Investment Tips for Beginners UK
High inflation rate all around the world and rising prices for everything calls for extra income. For UK citizens, it may be tough to make a good living with only one source of income. So, most people go for a part-time gig or freelancing, etc.
However, investing in something can be a little less tiring and relatively easy to manage with a full-time job instead of a part-time gig.
If you have a knack for business but don’t know where to start, this guide will explore investment tips for beginners UK. Keep reading to find out!
What Is Investing?
Everyone saves for their goals. Although everyone has different goals, having a goal that will take five years to reach, it is a good idea to invest that money somewhere you might be able to make something and deal with rising prices day by day.
Investing means putting money aside to save, and then putting it to work, to increase the value of your cash. It means you use your money to buy something or put it into something you think will benefit you. Investments are done to grow the value of money you are saving.
So, you invest in something you think will give you a profitable return. But be prepared to face the circumstances because there are also chances to lose the money as the return amount may be less than the amount you invested.
The important thing to know is to have emergency funds for 3-6 months for your routine expenses before investing so you don’t have to dip into your savings. It is common for the value of investments to fluctuate.
Most people make investments in one of these four groups that are classified based on their characteristics. They are referred to as asset classes:
- Shares: you purchase a portion of a business
- Cash: you deposit money into a bank or building society account
- Property: you invest in a real building, either residential or commercial.
- Fixed-interest securities: provided in exchange for lending money to a business or government are known as fixed-interest securities or bonds.
Why Should You Invest?
It depends on several factors whether or not you should invest. Your financial goals decide whether you should invest in something or keep your money as cash savings.
Are you just interested in growing your money or looking for a regular income? Setting goals will assist you in determining the level of risk necessary to reach your objectives.
Some typical goals and investment options are as under:
Buying property
If you are planning to buy a property in the next five years, you can choose between a Cash ISA or a Lifetime ISA. Both are individual savings accounts in the UK that allow you to save money tax-free. However, there are significant differences between the two.
A Cash ISA lets you save up to £20,000 each tax year and can be used for any purpose. You can choose between an easy-access Cash ISA, which allows penalty-free withdrawals at any time, or a fixed-rate Cash ISA, which offers a fixed interest rate for a set period.
However, with a fixed-rate Cash ISA, early withdrawals may result in losing 90 to 360 days’ worth of interest.
In contrast, a Lifetime ISA (LISA) is designed specifically for saving for your first home or retirement. You can save up to £4,000 each tax year, and the government adds a 25% bonus to your contributions, providing up to £1,000 extra per year if you maximize your allowance.
This feature gives the LISA a unique advantage over the Cash ISA for property or retirement savings.
Children’s education
Paying for your children’s education such as university fees etc could cost a lot. It is better to plan ahead. You can invest in “Junior ISA”, as it will have 18 years to get through fluctuation.
A Junior ISA (JISA) is a tax-free savings or investment account for children under the age of eighteen that is situated in the UK. On behalf of a child, it enables parents, relatives, or friends to invest or save money, creating a fund that the youngster can access when they turn 18.
Buying a dream car
Planning to buy a dream car? Start investing the funds you are saving for the purpose of achieving the goal sooner or later.
Getting married
If you are getting married in a couple of years then cash savings are recommended. But if you plan to get married five years from now then it is okay to invest somewhere.
Getting retired
If you’re not close to going over your annual allowance, it can be appropriate to make additional voluntary payments to your pension.
Can You Afford to Invest?
Do you have any spare cash as an emergency fund? It is a basic rule of thumb for investment to have at least 3 months’ salary as a backup before you invest.
It is important to have your debts cleared before you start investing. The interest payments associated with credit cards, personal loan debt, and overdrafts can outweigh the profit return you will receive from your investments.
However, if you have a mortgage or student loan with low interest, that is an exception.
Top 10 Investment Tips for Beginners UK
Investing in the UK can be beneficial in the long run but it can be challenging and risky too, especially if you are new to investing. Here are the top 10 investment tips to start investing UK:
Do your homework
If you are new to something, it is always important to do your homework before you start. When you are planning to invest, make sure it’s not a hasty decision, and that you have done your research.
Set your goals, so you know why you need your financials to get better. Know what you want to achieve, getting married, saving for a child’s education, retirement plan, buying a car, or building an emergency fund.
It will help you decide about your investment choices and the timeline you need to achieve them.
Concept of Rewards and Risks
You should understand the concept of risks and rewards. The higher the expected reward, the higher would be the risk. It is your choice how much risk you can afford to take. Young investors can take more risks as they have time to ride through the fluctuation in the market.
How much to invest
It is better to start small and increase gradually if you are new to all this. You can start with as low as £50 or £100, and when you gain knowledge and feel more comfortable you can keep investing more.
Diversification
Diversifying your portfolio is the key. Don’t spread in just a few companies in the same sector. There always comes a risk with the investment so spread your assets in stocks, bonds, properties, etc.
Open tax-advantaged accounts like an ISA
Opening tax-advantaged accounts like ISA will relieve you from income and capital gain taxes. You can invest £20,000 per year.
Prepare yourself
Don’t panic sell. Ups and downs are part of investments. And investment is a long-term strategy. When you invest, make sure you won’t need to access your money anywhere in five years.
Learn about different investment types
Learn about the different types of investments, such as stocks, bonds, ETFs (exchange-traded funds), and mutual funds, because each one of them has unique risks, rewards, and timeframes.
Consider re-investing your income
It is your choice but reinvesting your dividends can potentially increase your return benefits, and it can be done automatically.
Try a Robo-Advisor
Beginners, who cannot afford a professional financial advisor can benefit from Robo-advisor. These automated services offer inexpensive, diversified portfolios according to your objectives and risk tolerance.
Review and adjust
You should periodically check your portfolio to make sure it still fits your objectives, even if doesn’t require constant adjustments.
Reviewing your investments frequently is a good idea. How are they doing? Are you comfortable with the level of risk you are willing to take?
Final Words
Investments are usually considered to be for the wealthy, but if you are a beginner and do not have much knowledge about investing, you can start low after doing your research.
Making an ISA account is recommended, depending on the type of investment you choose.
Make sure you have some amount saved for your living expenses for next few months so you don’t have to dip in your investment funds. Following the investment tips mentioned above, you can learn and benefit from investments.