How to start investing

What is investing?

Before you can start investing your money, it's important to understand what "investing" means.

"Investing" means buying types of investment, such as shares in companies, in the hope that the value of those investments increases so that you can sell them for more than you bought them for.

Of course, you're not guaranteed to make money and there is a risk that you might want to sell your investments at a time when they're worth less than you bought them for. If this happens, you'll get back less than you paid.

If you're looking to put some money aside, you could choose to either save or invest it. Broadly speaking, saving means putting your money into an account that grows by building interest, whereas investing typically means paying your money into an "investment fund" along with other investors' money.

How does investing work?

Many people start investing their money by investing in funds. With this type of investing, you put your money in an investment fund where a fund manager chooses what investments to buy with your, and other investors', money.

Investment funds come in all shapes and sizes. One of the most common ways to start investing is by putting your money in a Stocks and Shares ISA, where it will be invested in a fund. When investing through a stocks and shares ISA, you can usually choose which fund you want to invest your money in, too.

The investment fund you choose will be used to buy various different types of investments: things like shares in companies, property and corporate and government bonds. Your money increases or decreases as the value of those assets changes.

"Low-risk" or "cautious" funds invest more of your money in safer assets like government or corporate bonds, and less in more risky assets like company shares. On the flip side, a more risky fund might invest more of your money in company shares.

Typically the more risk you take, the more your money could potentially grow by - but the greater the chance of losing money.

So, is investing riskier than putting money in a savings account?

Both come with different risks.

With investing, there is a risk of ending up with less money than you've put in. This happens if you choose to withdraw your money at a time when the assets invested in are worth less than they were when you started investing.

For example, as there’s no limit to how much companies can grow, investing in company shares has a higher potential to make you money. But it comes at a risk – companies can shrink as well as grow so you could get back less than you put in, depending on what’s happening with your shares when you choose to sell your investments (ie withdraw your money).

With a savings account (an account that grows by building interest), there's a risk that your money will grow by less than the cost-of-living goes up by.

How much money you make in this type of account depends on interest rates. You can’t technically lose money, but if inflation (how much things cost) goes up by more than you make in interest you could be losing money in "real terms", which is when the price of the things you want to buy goes up faster than the amount of interest your savings make.

Generally speaking, risk smooths out over time as the ups and downs of the stock market are less significant over longer periods of time. In fact, in every 10-year period since 2000, stocks and shares have out-grown interest rates.* We don't recommend investing if you plan to withdraw your money within five years.