Investing can seem complicated, but the core idea is really straightforward. Investing is about putting your money behind things that you expect to grow in value over time: whether that’s real estate, in-demand items like barrels of oil or Beanie Babies c. 1997 – or, most commonly, shares of a company (a.k.a its “stock”).
As these investments get more or less popular their prices change – and if you’re lucky those changes will keep trending upwards. Some investments also pay out without you having to cash out: bonds offer regular interest payments (more on this below), and some stocks pay regular dividends. Staying invested over time can bring with it the prospect of big returns – but there’s no such thing as a free lunch. More money means more risk: you could get a nice payday, but unlike a savings account, your investments might also make a loss 😱
What can I invest in?
The options are truly limitless, but the most popular way to get started is with some kind of investment in big companies. You could do this by buying tiny shares of your favorite firm, but you’ll be putting all your eggs in a single basket. If things go wrong and the share price falls, you could be headed for a Humpty Dumpty-style wipeout...
A better move for new investors is to invest in a fund. These are essentially baskets of shares from different companies, so they let you spread your money across a whole range of different businesses in just one click. You can buy or sell many of these instantly: they’re called exchange-traded funds, or ETFs, and are a great way to get started. And if you’ve got a hunch – like the curved fruit market going bananas – you can even get quite specialized, investing in a fund that tracks companies in a specific country or sector 🍌
You don’t just have to invest in shares of companies (also known as equities). Bonds involve little old you lending money to companies or governments, who’ll thank you for the privilege with regular interest payments. Bonds tend to offer a smaller return than equities, but they’re more stable and (barring the lender going bankrupt) you should always receive your initial payment back at the end of the bond’s term, so there’s a lower risk of losses.
You can also invest in things like currencies and commodities – raw materials such as oil, gold, and sugar. But these are more complex options – and prospective investors should, like Jimi Hendrix, ask themselves: Are You Experienced?
How do I start investing?
For UK Finimizers, the best way to get started is probably by using your Stocks & Shares ISA allowance: this lets you invest a decent amount each year without getting taxed on your gains. Such ISAs are available from a wide range of providers, who then let you buy shares and funds through their platforms (although you don’t need to use an ISA to open an account). You can access loads of historical data to get an idea of how an investment has performed in the past – but as every financial platform loves to (OK, has to) warn, past performance may not be a guide to future results ☝️
Investing is all about making decisions for the future. Old salts like Warren Buffett talk about finding great companies, putting money into them, and leaving the cash there for as long as possible. With enough patience, your investments should grow healthily – over the past ten years, UK stocks have gone up by about 70% and US stocks by 230%, which isn’t to be sniffed at.
If you really can’t wait to get your hands on more cash, however, there’s another way...