Menu Menu Menu Login Login Log in Search Search Search
Top
Guide to investing money banner

Your guide to investing

Discover what it is, how to do it and what you need to know with our plain-English, step-by-step introduction to investing.

Important Information: Please remember that the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. If you are unsure of the suitability of your investment please seek advice. Tax rules can change and the value of any benefits depends on individual circumstances.

Investing for beginners

You’ve worked hard for your money – now investing can get your money working harder for you.

Whether you're thinking about investing for a wealthier retirement, to build a nest egg or to give your children a great financial start in life, we believe you’ll be better off having the best information to hand to make investment decisions.

Our guide to investing money is designed to help novice investors just like you and get you started in building an investment portfolio.

What is an investment?

This guide will help you to...

  • Understand the basics with jargon demystified - just look out for the dotted underline for definitions
  • Choose the right investments for your circumstances
  • Make confident investment decisions
  • Learn how to get started and how to profit from your money

Explore your simple guide to investing

Helping you understand how to invest


Number icon 1

1. What is an investment?

What is an investment?

Making your money work harder for you.

What is an investment

Investments are a way to store wealth. They can also provide the potential for profit or income.

There are many different types of investment available, including buy-to-let properties and stocks and shares. Investing money in these types of assets has many advantages over holding all of your savings in a bank account.

Contrary to what many believe, you do not need a large lump sum to start investing. However you will need to be aware that unlike cash which is secure, investments carry additional risks as they can fall as well as rise in value.

This guide is to help you find out more about the opportunities you have to invest in the financial markets, and how to get started.

Important information

Please remember that the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. If you are unsure of the suitability of your investment please seek advice. Tax rules can change and the value of any benefits depends on individual circumstances.
Have a question?

0117 900 9000


Number icon 2

2. Why do people invest?

Why do people invest?

Investing money is important to different people for different reasons - after all everyone has financial goals.

Why choose to invest banner

Investing money is important to different people for different reasons - after all everyone has different financial goals. For some people investing is about generating an additional income now, for others it's about saving for the future. Depending on where you are in life, you may be looking to save for a new house, for retirement or for children or grandchildren. You might also be hoping to generate some income to supplement other earnings or pensions.

Cash accounts are one way of saving for the future, and the interest they generate can provide additional income too. However, the interest rates banks are offering are now so low that the interest often doesn’t even keep up with the rate of inflation.

Losing interest with your Cash ISA?

With disappointing average rates, it could be time to consider the alternatives

Learn more

Losing interest with your Cash ISA?

With disappointing average rates, it could be time to consider the alternatives

Find out more

How inflation erodes your buying power

Average inflation
What £1,000 will be worth in real terms
After... 2.5% 5.0% 7.5% 10.0%
5 years £884 £784 £697 £621
20 years £610 £377 £235 £149
40 years £372 £142 £55 £22

If inflation is higher than the interest rate on your cash savings, prices are increasing faster than your money is growing. This means that the real value of your savings falls over time. With this in mind, it’s no surprise people are looking for alternatives.

One such alternative to keeping your money in a cash account is to invest it in the financial markets. Over time, the financial markets have consistently delivered better returns than cash accounts. History tells us that investments have a better chance of producing a favourable return the longer they are left to grow. For this reason, we always encourage taking a longer-term (at least 5 years) view when investing.

Please remember unlike cash, investments carry additional risks and can fall as well as rise, so you could get back less than you invest. If you are unsure of the suitability of an investment for your circumstances seek advice. You should not use past performance as a guide to future returns.


Number icon 3

3. What do you want from your investments?

What do you want from your investments?

For some people investing is about generating an additional income now, for others it's about saving for the future.

Investment portfolio banner

Everyone has different goals when it comes to their finances, but investors are often placed into one of two categories; those who are investing for income and those who are investing for growth. These two groups will make different decisions about where to invest money in order to reach their goals.

Investing for income

Income investors are looking for extra income on top of any existing money they receive. This can be generated from investments that make regular payments, such as shares that pay dividends or bonds that pay interest.

Retirees are typically income investors, using the income to supplement any pensions they might receive. Investors should remember that investment income varies and isn’t guaranteed.

Investing for growth

The goal for growth investors is to increase the value of the investment itself, known as capital appreciation or a capital gain. In stocks and shares for example, growth is the result of a rise in the price of the shares.

Someone who has just started their first job and joined a pension scheme might be a growth investor. They are likely to hold their investments for a long time and are hoping to grow the overall value of their investments.

Most investors will combine a mixture of these two strategies. An income investor might, for example, reinvest their income (hopefully resulting in capital growth), or a growth investor might gradually sell their holdings to take an income.


Number icon 4

4. Types of investments

Types of investments

There are many types of investment, each with their own characteristics.

Investment types banner

Shares or funds?

There are many types of investment, each with their own characteristics. Two of the main ways to invest in the financial markets are through shares and funds. It is common to have both within an investment portfolio, but if you are new to investing funds offer some attractive advantages.

Shares

Buying a share means buying a (usually very small) stake in a specific business. Shares are generally bought by more experienced investors, or those with detailed knowledge of what they are investing in.

Pros

  • Shares allow investors to pick the specific companies in which they want to invest
  • If the company is successful there’s potential for substantial rewards– both in terms of share price increases and dividend payments

Cons

  • Picking the shares in which to invest is all down to you, and requires you to make a call on the future of specific companies
  • If you pick a share that performs badly you might not grow your investment and you could lose the money you invest

View our quick ‘Guide to Shares’ here.


Funds

A fund is an investment that pools together the money from many individuals. Fund managers then use this pool of money to invest in a wide range of assets.

Pros

  • Funds benefit from an expert manager who will decide which assets to buy or sell on behalf of the fund’s investors. This means funds can be more appropriate than shares for inexperienced investors.
  • Because they include many different investments rather than just one, funds are often less risky than individual shares, although the overall value can still fall
  • Funds offer the opportunity to have a variety of investments, whether corporate bonds, property or more unusual assets like commodities, such as gold or oil

Cons

  • Fund managers will charge a fee for their expertise and administration of the fund
  • A wider spread of investments may be a safer way to increase the money you invest, but it will return a lower amount than if you had invested in a single outright winner

Funds come in a variety of different shapes and sizes and include unit trusts, Open Ended Investment Companies (OEICs) and Investment Trusts. For more details on these explore our short ‘Guide to Funds’ – available here.

investment ideas

Investment ideas

Not sure where to invest? We offer a range of ideas to help you decide including Master Portfolios and our Wealth 150.

View investment ideas

Important information

Please remember that the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. If you are unsure of the suitability of your investment please seek advice. Tax rules can change and the value of any benefits depends on individual circumstances.

Number icon 5

5. Before you start investing

Before you start investing

It’s never a good idea to invest before you have made sure you are in a strong financial position.

Attitude to risk banner

Assess your current situation

Our advisors usually recommend you have an ‘emergency cash fund’ of between three and six months of normal expenditure before considering any investments. For those in retirement, this could be higher.

You should also avoid investing if you have short-term debts. Many forms of debt, particularly bank and credit card loans, come with high interest payments so it usually makes sense to pay off these debts as quickly as possible.

Household budget calculator

Our handy household budget calculator can help you assess your current financial situation.

Calculate

Investing is a long-term decision, and you should only invest in assets you intend to hold for at least five years.

Set financial goals

It is important to take the time to consider why you are investing. Your goal might be to save for buying a house, your children’s future or your retirement.

Understanding what your goals are, and the timeframes you consider to be reasonable to achieve those goals, is essential in deciding on the mix of your investments.

Assess the risks

Before investing, you should make sure you are fully aware of the risks. There are always investments that will make you money – but there are also ones that won’t.

Some investors will prefer low risk investments, while others will be happy to take on a higher level of risk. If successful, higher risk investments can potentially offer higher rewards.

All investments can fall as well as rise in value, so you could get back less than you invest. It is important that you do not invest money that you are likely to need to call on at short notice.

Take a look at what’s on offer

Even though there are a lot of things to think about, making an investment decision doesn’t have to be difficult. Hargreaves Lansdown offers you the choice of ready-made portfolios or accessing financial advice to help you make investment decisions.

If you’d like to take a DIY approach to investing, we offer lots of additional guides, research and resources to help you improve your investments’ performance.

If you’re unsure of the suitability of an investment for your circumstances seek advice.


Number icon 6

6. How to start investing

How to start investing

Buying shares, as well as funds and other investments, is increasingly easy.

Start investing banner

Dealing in shares and funds

Investments can be bought and sold online, through mobile apps, over the phone and by post. This is done through stockbrokers and fund supermarkets, who usually offer three levels of service:

Execution-only

Execution-only is DIY investing. Investors make their own investment decisions and place instructions with a broker, often online, who will then ‘execute’ those instructions. This way of investing usually has the lowest costs.

You can find out more about Hargreaves Lansdown’s execution-only dealing services here.

Advisory

An advisory service involves taking advice from a financial expert based upon your personal circumstances, attitude to investment risk and financial goals. Your adviser will suggest investments based on your investment goals and financial position.

Do you need financial advice?

We could help with a free no-obligation consultation.

Find out more

The cost of financial advice will vary based on how much advice you need and the amount of money you have available to invest.

Discretionary management

Discretionary management means leaving the management of your investments to the experts, with all investment decisions being made on your behalf. Discretionary management is suitable for those with larger portfolios and limited time or expertise.

The cost of discretionary management services will depend on how much money you have to invest and the types of investments made.

Different ways to invest money

A common misconception is that you have to have a large sum to start investing. While investing a lump sum is certainly possible, you can also regularly invest smaller sums, known as regular savings.

Regular savings

You can open a Hargreaves Lansdown account with as little as £25 each month through a regular savings plan. Not only is this an affordable route into building an investment portfolio, but it can help to reduce risk.

By investing little and often, you have the potential to smooth out market fluctuations, as investing monthly can 'average-out' the price paid for shares. This means the share price going up and down can actually benefit you as you could end up purchasing more shares, but conversely it should be remembered that if the share price rises and never looks back, fewer shares are purchased via regular savings and investors could have been better served by investing a lump sum.

Regular savings calculator

Use our regular savings calculator to see what your investments could be worth.

Calculate

Lump sum investment

Many people find themselves with a lump sum at some point in their lives. This could be through inheritance, a bonus or cash from the sale of a home.

Lump sum investing doesn’t have to involve a six-figure amount. When investing in funds, Hargreaves Lansdown accounts have a minimum starting lump sum of just £100, and there is no set minimum for investing in shares.

Next steps

Now you’re clear on what an investment is, the different types, your options and how to get going, you’ll need to set up an account to start investing. Find out which Hargreaves Lansdown Vantage account is best for you.

Choosing the right account

Important information

Please remember that the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. If you are unsure of the suitability of your investment please seek advice. Tax rules can change and the value of any benefits depends on individual circumstances.
Have a question?

0117 900 9000