Jasmine Birtles
Your money-making expert. Financial journalist, TV and radio personality.
Investing 101: Your Investing Questions Answered
Ruby Layram
5th Jan 2025
Investing can feel like stepping into a whole new world—one full of buzzwords, graphs, and intimidating terms. But here’s the thing: it doesn’t have to be overwhelming! If you’ve ever found yourself asking questions like, “What is investing, really?” or “How much do I need to start?”—you’re in the right place.
I decided to pull together the most common questions that we receive from MoneyMagpie readers into one big Q&A that you can save an come back to throughout your investing journey.
Think of this like a beginner’s manual to investing. Here, we break down the basics into manageable, bite-sized chunks to help you move forwards with confidence.
What Is Investing?
At its core, investing is about putting your money to work for you. Instead of stashing all your cash under the mattress (or in a savings account earning 0.01% interest), investing allows you to grow your wealth by buying assets that can increase in value over time.
For example, when you buy shares of a company, you’re essentially buying a small piece of that business. If the company grows and becomes more profitable, your shares could increase in value, and you might even get paid a portion of their profits (called dividends). Think of it like planting a tree—you put in the seed (your money), and with time and care, it grows into something much bigger.
When you say the word “investing”, most people’s minds jump straight to the stock market, But there are actually many different ways to invest your money. These include investing in real estate, commodities, startups, precious metals and even designer handbags!
Anything that can increase in value over time could be an investment.
How to Start Investing in The UK?
Starting to invest in the UK is simpler than you might think. First, decide what you’re investing for—retirement, a house deposit, or just growing your wealth.
Having a goal helps you choose the right investments.
Next, open an investment account. A Stocks and Shares ISA is a popular choice because it lets you invest up to £20,000 per year without paying tax on your gains.
Once your account is set up, you can start buying assets like shares, bonds, or funds. Many beginner-friendly platforms, like Hargreaves Lansdown, Nutmeg, or Trading 212, guide you through the process step by step.
If you’re not sure which platform to use, take a look at our rundown of the Best UK Investment Platforms.
When is The Best Time to Start Investing?
The best time to start investing? Yesterday. The second-best time? Today.
The earlier you start, the more time your investments have to grow thanks to the magical power of compound interest (where your earnings start earning their own earnings).
For example, if you invest £1,000 at a 7% annual return, it could grow to around £2,000 in 10 years. But if you waited five years to invest, you’d only have £1,400 after 10 years.
See the difference? Don’t let the fear of “not knowing enough” stop you—start small and learn as you go.
With that being said, you shouldn’t invest any money until you have enough savings to cover 3-6 months of living expenses. Unlike the safety net of a savings account, there is not guarantee that your investments will hold their value. Therefore, you should only invest with money that you can afford to lose.
Is Investing Better Than Saving?
It depends on your goals. Saving is great for short-term needs or an emergency fund, but investing is where the magic happens for long-term growth.
For instance, a high-interest savings account might give you 3% interest a year, but inflation (currently around 5%) can eat into your buying power.
Investing, on the other hand, has historically delivered higher returns, especially over decades. The stock market, for example, averages a 7-10% annual return.
So, while saving is safe, investing helps your money outpace inflation and grow.
As a general rule of thumb, you should save money if you need to use it in the short term (less than 12 months) and invest if you plan on locking up your money for a longer period.
What is The Best Investing Platform for Beginners?
The best platform depends on your needs, but here are a few beginner-friendly options:
- Hargreaves Lansdown: Great for those who want access to a wide range of investments and don’t mind a slightly higher fee.
- Nutmeg: Perfect for hands-off investors looking for a robo-advisor to do the work.
- Freetrade or Trading 212: Ideal for beginners who want to trade shares and ETFs without paying high fees.
Try to look for platforms with low fees, an easy-to-use interface, and access to educational tools.
How Should I Invest My First £100?
The best way to invest your first bit of cash is to start small and keep it simple. With £100, consider buying into a low-cost index fund or ETF, which spreads your money across a variety of companies for diversification.
For example, the Vanguard FTSE All-World ETF gives you exposure to companies across the globe. Alternatively, you could put your money into a robo-advisor like Nutmeg, which will create a diversified portfolio for you.
The key is to diversify from the get-go. Not only does this spread the risk of investing. But, it also increases your chances of seeing returns.
What is The Safest Investment?
“Safe” investments typically offer lower returns but come with less risk. Think of them as the sensible shoes of the investing world—not flashy, but reliable.
I put quotation marks around the word safe because no investment is entirely risk-free. However, some types of investment are more reliable in others.
Options include government bonds (like UK gilts), Gold, or cash ISAs. While these won’t make you rich overnight, they can provide stability, especially during uncertain times.
What Are The Riskiest Investments?
High-risk investments have the potential for big rewards but can also lead to significant losses. Examples include individual stocks, cryptocurrencies, and speculative assets like penny stocks or certain alternative investments.
For instance, while Bitcoin has made some people millionaires, it’s also known for wild price swings—dropping 50% in a matter of weeks. Approach these with caution, and only invest money you can afford to lose.
Are Investing Apps Legit?
Yes! Many investing apps, like Freetrade, eToro, and Nutmeg, are licensed in the UK. They’ve made investing accessible to a whole new generation.
That said, always do your homework. Look for apps regulated by the Financial Conduct Authority (FCA) in the UK, and check reviews to ensure the app has a good reputation.
Be wary of apps that make claims that seem too good to be true, have negative user reviews or lack available information. Try to stick to established providers that have a long history of providing good services to their users.
Can Investing Be a Full-Time job?
Absolutely! Professional investors, like fund managers or day traders, make a living from investing. However, this requires a deep understanding of markets, significant capital, and a high tolerance for risk.
Becoming a “professional” investor or trader takes years (or even decades) of experience. These experts are able to read financial statements, earning reports and price charts like the back of their hand – which isn’t an easy feat!
For most of us, investing is better approached as a way to build wealth over time, not a day-to-day hustle. Think of it as a crockpot, not a frying pan—set it and let it simmer!
How Much Money Can You Make Investing?
How long is a piece of string? Your returns depend on factors like how much you invest, the type of investments, and how long you stay invested.
Historically, the stock market has averaged a 7-10% annual return. So, if you invest £10,000 and leave it for 20 years, it could grow to over £40,000 (compounding at 7% per year).
However, it’s impossible to predict the future and there is no knowing how the market will perform 10 years from now. This is one of the reasons that its important to diversity – you can put your finger in multiple pies and increase your chances of landing on a profitable opportunity.
Here’s how to build a diverse investment portfolio in 5 steps.
What is the Smartest Thing to Invest in Right Now?
It depends on your financial goals, risk tolerance, and time horizon. That said, index funds and ETFs are often a smart choice for beginners because they offer diversification and low fees.
I’m also a big fan of Stocks and Shares ISAs – these are probably the most similar to savings accounts and offer a beginner-friendly way to get started with investing.
It’s also impossible to ignore Gold when discussing the ‘smartest’ investments. The precious metal is known for hedging against inflation and standing strong during volatile times.
If you’re feeling adventurous, emerging markets or renewable energy stocks might have strong growth potential. Always do your research before diving in!
Is It a Good Idea to Invest in Gold?
Gold can be a great hedge against inflation and market volatility. When stock markets wobble, gold often shines.
However, it’s not a high-growth investment. Most experts recommend keeping gold to about 5-10% of your portfolio for balance.
A lot of people invest in Gold as a safety net rather than their ticket to riches. It’s a good way to balance out the risk that comes from investing in assets such as stocks, cryptocurrencies or property.
How Long Does It Take to Make Money From Investing?
What is that phrase people use to describe something that happens gradually? Oh yes: Investing is a marathon, not a sprint.
While you can make short-term gains, most wealth is built over years—if not decades. For example, if you invest in an index fund today, you might not see significant returns for 5-10 years.
Patience is key!
Short term results come from trading, which is much riskier and best suited to experts.
What Are the Different Ways That You Can Invest?
Investing doesn’t just look like buying stocks. There are many different ways that you can put your money to work including with stocks, bonds, mutual funds, ETFs, real estate, commodities, and even art or wine! Each comes with its own risks and rewards.
Nowadays, most investing takes place online through a brokerage or exchange. These platforms provide exposure to the market and make it easy to buy and sell different types of assets.
However, you can also invest through a financial advisor, fund manager or in-person broker. You may prefer to discuss your investments face-to-face if you are investing a significant amount of cash.
Start with simpler options like index funds or ETFs, and branch out as you gain confidence and knowledge.
How Much Money Do You Need to Earn Before You Start Investing?
There’s no magic number—you can start investing with as little as £1 on some platforms. The key is to budget carefully and ensure your basic needs (and emergency fund) are covered first.
Once those essentials are sorted, take a close look at your budget to determine how much you can comfortably set aside for investing. Even small, consistent contributions can grow significantly over time thanks to the magic of compound interest.
For example, investing £50 a month in a low-cost index fund could grow to thousands over a couple of decades, depending on market performance.
What is the Best First Investment?
The best first investment depends on your long-term goals, your initial deposit and your experience.
For beginners, a low-cost index fund or ETF is a great place to start. These give you exposure to a wide range of assets, reducing risk while offering solid returns.
If your main goal is to hedge against inflation and maintain your wealth, Gold could be a good first investment to consider. Whereas, if your goal is to dip your toes into the stock market, ETFs and Stocks and Shares ISAs are a solid option.
What is the Simplest Investment Rule?
Spend less than you earn, invest the rest, and stay consistent. Compound interest will do the heavy lifting over time.
It might sound simple (and it is), but mastering this habit can transform your financial future.
The magic lies in what happens after you invest—compound interest. When you reinvest your earnings, those earnings begin to generate their own earnings. Over time, this creates a snowball effect, where your investments grow faster and faster. It’s like planting a tiny seed today and watching it grow into a massive oak tree, as long as you keep watering it (by staying consistent).
What is a Stock?
A stock, in its simplest form, is a piece of a company. Imagine a business as a large pie—when you buy a stock, you’re essentially buying a slice of that pie. It’s not just a financial asset; it’s a tiny fraction of ownership in a real business.
When you own a stock, you’re entitled to a share of that company’s profits (sometimes paid out as dividends) and, potentially, a piece of its growth if the stock’s value increases.
The price of a stock is determined by the value of the company. So, if the company goes up in value, so does the price of the stock (and vice versa!).
What is a Bond?
A bond is essentially a loan you give to a company or government in exchange for regular interest payments and the return of your money at the end of the term.
Here’s how it works: when you buy a bond, you’re essentially loaning your money to the issuer—this could be a company needing funds to expand or a government financing a new project like building schools or roads.
In exchange, the issuer agrees to pay you regular interest payments (known as the “coupon”) for a set period of time. Once the term of the bond is over—called the “maturity date”—the issuer repays the original amount you lent, also known as the “principal.”
Bonds are considered less risky than stocks because of this predictable income stream and the promise of repayment, but they’re not entirely risk-free.
What Are Mutual Funds and ETFs?
Mutual funds and ETFs (Exchange-Traded Funds) are simple ways to invest in a variety of assets without picking each one individually. Both offer diversification, which helps spread risk across multiple investments.
A mutual fund pools money from investors and is managed by a professional who decides where to invest—like stocks, bonds, or other assets. For example, if you invest £500 in a UK-focused mutual fund, your money might be split across dozens of companies. The fund manager handles the decisions, but these funds often come with higher fees for management.
ETFs are similar to mutual funds but trade like individual stocks on an exchange. For instance, an ETF tracking the FTSE 100 lets you invest in 100 companies through a single purchase. ETFs typically have lower fees since they’re passively managed and can be bought or sold at any time during the trading day.
What Fees Are Associated With Investing?
Investing isn’t completely free—there are costs involved that can impact your returns over time. The key is to understand these fees upfront so you’re not caught off guard. Let’s break them down:
1. Platform Fees
These are charges for using an investment platform or brokerage. Think of it as the cost of accessing their services. For example, some UK platforms like Hargreaves Lansdown or AJ Bell charge a percentage of your portfolio’s value annually (e.g., 0.25%-0.45%).
Others, like Freetrade, offer lower or zero platform fees but may charge for premium features.
2. Fund Management Fees
If you’re investing in mutual funds or ETFs, you’ll pay a fee to the fund manager for handling your investment.
This fee is usually expressed as an Ongoing Charges Figure (OCF) and can range from 0.1% for low-cost ETFs to 1% or more for actively managed funds.
Over time, these fees add up, so look for funds with lower OCFs to maximize your returns.
3. Trading Fees
If you’re buying and selling stocks or ETFs, you may be charged a flat fee per trade. This can range from £1 to £10, depending on the platform.
For active traders, these fees can stack up quickly, so consider platforms with commission-free trading if you plan to trade often (IG is a good option for this!).
4. Account Maintenance Fees
Some platforms charge annual or monthly fees just to maintain your account, regardless of how much you invest. These fees can be flat-rate or percentage-based, so always read the terms carefully.
5. Exit Fees
If you decide to leave a platform or transfer your investments elsewhere, you may encounter exit fees. These can be a fixed charge or depend on the type of account you hold.
How Do I Choose the Right Investments?
Choosing the right investments starts with knowing your goals, time horizon, and risk tolerance. Decide whether you’re aiming for long-term growth, like retirement, or short-term needs, such as a house deposit, and match your investments accordingly.
Longer timeframes can handle higher-risk options like stocks, while shorter horizons may call for safer assets like bonds.
Diversify your portfolio across different sectors and asset classes to manage risk, and always research fees and potential returns before committing. Start small, investing only what you can afford, and consider seeking professional advice if needed.
Regularly review your portfolio to stay aligned with your goals.
What is Risk Tolerance, and How Does It Affect My Investments?
Risk tolerance refers to how much risk you’re willing to take. If you’re risk-averse, you might prefer stable options such as bonds and index funds. If you’re comfortable with more risk, you might want tp explore individual stocks or emerging markets.
Your risk tolerance plays a huge role in the types of assets that you will invest in. There are pros and cons to each preference.
Risk-tolerant investors can put their money behind high-growth assets and potentially make large returns in the long. However, they also stand a greater chance of losing their money.
On the other hand, risk-averse investors may not see huge growth from their portfolio. However, there is less chance that they will lose what they invest.
What Are Dividends?
Dividends are payments that companies make to their shareholders from their profits.
When a company generates profit, it can either reinvest those funds into the business to support growth or distribute a portion of the profits to its shareholders in the form of dividends. For investors, dividends are a great way to earn passive income, as they provide regular payments without needing to sell any shares.
Dividends are typically paid on a quarterly, semi-annual, or annual basis, and the amount can vary depending on the company’s performance, policies, and financial health.
Many investors seek out dividend-paying stocks because they offer a steady income stream, which can be especially appealing for those looking to supplement their earnings, save for retirement, or simply enjoy a consistent cash flow.
How Are Investments Taxed in the UK?
Investments are subject to capital gains tax and dividend tax. However, you can use tax-efficient accounts like ISAs and pensions to minimize or eliminate these taxes.
For example, if you hold your investments in a Stocks and Shares ISA, you won’t pay any tax on capital gains or dividends. Outside of an ISA, gains over the annual allowance (£6,000 for 2024/25) may be taxed, and dividends over £1,000 are subject to dividend tax. Planning where you hold your investments can save you a lot in taxes over time.
Investing doesn’t have to be scary or complicated. Start small, educate yourself, and remember: time in the market is more important than timing the market. Whether you’re working with £100 or £100,000, the key is to stay consistent, keep learning, and focus on your long-term goals.
If you’ve made it this far, you’re already ahead of the game—understanding the basics is the first step to becoming a confident investor.
Are you interested in learning more about investing? Why not sign up to the MoneyMagpie bi-weekly Investing Newsletter? It’s free and you can unsubscribe at any time if you find it isn’t for you.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence. When investing your capital is at risk.
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