Investing for beginners: The best platforms to get started as an investor

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Investing can seem daunting for beginners. But many investment platforms have removed barriers to entry in recent years, making it more straightforward to get started.

And with the Chancellor, Rachel Reeves, announcing her intention to encourage more of the UK’s savers to invest, it’s an opportune moment to explore how to get started.

There’s lots to consider before you begin – from researching investments that fit your goals, to finding the right investment platform for your needs.

Our guide explains more about investing for beginners. Find out about the types of investment you can choose, as well as key concepts such as diversification.

You can also compare the best investment platforms for beginners to try, as we give an overview of the fees, types of accounts you can open, and the investment options available through the top websites and apps.

> The best investment platforms: Our round-up of the top providers to try 

Choosing an account for your investments

You need to invest within an account. The first port of call is usually a stocks and shares Isa, because there’s no tax to pay on investment growth or profits within one. The catch is you can only save up to £20,000 every tax year in Isas, but it’s worth making use of this allowance before considering other accounts.

> Best stocks and shares Isas: Our pick of the best platforms

When investing beyond your Isa allowance, you’ll need to use a general investment account. In a general investment account, your investments will be subject to taxes such as capital gains tax and dividend tax.

But if you’re saving for retirement, you can consider opening a self-invested personal pension (Sipp). Pensions are tax-efficient, with Sipps giving you more control over your investments than other types of pension. But if you’re employed, it’s a good idea to maximise your employer’s contributions to your pension first.

> Best Sipps: Our pick of the best providers

How to start investing

Investing involves buying an asset – such as a share in a company – and holding it for the long term, with the aim of making a profit. You can invest with a specific goal in mind, such as retirement, or you might simply want to grow your wealth. Either way, many experts recommend a time horizon of at least five years. 

You might have a lump sum to invest, or would prefer to start small with a regular savings plan. Here are three ways to get going:

1. Picking stocks and shares yourself

Some investors like to pick individual stocks and shares, researching how companies have performed and taking a position on their future potential.

2. Investing in a fund

Some prefer to pool their money with other investors by placing it in a fund. You must pick which funds to invest in yourself, but fund managers then choose the individual stocks and shares within the fund. This can be a more hands-off and less time-consuming option than picking individual investments yourself – but it’s often more expensive.

3. Choosing a managed option

Others would rather delegate all decisions to someone else – this is called a managed option. You tell the provider about your goals and how much risk you want to take, then the provider chooses your investments for you and manages them over time. Again, this is more expensive than choosing your own investments.

Investment platforms cater to each of these options

Whether you want to choose investments yourself or have someone else do it for you, there are plenty of investing platforms available that make it straightforward to get started. The table below gives a selection of our top choices for choosing your own investments. 

1. Choosing your own investments at low cost

If you’re interested in the stock market, economics, and how companies perform, you could learn how to pick stocks and shares yourself. Investing apps like eToro, InvestEngine and Trading 212 have broken down barriers to entry for individual investors, making it quick – and cheap – to get started.

You don’t have to pick individual stocks

Most platforms allow you to buy baskets of investments in Exchange Traded Funds (ETFs). These funds track the performance of an index (such as the FTSE 100) or sector (such as technology). This is often called passive investing and can be a good option for beginners, because you get access to a whole range of stocks and shares through one investment. ETFs are diversified, often cheap, and you shouldn’t need to spend much time monitoring performance.

The downside is that by simply tracking markets, there’s no opportunity to outperform them. But even professionals struggle to do this, with only 14.2 per cent of active fund managers beating passive strategies over the past decade, according to investment research provider, Morningstar.

2. Investing with the backing of research and customer service

If you want to pick your own investments but would like dedicated research to help you choose them – as well as good customer service – platforms like Hargreaves Lansdown and Interactive Investor are worth considering.

These are traditionally known as ‘fund supermarkets’ because they provide easy access to investment funds actively managed by firms such as Artemis, Fidelity, Invesco, and Vanguard, but you can also buy individual stocks and shares and ETFs.

3. Having the platform manage your investments for you

Finally, managed options including Moneyfarm, Nutmeg and Wealthify build a set of investments for you, tweaking them over time to match your goals and risk tolerance.

You usually answer a questionnaire when signing up then the platform does the rest. These services are often called ‘robo-advisers’ because your investments are managed by an algorithm, with the backing of human investment teams that analyse and research the market. 

Why start investing?

Many UK savers choose to keep their money in more comfortable – but lower reward – cash savings. However, in a cash savings account, the value of your money will be eroded if the interest you earn doesn’t keep pace with price rises over time – known as inflation.

Interest earned in cash savings generally doesn’t beat inflation over the long-term, meaning savers have to look elsewhere to grow their wealth.

You have a better chance of beating inflation by investing, if you’re happy to keep your money invested for at least five years. Taking a long-term approach helps you weather rises and falls in the value of your investments. Your wealth won’t grow in a straight line, but periods of poor performance are often smoothed out by periods of investment growth.

Many novice investors don’t know where to start, but it’s quick to begin with a relatively small sum of money – and get support along the way. 

What can you invest in?

Beginners often consider starting out with a selection of investments from these groups, which form what are called asset classes.

Stocks and shares: These give you ownership of a company, entitling you to a share of its profits. They are volatile, meaning their value can rise and fall sharply over short periods. If you withdraw money during a downturn, you may lock in losses. This makes them riskier in the short term, but they also offer greater potential for long-term growth compared to other asset classes.

Bonds and gilts: Investing in bonds means you’re lending money to a company or government in return for interest payments over a set time. At the end of this period, you get back the amount the bond was issued for. Gilts are UK government bonds. Bonds and gilts are seen as safer investments, offering more modest returns than other asset classes – but they aren’t risk free.

Commodities: Investing in commodities means you’re buying a stake in raw materials that can be used to provide other goods or services, such as metals (including gold and silver), oil or natural gas. Investment performance is based on the level of supply and demand for the commodity.

There are more asset classes, including property, but the above are generally what beginners should get to grips with initially.

What is asset allocation? 

Each asset class generally performs differently under certain market conditions – in other words their performance isn’t correlated.

As a simplified example, when company shares lose their value during a market downturn, the value of bonds is generally expected to rise.

The exact mix of assets you choose is called your asset allocation. This is generally represented as percentages, for example 75 per cent stocks and shares and 25 percent bonds.

You can choose this mix based on how comfortable you are with investment risk. Keep in mind this isn’t a recommendation or advice, but as a simplified example:

• If you’re comfortable with more risk with the aim of maximising investment returns, you might choose to invest mainly in stocks and shares, perhaps with a small allocation to bonds.
• If you don’t like risk and are more cautious, you could invest more of your money in bonds.

Your asset allocation can shift as the value of your investments changes, so you need to monitor this over time – and rebalance your portfolio if necessary.

For example, if you’re a cautious investor but have shares in a company that’s performing really well, your asset allocation could be skewing more towards risky investments than you’d like.

Rebalancing involves selling some of those shares and buying less risky investments, bringing your asset allocation more in line with your target.

Some investment platforms allow you to add investments to a custom portfolio, setting target percentages for each. Your contributions are distributed according to your targets, and you can rebalance automatically when values stray from your targets.

> Six steps to do an annual health check on your investments 

How can you invest? 

It’s possible to access investments in different ways.

Buying investments directly: You can buy company shares, bonds and gilts directly, so you own the underlying asset. This requires research and skill. However, while most investment platforms allow you to buy shares directly, not all of them allow you to buy bonds and gilts.

Investing in a fund: In the UK, a fund often refers to an Open-Ended Investment Company (OEIC). Your money’s pooled together with other investors’ cash, which the fund manager uses to buy the fund’s underlying investments. A fund can target particular asset classes, sectors (such as technology) or regions (such as Europe or Asia).

Exchange-traded products: These include exchange-traded funds (ETFs) and exchange-traded commodities (ETCs). Similar to investment funds, they give you access to a basket of investments through one product, and often track an index, sector, or region. Unlike funds, they’re traded on the stock market. Exchange-traded products have grown in popularity in recent years as a low-cost way to track the performance of an index.

Investment trusts: These are like investment funds in that your money’s pooled together with that of other investors. The main difference is they’re closed-ended, with investment trusts listed on a stock exchange and issuing a limited number of shares that investors can buy. Investment trusts therefore operate under a different structure and set of rules, providing a different risk and reward profile for investors.

What is diversification?

Diversification is a broad term, but the main idea is the principle of not investing your money all in one place – whether it’s one company, one asset class, one sector, or one region.

When you have too much money invested in one place, your wealth is tied to its fortunes. If performance tumbles, you have no other investments to fall back on.

You can diversify by building a portfolio of stocks and shares from different business sectors, such as technology or financial services, and even geographical regions. Although there are lots of different strategies, traditional guidance suggests investors can achieve diversification by holding between 20 and 30 stocks.

But that kind of individual stock-picking involves doing a lot of work, so many prefer to choose investment funds instead.

Investment funds and their cousins, investment trusts and exchange-traded funds, pool investors’ cash and invest across a variety of shares or other assets. This means they are often readily diversified.

Beginners should watch out for fees when investing 

High fees eat into your wealth no matter whether you have six months, six years or sixty years of experience investing. These are the main fees to keep in mind.

Account fees

Investment platforms often charge an account or platform fee. Usually this is charged as a percentage of the value of your investments – this ranges from 0.15 per cent to 0.45 per cent for do-it-yourself options and can be as much as 0.75 per cent for managed options.

Some platforms charge this fee as a subscription instead – for example, £4.99 a month – which can work out better value once your pot reaches a certain size.

Others don’t charge an account fee at all. These very low-cost services usually give investors much less support in terms of research and customer service. So while they can be great for certain types of investor, you should consider how comfortable you are with the trade-off.

Dealing fees

Alongside account fees, platforms usually charge when you buy and sell investments. This ranges from free to as much as £11.95 per trade.

You need to think about how often you’ll be placing trades, because the fees can really rack up if you’re not careful.

Some platforms also charge for regular investments and dividend reinvestment. A regular investment usually refers to a direct debit savings plan that goes into an investment of your choice each month, while dividend reinvestment involves putting the income you receive from company shares back into your investments.

You should also check the foreign exchange fees when buying and selling global stocks and shares.

Ongoing fees for investments

When you invest in funds, including ETFs, the investment manager charges an administration fee for looking after the investments.

It’s usually referred to as the ongoing charges figure (OCF) and it’s not always as obvious as other fees – but it’s still important to check. When this fee’s high, your overall wealth can suffer over the long term.

Investment trusts work slightly differently but still have several related management and other ongoing charges you should check.