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How to invest money

Whether you want to invest in stocks, shares, gold, or bitcoin, or just want to know how investment works, get started with our comprehensive beginner’s guide.

Once you get to a certain age and your business starts doing well, you’ll probably begin to think about what to do with your earnings. Of course, savings accounts are the safest option – but if you can handle a little risk for much greater reward, then you’ll want to think about investing.

The most popular options for investment are stocks and shares, gold, and maybe even bitcoin. This page will explain the basics of each of these, as well as discussing what an investment is, and why people invest in the first place.



What is investment?

Before you even consider investing, there’s one thing you should know.

Investing is a gamble – it may not be as high risk as playing roulette with your life savings, but there is always a chance you will lose your money.

Because investment is risky, there are two golden rules you should always follow:

  1. Don’t invest more than you can afford to lose. Always retain some money in a savings account, which can act as an emergency fund in case your business runs into difficulties – 3-6 months of income is a good guide.
  2. Aim to invest for at least five years. The value of any investment is over the long term, so choose intelligently, but don’t panic if your investments hit a few bumps in the road.

So, given these risks, why do people invest? Put simply, right now, savings accounts are paying very little, so it’s the only real way to significantly grow the money you have.

Fundamentally, an investment is a bet, just like putting a fiver on a football team to win at the weekend. The chances of increasing your money depend on whether the thing you expect to happen – i.e. your football team wins, or the value of the company you invested in increases – does eventually happen.

Of course, the way you get your money back is a bit different – you’ll generally need to sell at a higher price than you bought, unless the company you invested in pays a dividend (a term we’ll cover in more detail later on in this article).

By now, you’ve probably realised that what you invest in is crucial. This brings us to two more golden rules of investment:

  1. Understand what you’re investing in. This is really, really important – you should never, ever invest in anything without understanding what might affect the value of your investment. If you invest in gold, understand what affects the gold price; if you invest in a company, understand what affects its share price; and if you invest in bitcoin, understand what it is, and why its value changes.
  2. Diversify your investments. ‘Diversify’ may seem like complex financial jargon, but it’s just a fancy word for investing in lots of different things. Different investments do well at different times, so having lots of different investments helps to reduce your risk.


How to invest money

Now you’ve got your head around what investing is, and why people do it – as well as learning some golden rules of investment – you’re probably wondering how you actually go about it.

Before investing, there are three questions you should consider.

  1. How much do I want to invest?

As mentioned above, the answer to this should not be your life savings. Remember the first golden rule: don’t invest more than you could afford to lose, and make sure you have an emergency fund of 3-6 months’ income in case your business runs into difficulties. The amount you invest will therefore vary based on your personal circumstances.

It’s also a good idea to get in the habit of investing little and often, rather than investing a lump sum when you start. This will help you resist the urge to ‘time the market’ (buy when it has reached its low point), as in practice, knowing when to do so is almost impossible.

  1. How long should I invest for?

Remember the second golden rule, and aim to invest for at least five years. Very roughly speaking, the longer you invest for, the better your return, as you will be able to ride out bad years when virtually the entire economy struggles (e.g. the global financial crisis of 2007-2008).

It’s also important not to panic if your investment does badly. Look at why it’s doing badly – if the answer is that the entire economy is struggling, then stay the course, and remember you’re investing for the long term.

  1. What is my attitude to risk?

The answer to this will partly depend on your financial circumstances (how would it impact you if you lost the money invested?) and your psychology (some people are just far more willing to take on risk than others).

As an entrepreneur, you’re likely to be higher up the risk scale than most people, but always consider any investment in terms of how risky it is. In other words, if you put £100 in, is there a good chance this figure might fall to £90, or rise to £110? Or could it plummet to £60, or soar to £140?

Despite every investment site correctly warning that “past performance is not a reliable guide to future performance”, there’s no other way to get an idea of how your investment might perform. Look online for data on how the investment has performed in previous years to understand how much it might gain in a good year, or lose in a bad one.

Once you’ve answered these questions, there are three basic investment routes you can go down: DIY, hiring a robo adviser, or paying for financial advice tailored to your personal circumstances.

  • DIY

If you’ve never watched a home improvement programme or been to B&Q, DIY stands for do-it-yourself, and is exactly how it sounds – you do the research yourself, and decide what to invest in.

There are two obvious advantages to this: you retain very strong control of where your money goes, and there are no advice fees to pay. However, while there are loads of great resources online that will give you an easy-to-understand explanation of almost everything to do with investment, getting your head around what to invest in and why you should invest in it will take time. That’s not necessarily a bad thing – for many people, swotting up on their investments and reading up on their performance essentially becomes a potentially lucrative hobby. It’s just something to bear in mind.

If you do want to choose your investments yourself, look at online reviews, and always make sure you work out what the charges will be before you invest. This may be a flat fee, or a percentage of your investment – as such, working out exactly how charges and fees will affect you should play a significant role in your decision-making process.

  • Robo adviser

Despite sounding like a distinctly underwhelming entry in the Terminator franchise, robo advisers are not actually that complicated (or likely to take over the world). In reality, they’re  online investment services that ask you 10-15 questions to find out about your personal circumstances, finances, and attitude to risk, and then recommend collections of investments (investment portfolios) that are likely to work for you. Fees can vary according to how much you invest and the extent to which your portfolio is managed (i.e. changed regularly according to how the investments are performing), but are almost always under 1% in total.

The whole point of these services is that they take care of the investment process for you – so if you want to maintain control of the process, they won’t be for you. However, if you don’t know where to start, they’re a great option for hands-off investors. Some of the UK’s leading robo advisers include Nutmeg, Wealthify, and Wealthsimple, so taking a good look at these is a great place to start.

  • Financial advice

If you can afford it, seeking financial advice from an expert can be ideal for the novice investor. You’ll get an in-person chat that fully takes into account your financial circumstances, your attitude to risk, and the different types of investments available. You’ll also get an opportunity to fully understand the entire process, and the ability to quickly create an investment portfolio that’s bespoke to you. A financial adviser will also help you understand your tax situation (and how you can often avoid paying tax on investments), which is particularly useful for the self-employed, as rules often differ significantly.

The downside of all this is the cost. Fees for financial advice can vary hugely, but all advisers should be happy to discuss their fees up front. You should also make sure to read customer reviews on sites like Unbiased and VouchedFor – these sites are the best way to find a financial adviser, and suggest you should expect to pay between £300 and £500 for a typical investment consultation.

While this may seem like a lot to pay up front, personalised financial advice can save you a significant amount in the long run through clever tax arrangements and other advanced techniques, so it’s well worth considering if you have the necessary funds. Financial advisers are also regulated, so if you’re given really bad advice, you can complain and potentially receive some money back.

However, this does not mean that just because your investment does badly, you’ll get your money back. You’ll need to demonstrate that you were badly advised, and this can be difficult – especially for a novice investor.

Now you’ve got your head around the basics, we’ll move onto our detailed guides to three of the most popular investment types: stocks and shares, gold, and bitcoin.


How to invest in stocks and shares

How to invest in stocks and shares

Investing in stocks and shares is not actually that complicated, but it’s easy to be intimidated by the jargon involved. We’ll start with some simple explanations of terms like stock, share, bond, and equities.

What is a share?

A share is simply a part of a company, and this is what you buy when you invest in a company. Of course, you’re not actually buying a physical part of the company – you’re buying a unit of ownership, a digital record that states you own a certain percentage of the company. If the company does well, your share can then be sold at a profit.

Investing in individual companies is risky, though – companies will often buy parts of other companies in the hope that their overall value increases, and these market moves will have a huge effect on the amount of money you stand to gain (or lose).

What is a stock?

A stock also refers to a unit of ownership in a company. In the world of investing, the terms ‘stock’ and ‘share’ pretty much mean the same thing – to be more precise, a stock price refers to the value of a single share of that company.

What is a dividend?

A dividend is a regular payment that you receive for holding shares in a particular company. While this may sound great, you should always balance this against the probability of the stock rising or falling in value, in order to find the best value shares. A company may, for example, keep paying out a dividend even when it’s struggling financially, in order to not alarm shareholders and give the false impression that everything is fine.

What is a bond?

A bond is essentially a debt or IOU. These are issued by companies and governments that need to raise money for new projects or initiatives, and have a date that the money borrowed must be repaid by (with interest charged on top of the loan amount). As a novice investor, you won’t be buying individual bonds, but they’re still a key thing to be aware of – indeed, the prices of bonds are usually more stable than the prices of shares, and both should be part of your portfolio.

What are equities?

Equities are just a fancy name for stocks/shares. All these terms mean effectively the same thing – ‘owning part of a company’.

What is an investment fund?

The easiest way to understand an investment fund is that it’s one of the ways you can pay other people to take care of your investment strategy. How it works is that you give the amount you want to invest to an investment company, who then invest your money (and lots of other people’s) in stocks and bonds, as well as other forms of investment like commercial property.

However, it’s a little more complicated than it sounds. Investment companies run lots of different investment funds that focus on different areas and charge different fees, so it’s crucial to know exactly what you’re investing in, and how much you’re paying for the company’s investment expertise. You can also invest in funds that invest in other investment funds, for even greater diversification. These are known as multi-asset or multi-manager funds, and generally come with much higher fees due to the greater complexity involved.

What is an investment trust?

An investment trust is similar to an investment fund. The main difference is that investment trusts are structured like companies, and you therefore buy shares in them – just like you would any other company. The price of investing therefore varies as the stock price moves up and down.

What is a share index?

A share index is simply a collection of shares that are grouped together because they share particular characteristics. A classic example of this is the FTSE100, which groups together the 100 biggest companies in the UK to give a good overall idea of how the UK economy is doing.

What is a tracker fund?

A tracker fund is a fund which aims to match the performance of a share index, rather than beat the performance of the overall market by selecting particular investments.

If, for example, a tracker fund tracked the FTSE 100, it would invest in the same companies as the FTSE100 and invest different amounts according to the size of the company. HSBC, for instance, accounts for 7.7% of the FTSE100, and would therefore account for 7.7% of the total value of the tracker fund.

How investment works in practice

Ok, that’s the theory out of the way – now, let’s look at how investing actually works using a real example. We’re going to look at Moneybox, because its investment offering is relatively easy to understand, and targeted at novice investors.

First things first, Moneybox revolves around an app that you link to your bank account. This app allows you to round up every purchase you make to the nearest pound, then invest the amount you rounded up by. It doesn’t take a genius to work out that this could quickly become quite a lot of money, so luckily, you have more control than this simple method suggests.

What actually happens is that the app keeps track of all your purchases, and then you choose which purchases you want to round up. So, if you round up a £2.50 cup of coffee, you will invest the remaining 50p. By default, all purchases that you haven’t made a decision on are rounded up after 48 hours, but it’s a good idea to turn this off in the settings so you can keep track of exactly how much you’re investing. You can also make investments directly through the app, without needing to round up a purchase.

You can then choose between three starting investment options: Cautious, Balanced, and Adventurous. We’ll now take a closer look at these to demonstrate how investment portfolios work.

  • Cautious – As the name suggests, this is a low risk, low reward option. 40% of your money is invested in a cash trust, meaning it’s invested with whichever banks and financial institutions are offering the most competitive interest rates at the time. 40% is invested in bonds, equally split between corporate bonds and government bonds – both of which are generally less risky than shares. 15% is allocated to shares, in the form of a tracker fund that invests in over 1,600 companies in 23 countries. Finally, 5% is invested in a global property fund that invests in property companies.
  • Balanced – While it may be the medium option in terms of risk, this is very different from the Cautious portfolio. There is no allocation to cash or government bonds, with 25% invested in corporate bonds (which are, generally speaking, riskier than government bonds) and 10% invested in the global property fund. The remaining majority (65%) of your cash is therefore invested in the global shares fund, significantly increasing both the risk you could lose your money and the gains you could make from your investment.
  • Adventurous – As you’d expect, this is the riskiest portfolio of the three. 80% of your money is invested in the global share fund, with 15% invested in the global property fund and 5% in corporate bonds. The nature of the funds allows for a lot of diversification, but this is still a risky portfolio that is also potentially the most lucrative.

Like any investment platform, Moneybox comes with fees. The base subscription fee is £1 per month. This is not charged for the first three months, and covers investing costs (whenever you invest in a fund, there is a charge involved). You are then charged a platform fee, which is essentially Moneybox charging you for its services. This is 0.45% of the value of your investments (i.e. the more you have invested, the more you pay), and is charged monthly. Finally, you’ll also need to pay fees that are charged by the investment fund providers. These fees vary, but typically range from 0.12% to 0.30% per year.

So, as a very rough guide, you can expect to pay around 1% of your investment in fees (plus the £1 monthly subscription fee). In the world of investment, this is on the low side, and reflects the fact that your money is invested in tracker funds which only aim to replicate the performance of an index rather than beat it.

By now, you should know what investments are, what sorts of things you can invest in, how a few typical investment portfolios might work, and how fees might affect your returns. You might think you’re ready to start investing, but there’s one more thing you need to consider – what sort of investment account you want to open. This brings us to the exciting world of ISAs.

Choosing an investment account – Stocks & Shares ISA vs Lifetime ISA

If you’ve never come across them before, an ISA (Individual Savings Account) allows you to save up to £20,000 every year without paying tax. The standard ISA is a cash ISA, but for our purposes, we’re going to take a close look at two of the most popular investment ISAs: the Stocks & Shares ISA, and the Lifetime ISA.

Stocks & Shares ISA – For many, perhaps even most, people, a Stocks & Shares ISA is the obvious way to invest in, well, stocks and shares (and bonds, and property, and most conventional investments). The rules are pretty straightforward – every tax year (from 5 April to 6 April), you can invest up to £20,000 tax free, and then also not pay capital gains tax on the gains you make ().

You have to be over 18 to take out a Stocks & Shares ISA, and while you can take out multiple ISAs – a cash ISA and a Stocks & Shares ISA, for example – you can only invest the £20,000 across these accounts. If you don’t use your allowance in a tax year, you lose it; it doesn’t roll on to the next year.

Finally, you can withdraw your money from an ISA at any time, but remember – it’s not a good idea to invest in stocks and shares for less than five years. The longer you invest for, the better chance you have of managing risk and increasing the value of your investment.

Lifetime ISA – This is more complicated and more restrictive than a Stocks & Shares ISA, but comes with its own massive benefits. It’s designed to encourage people to save for either their first home or retirement, and to reward this saving, the government will give you a 25% bonus on everything you save in year (up to £4,000). Save £4, and you’ll get £1; save the full £4,000, and you’ll get an extra £1,000 on top of any investment gain.

Lifetime ISAs are available as both cash ISAs and Stocks & Shares ISAs, but here, we’ll be focusing on the latter. The big caveat is that you really are supposed to be saving for either a first home or retirement, and if you need to withdraw your money for any other reason, you’ll pay a 25% penalty charge on the value of the withdrawn amount.

There are other restrictions, too: you can only pay into your Lifetime ISA until you are 50, your first home needs to cost £450,000 or less, you need to have a Lifetime ISA open for at least 12 months before buying the property, and buy to let mortgages are ineligible. As such, make sure you do your homework before deciding if a Lifetime ISA is right for you.

You should now have a good understanding of investing via the stock market in terms of stocks, shares, bonds, and other conventional forms of investment. We’ll now move on to discussing some other popular investments: gold and bitcoin.


How to invest in gold

How to invest in gold

Gold has a reputation as the ultimate safe haven investment, as it tends to hold its value in economic situations where investments like shares and bonds struggle. However, while this may be true, you should always remember that the price of gold can vary widely due to factors like mining costs and the global economic environment.

Most experts agree, though, that having a small part of your portfolio in gold is a good idea for greater investment diversification. If this appeals to you, there are three ways you can invest in gold: buying physical gold, investing via ETCs, and buying gold mining shares.

Buying physical gold

The most straightforward way to invest in gold is to actually buy physical gold. You can do this in two ways: either buying bars of gold bullion (think Fort Knox in Goldfinger), or purchasing coins made of gold. Whichever you choose, you’ll need to consider storage charges, as it’s usually not a good idea to keep gold bars or coins in your house (it’s unlikely to be covered by your home insurance policy, for example). If you do decide to go down this route, then check websites like BullionVault for more information.

Investing in gold via ETCs

ETC (Exchange Traded Commodities) function similarly to the tracker funds discussed in detail earlier in this article. The central difference is that instead of paying a set fee to invest in them, these products are traded on the stock market, and the price you’ll pay to invest in them therefore varies. Generally speaking, gold ETCs will track the gold price, but it’s worth checking whether the ETC you want to invest in is physical or synthetic. Physical ETCs actually buy gold, while synthetic ETCs use complex financial instruments to mirror the gold price. Of course, like all tracker funds, you’re entirely at the mercy of the index – if the price of gold falls, the value of your ETC will also fall.

Buying gold mining shares

Given the levels of risk involved, it’s generally not a good idea to buy shares in individual mining companies. Instead, consider investing in an investment fund that specialises in gold and precious metals, and invests in companies operating in the sector. Given the rather niche nature of this sort of investment, though, this should only be a small part of your portfolio. Both the Blackrock Gold & General fund and the JP Morgan Natural Resources fund are established investment funds in this area.


How to invest in bitcoin

How to invest in bitcoin

Bitcoin is possibly the ultimate high risk, high reward investment, and should be approached by novice investors with extreme caution. A digital currency created and authenticated by computers, its price can swing hugely in just a couple of days, and it’s debatable whether anyone really understands what the price depends on. This also means that one of the golden rules doesn’t really apply, as it’s very unlikely you’ll invest in bitcoin for at least five years. Quite frankly, no one really knows when the next bitcoin crash might happen, and you’ll need to sell quickly to avoid being wiped out completely. That said, if you really want to take the plunge, here’s how you go about it.

Unless you live near a bitcoin ATM (yes, these really do exist, and let you buy bitcoin with either cash or a debit card), you’ll need to sign up to a bitcoin exchange. This is a website where you can buy and sell bitcoin. While the precise sign-up process can vary, you’ll need a photo ID to prove your identity. Then, it’s simply a matter of entering your details, linking your bank card, and buying bitcoin.

Once you’ve bought it, you’ll need a wallet to store it. Needless to say, this is not an actual wallet, but a specialised online service that promises to keep your bitcoin safe and secure (when it comes to investing in bitcoin, the threat of losses through hacking is a serious one). To make the whole process as straightforward as possible, it’s a good idea to go through an established, reputable exchange like Coinbase, which has been trading bitcoin since 2012.


Final thoughts

Whether you want to invest in stocks, bonds, gold, or bitcoin, always remember the four golden rules of investment: don’t invest more than you can afford to lose, aim to invest for at least five years, understand what you’re investing in, and make sure you diversify your investments. In other words: do your research, proceed with caution, and be patient.

Happy investing!

Always remember the value of your investments can go down as well as up, so you may get back less than you invest. None of the information on this page is a personal recommendation for any particular investment. If you are unsure about the suitability of an investment, you should speak to an authorised financial adviser.

Alec Hawley
Alec Hawley

Alec is Startups’ resident expert on mobiles, investment, and politics. Before joining, he worked in the media for over a decade, conducting media analysis at Kantar Media and YouGov, writing for computer games sites like Gaming Respawn and Gamespew, and taking on a wide variety of freelance roles.