dividends tax on a GIA. You’ll pay capital gains tax on any profit you make above your annual allowance (which is £12,300 for the 2021/22 tax year). You’ll pay dividends tax on any income you get above the £2,000 annual allowance.
Ultimately, it makes sense to use your tax-free ISA allowance before you invest using a GIA.
With both the ISA and the GIA – as with all investing – the value of your investments can rise and fall. It’s best to invest with a long-term horizon (ideally a minimum of 3 years).
Lump sum or regular investments?
Benefits of a lump sum, benefits of regular investments (pound cost averaging).
If you have a stash of cash ready to invest, making a lump sum payment might be a better choice. Instead of letting your money lose its value sitting in a low interest bank account, you might want to invest into something that could potentially earn you money in the long term.
If you don’t have a lot of money sitting around, you might want to consider making regular payments. This is ideal if you have a steady stream of income each month, some of which you can set aside to invest when you get paid. This is also a potentially better option if you want to minimise the risk you’re taking when you invest, as there’s less money to lose.
Another benefit of making regular investments is pound cost averaging. By making small, regular payments, you can hope to ride out any bumps in the market. When you make regular contributions, you naturally purchase fewer units when prices are high and more units when prices are low, hopefully earning you more money.
How to understand your attitude to risk
Understanding your attitude to risk is a key step in deciding whether to invest. Whether you want to be cautious or adventurous (or somewhere in between) will help you decide what to invest in, based on your goals.
Attitude to risk
Your attitude to risk is how much risk you want to take. For example, if you’re a cautious investor, you’re probably comfortable investing less money in the knowledge that this is likely to lead to lower returns. Adventurous investors, on the other hand, tend to be happy to invest more money in the hope of making larger returns.
Capacity for risk
Your capacity for risk is how able you are to take a risk. When it comes to investing, if you have an emergency fund of three months’ worth of expenses, no high-interest debt and a stable income, you probably have the capacity to take some risk.
Learn more about diversification when it comes to investing, including why it’s so important and how to do it.
Why is diversification important?
Diversification basically means not putting all of your eggs in one basket. This is particularly important when it comes to investing, as investing in a range of different assets means you’re more likely to ride out any market volatility.
Diversification basically means not putting all of your eggs in one basket. This is particularly important when it comes to investing, as investing in a range of different assets means you’re more likely to ride out any market volatility.
For example, if you invest all of your money in one stock, and that stock doesn’t perform as well as you’d like, you have no other investments to fall back on.
How do I diversify my investments?
Investing in funds is a great way to diversify your investments. Instead of buying a single share, you put money into a fund that, in turn, invests in different stocks, bonds and other assets.
Check out the portfolios available on Claro if you want to diversify your investments.
Guide to investment fees
Before you invest, make sure you know what fees are involved and how much these could eat into any profit you make.
These are fees that the platform charges when you invest with them.
Claro, for example, doesn’t charge for the first £2,500 you invest. After that, you’ll be charged 0.45% per year.
This is the fee charged by the fund provider, for example Vanguard, not the platform itself. Fees for actively managed portfolios will be higher than for passive portfolios as they require more work.
All trading activity is subject to market spread fees and these are considered standard fees when investing.
At Claro, we work hard to choose funds with the lowest market spread fees so you can focus on growing your money rather than spending it on fees.
How can I start investing with little money?
If you don’t have much money to play with but still want to try investing, there are plenty of ways to invest with little money.
Starting early is key. Imagine you invest £20 per month into an index tracker, increasing your deposits with inflation at 2%, with an average ten-year return on investment of 9%. Let’s say you want to invest until you’re 50 years old and you’re starting at 30. At this projection, you would deposit £5,852.48. But you could make an extra £9,060.96 through compounding ROI. That’s a total of £14,913.44—for just £20 per month. It doesn’t matter how little you have; the earlier you start, the more you’re likely to make.
You could also consider investing in a fund, where your money gets pooled with that of other investors. Usually, these funds will be based on a theme. You could invest in a fund based on geography, particular industries and more. This is a great way to invest little money but keep a diversified portfolio.
You can also invest in a ready-made portfolio, which is created by adding funds together. Claro has 9 ready-made portfolios to choose from, and you only need £10 to get started.
Investing small amounts regularly is the way to go if you don’t have a large stash of money to invest in a lump sum. By making small, regular payments, you can hope to ride out any bumps in the market. When you make regular contributions, you naturally purchase fewer units when prices are high and more units when prices are low, hopefully earning you more money.
Don’t forget to leave your investments for a long time. The stock market tends to outperform cash in the long run, and by leaving your investments alone, they should benefit from compound interest. This is where you earn interest on money that was previously earned as interest, helping to grow your investment.
How much should a beginner invest in the market?
This very much depends on your financial goals, your attitude to risk and how much money you have to invest.
The bottom line is you should never invest more than you can afford to lose – no matter how high your income.
If you’re wondering how to allocate your money for your goals, Claro’s Financial Coaches are happy to help.
Ethical investing, whether that’s buying into renewable energy or companies that align with your values, is a great way to grow your money while doing your bit for the planet.
ESG stands for Environmental, Social and Corporate Governance. So ESG investing is a way of balancing two priorities: a company’s financial returns, and its impact on people and the planet.
That could be anything from a business’ carbon footprint to how it treats its employees or the diversity of its leadership board.
How do I invest ethically?
Not only have ESG investments become more popular, but they’ve also held up well so far throughout the recession. While other investments fell by an average of 1.5%, investments in the planet actually grew by 4.3%. Here are five top tips to help you get started:
- Find out why a stock or fund is sustainable
Unfortunately, many ESG funds still contain oil, tobacco, and fast fashion. So to avoid surprises, it’s best to read the small print before you invest.
- Put the sustainability into context
Be aware of isolated numbers and read as much about the company as you can. For example, a company might be pledging to commit $5 billion a year towards green alternatives. However, they might also be investing $70 billion in oil and gas. This is also known as greenwashing, which is when a business pretends to be more eco-friendly than it actually is.
- Invest for your timeframe
Give your investments enough time and be wary of selling at the first sign of profit, if you think your stock will go up further. Research sustainable investing, looking at future world events or policies which could impact their growth over the long-term. As a rule of thumb, the more time you have, the more investment risk you can afford to take.
- Find the right level of risk
Some sustainable investments are riskier than others. Low-risk investments are when you’re unlikely to lose money, but there is little potential for higher profits. High-risk investments mean that you could lose most (or all) of your money, but you could hit the jackpot. Feeling comfortable with the level of risk you’re taking on is important, and everyone is different.
- Funds can be a good starting point
When it comes to sustainable investing, choosing ethical funds or portfolios (groups of investments) can help you stay diversified in the most cost-effective way. By spreading your money across different assets, industries and geographies, you also spread your risk.
- Look for ESG scores
Each of Claro’s portfolios comes with an Impact Score, which is out of 5. The higher the score, the better the ESG rating.
If you’re looking for an ethical ready-made portfolio, our Conscious Lifestyle portfolio has been selected to only include funds with the highest graded Environmental, Social and Governance track records.
Remember, when investing, your capital is at risk.
How do I invest a specific amount?
If you have a certain amount of money set aside, find out the best way to invest and grow it.
What’s the best way to invest £1000?
Open a Stocks and Shares ISA
If you want to invest £1,000, why not do it tax-efficiently? You can invest up to £20,000 a year into your ISA (for the tax year 2021/2022) and you won’t pay UK tax on any gains you make.
Invest in line with your values
If you’re a planet-conscious person, for example, the good news is that evidence suggests that ethical investments tend to perform just as well as other types of investments.
Invest for the long-term
To make the most of your £1,000 investment, remember to think long-term. Remaining invested for a number of years is key when it comes to building wealth over time. This is because the longer you stay invested, the more likely you are to see positive growth, thanks to the benefit of compound interest.
Invest online in just a few minutes
With Claro, getting set up with a Stocks & Shares ISA or GIA is quick and easy. We just need a few details about you, and you can start investing in themes that interest you with as little as £10. You can either pay in your £1000 as a lump sum or with regular contributions, it’s up to you.
What’s the best way to invest £100k?
Investing a lump sum like £100,000 can be tricky, so you might want to consider investing it in regular payments. This way, you’ll benefit from pound cost averaging, which helps you to ride out any market volatility that could harm your investments.
If you’ve got £100,000 to play with, it’s easy to diversify your portfolio by investing in a range of different assets. A good way to do this is by investing in a fund.
Given the annual ISA limit is £20,000, you might want to invest your first £20,000 into an ISA of your choice. Then, you can invest the rest of it in a way that aligns with your values and timeframe. After you’ve used up your ISA allowance, you can invest the rest in a GIA (General Investment Account). Remember, you’ll pay taxes on interest gained in a GIA. [link to GIA section]
How to invest £20k
Firstly, you could max out your £20,000 annual ISA allowance by investing it into an ISA of your choice. Or, you could spread it across multiple different ISAs.
Given investing can be risky, if you want to minimise this risk it’s a good idea to diversify your portfolio. That means investing in lots of different investments operating in different sectors from across the globe. By doing this, poorly performing investments should be balanced out by others that are doing well, which should reduce any potential losses.
How do I become a millionaire?
Investing is not designed to help you ‘get rich quick’.
If you want to become a millionaire by investing, you need to invest over a long period of time and benefit from the effects of compound interest.
For example, if you invested £385.52 each month for 40 years and got a return of 7%, you would have £1 million. You can work out the future value of your investments using our investment calculators.
Remember, you should never invest more than you can afford to lose.
Is it a good time to invest?
Generally, it’s never a ‘good’ or ‘bad’ time to invest. It all comes back to your attitude to, and capacity for, risk.
Is it a good time to invest in stocks?
Firstly, don’t try to time the market. Investing is all about time in market, rather than timing the market.
By that we mean that the longer you leave your investments, the better they are likely to perform. Investing is a long-term game since the stock market tends to outperform cash in the long run.
Trying to outsmart the market is rarely a good idea, as no one can ever be truly sure how much the market will fluctuate. Even for very experienced investors, it can result in a lot of lost money.
Investing for your retirement
Find out how much you need to save for retirement, whether you’re planning to retire at 55 or just want to know how much your pension is worth.
A workplace pension is a way of saving for your retirement, arranged by your employer.
The way it works is a percentage of your salary is put into the pension scheme automatically on payday. In most cases, your employer will also add money into the pension scheme for you – they might even match your contribution. Plus, in some cases, you could also get tax relief from the government.
A private pension is a way for you, or your employer, to save for later life.
There are 2 main types of private pension:
- Defined contribution – This is a pension pot based on how much is paid in, also known as a personal pension
- Defined benefit – This is usually a workplace pension (but not always) based on your salary and how long you’ve worked for your employer
A Lifetime ISA is another way to help you save for either your first home or for retirement.
You can put in up to £4,000 each year until you’re 50 years old (you must make your first payment before you turn 40 though). The government will then add a 25% bonus to your savings, up to a maximum of £1,000 per year.
So if you put the maximum amount of £4,000 now, you’d have £5,000 in your LISA account by the end of the year.
If you’re using your LISA to save for later life:
- You can take your savings out any time after your 60th birthday (it’ll give you a nice boost alongside your pension pot!)
- If you die, your Lifetime ISA will end on the date of your death. There will be no charge to withdraw the funds or assets from your account.
How much do I need to pay into my pension?
This depends on the type of pension you have. With workplace pensions, there’s usually a minimum contribution.
The rule of thumb is that the earlier you can start saving into your pension, the better. This is because your money will have more time to grow.
One recommendation is to take the age you start your pension and halve it. Then put this % of your pre-tax salary into your pension each year until you retire. Remember to increase your pension contributions when you get a pay rise!
How do I know how much my pension is worth?
If you’re not sure how much you have in your pension, you’re not alone. But it’s worth knowing how much you’ve saved so you can plan and adjust your contributions accordingly.
- If you know your provider’s name:
If you know who your provider is (or providers, if you have more than one), then you’re already halfway there.
See if you have any letters from them. They should send you a pension statement once a year – it’s best to keep these in a safe place going forward.
Your statement will include how much is in your pot, as well as an estimate of how much you might get when you start taking out your money.
If you’ve gone paperless, see if your provider has an online portal you can log into. You might need to contact their support team to get your login details.
- If you don’t know your provider’s name
Try searching your email inbox for “pension” and see if anything comes up. If you’re looking for your workplace pension(s), contact your current or previous employer and ask who their provider is. The HR team should be able to help – they’ll probably need some of your details, like your employment dates and National Insurance number.
If you really can’t remember your provider’s name and there’s nothing in your inbox, use the government’s free Lost Pension tool (it’s worth noting that this service can’t tell you the value of your pension).
How Claro can help
If you’re looking for an easy way to start investing, Claro offers ready-made portfolios in our Stocks & Shares ISA. You can start with just £10 and there are no platform fees up to £2,500.
To help boost your confidence, why not book a call with one of our coaches? They can take you through anything you’d like to know.
Download the app today.
When investing, your capital is at risk.