Getting started with investing

INTRODUCTION • GETTING STARTED • COMPOUND GROWTH • INVESTMENT PLATFORMS • WHAT TO INVEST IN • RISK AND ASSET ALLOCATION • COMMON MISTAKES TO AVOID • POUND COST AVERAGING • FAQ • SUMMARY

Introduction

When people talk about investing they often think of Wall Street in New York and that is a part of it. Now the everyday investor can pick a platform and get started from as little as £1. The aim of investments is to grow your money and to make it work for you, if you just keep it in a savings account, or even worse, your current account, inflation will erode the value of your money over time

Getting Started

Before you start investing you need to have an emergency fund of 3-6 months living costs (so you can leave your investments to compound) and your high interest debt cleared. Clearing debt is a bit like investing but going from negative to zero rather than zero to, perhaps (depending on a few factors), over a million. For more information about the emergency fund look at this article and for high interest debt, look here.

Compound Growth

Einstein said that compound growth is the eighth wonder of the world, and I'd agree! You may have also heard that the first 100k is the hardest or a Charlie Munger famously said: "The first 100k is a bitch, but you gotta do it". This is especially true as once you hit that mark the next hundred is significantly easier and each successive one is easier still, since investments compound. The long-term average US stock market returns are 10-12% a year. The chart below shows how a one off £1000 investment can grow to over £15,000 over 30 years.

Looking at this chart, you can see that increasing by £1500 to £2500 takes almost 10 years but the same increase from £12,500 to £14,000 only takes 1.2 years. Hopefully this illustrates the power of compounding and how once you reach 100k it gets much easier.

Most investors don't just invest some cash, then leave it, they keep adding more so the snowball increases more quickly. This chart shows how someone investing £500/month with the same 10% interest as above quickly increases their investments value.

Investment Platforms

So you've decided that you want to get started but don't know where. You'll want to pick a provider that offers a stocks and shares ISA. This is a wrapper that protects any gains and dividends from the tax man. If you decide not to go with an ISA you will be liable for capital gains and dividend taxes at your rate. There are reasons why you may not want to use an ISA (for example you're already contributing the full £20k/year) but if you're just starting out that probably doesn't apply. You can find out more about ISAs here.

Each platform will have different fees the main ones are, foreign exchange fees, transaction fees, stamp duty reserve tax, platform fees, and management fees. You will typically pay into your ISA with GBP but if you want to buy shares that are priced in a different currency, you will have to pay a fee for the currency conversion.
More of the what I would call "traditional providers" will charge a fee every time you want to buy or sell any investments, these are usually a flat rate plus a percentage of your investment value. The stamp duty reserve tax is if you want to buy shares in individual UK companies and is 0.5% of the investment value, so if you want to buy £100 of Tesco shares (for example, not investment advice), you will pay 50p to the UK government for the privilege.

Platform fees are charged for the holding of an investment account, and usually scale with the size of your investment. Management fees are usually paid to an organisation to do the investing for you, these range from around 0.07%, for a popular index tracker, to a few percent. You'll need to consider the fees you'll be paying as there can make a big impact on your returns and can push your goals further ahead than necessary.

Some of the most popular and well known providers are Vanguard, Fidelity, Trading212 but there are many others. I previously used Fidelity but did an ISA transfer to Trading212 for lower fees.

An important consideration is platform security. Your investments are held in nominee accounts, which means if a platform goes bust, your investments are protected and held separately from the platform's own assets. However, it's worth noting that FSCS (Financial Services Compensation Scheme) doesn't cover investment losses from market performance. It only protects cash deposits up to £85,000.

What To Invest In

So you've picked your provider and setup an account, now you're wondering what to invest in. The main options are as follows:

Stocks
Stocks (also referred to as shares) are parts of a company. These parts can be very small with fractional shares now widely available (meaning you can buy portions of expensive shares) but you will be paid any dividends the company pays out relative to how many shares you have. for example, if a company pays out a total of £1000 in dividends and you own 1% of that company, you will receive £10. If the company does well and the share price increases, you will be able to sell those shares and take the difference in prices you paid and sold at as profit.

Dividends VS Accumulation
There are 2 options for what you can do with the money that companies pay out. the first is to re-invest it so the compounding can continue to increase, this is called an accumulation fund (often suffixed with Acc). The other option is to take the dividend out as an income these are often suffixed with Dist.

Bonds
Bonds are often considered to be a lot safer than stocks since they have a fixed return and a fixed date for that return. You can think of them as a loan to an organisation, the organisation will determine how risky the loan is.

Funds
A fund is a collection of investments all grouped together, whether it's stocks, bonds, or cash. They can either be put together by a fund manager, who will charge you a notable management fee or they can track a group of companies, e.g. the 100 largest companies listed on the London stock exchange, or only companies that start with the letter A. the latter are called tracker funds and they often do have a fee but are usually well under 0.5%.

ETF's
An ETF is an Exchange Traded Fund and acts like a single share that you can trade on the open market. Some of the popular ETF's are the S&P500 tracker (VAUG) and the all world tracker (VWRP). Note that these are both Vanguard but can be bought on most platforms.

ETN's
Until recently, crypto currency investments had been banned from ISA accounts but, as of the 8th of October 2025, UK investors will be allowed to hold cryptocurrency exchange traded products. With ETF's there are underlying assets associated with the fund, for an ETN that is not the case so they could potentially be viewed as more risky.

Risk And Asset Allocation

As with all investing there are risks and and I could not publish in good conscience without discussing them.

Time Horizon
Generally, the longer your time horizon, the more risk you take. Higher risks generally have higher rewards and larger losses, the less risky ones will have less sharp rises and falls so you can adjust your portfolio to match what you're comfortable with. Like with a pension, if you are within 10 years of wanting to draw down your investments, you may start to sell the high risk assets and buy lower risk ones as as that point you will likely want to preserve your investments rather than maximise the growth.

Diversification
One of the ways you can reduce the risk is through diversification, that is, buying multiple companies or funds so if one of them performs poorly, the others will help to minimise the impact. For example, if you only own UK Finance companies and the government slaps an additional tax on the profits, their share prices are likely to fall but if you also own Technology, Utilities, Consumer goods and Real Estate, your portfolio is unlikely to suffer so much.

Rebalancing
Another way to manage risk is to perform a rebalance. If you started with a portfolio consisting of 20% technology stocks and they performed much better than the rest of your portfolio so you end up with 40% of your value in tech. A rebalance is where you sell the assets in sectors that are larger than your target and buy those that are lower than your target, this can reduce the risk of over exposure to a specific sector.

Common Mistakes To Avoid

Timing the market - One of the most tempting things to do is wait for the market to drop or hold till it's the top which would be great if possible but those who try to time the market like this often perform worse, or even lose money, much more frequently than those who don't.

Panicking - If the market drops it's very logical to sell now before it can drop any more. This can be a huge mistake since you're more likely to realise your losses. If you hold on to them (this is easiest if you don't look at the news) you'll be able to ride the bounce back that the market will likely experience as It has always recovered from downturns. Personally, I love it when the markets dip since it's essentially stocks offered at a discount.

Chasing hot stocks - There will always be a new hot stock that you "want to get in early" these are likely to go nowhere or, if they do sharply increase in value, they often crash just as fast. If you want to get in at the bottom you might want to consider the AIM market.

Ignoring Fees - I mentioned this earlier but you have to factor any fees into the cost of the investment, the easiest way to do this is to reduce the average annual increase by the fees. so if there is a fund that returns 9% a year but has fees of 2%, the real return is 7%.

Pound Cost Averaging

This is an investment approach that minimises the average price you pay per share. This approach involves investing the same amount each month irrespective of the price of the market. That means that when the prices are high, you buy fewer shares and when they are low, you buy more shares. This fits in nicely with a regular investing approach which can be automated to keep you on track.

FAQ

How much do I need to start?
Most providers allow you to get started with as little as 1 pound, That's not going to turn into a million overnight but you've got to start somewhere.

What if the market crashes after I invest?

This is certainly possible but if you're pound cost averaging and a long term investor, this isn't going to make much of a difference, Look at COVID-19 and how quickly the market recovered. The most important thing is to not panic and not to sell, better still, pick up some bargains!

Should I invest in individual stocks?

Yes, you can invest in individual stocks but they will be more volatile and you're reducing diversification. If you're happy with the risk or want to target something very specific you are allowed to but make sure you do your own research!

How often should I check my investments?

As a long term investor, I try to look at mine as little as possible since that will prevent me from looking at how others portfolios are doing and I'd be tempted to switch my strategy.

How can I perform an ISA transfer?

This was really easy for me and can all be done online, just create an account with your desired provider and there should be an option to start an ISA transfer. Note that if the providers do not both have what you're already invested in as an option, your investments must be sold, the cash transferred then re-bought on the other side which will mean you're out of the market while the transfer is in progress.

Summary

To summarise the steps to get started: Open an account with a stocks and shares ISA, Pick the fund(s) you want to invest in, then automate your contributions on a monthly basis so you can pound cost average. Once you get more comfortable with what you're doing, you can look to create your own "fund" that matches exactly what you want in terms of the sort of companies and risks. This is the pie feature on Trading212 which can contain up to 50 different stocks and allows automated contributions.

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Disclaimer

The usual disclaimer: I'm just a guy on the internet sharing what I've learned. This isn't financial advice so do your own research and speak to a qualified adviser about your specific situation.