Saving money is the only way to work toward financial independence, but have you ever considered adding investing to the mix? While getting involved in financial markets like the London Stock Exchange (LSE) or the New York Stock Exchange (NYSE) may seem daunting for newcomers, it’s getting easier for anyone in the UK to put their money to work in investment vehicles. One of the benefits of the rise in technology is a massive influx of beginner-friendly financial apps, many of which offer access to products like stocks, bonds, and investment funds.
The flip side of this increased accessibility is it can make it more challenging to decide what to do. With so many options at your fingertips, how do you know the “best “way to invest money in the UK? While there’s no single solution to this dilemma, new investors follow a few basic guidelines to help narrow their search and build a perfect portfolio for their financial future.
Things to Consider Before Investing
Unlike traders, investors play the patience game. Instead of worrying about the day-to-day price fluctuations for different assets, you must consider a multi-year mindset when figuring out the best way to invest a lump sum of money in the UK.
Having the right frame of mind and a clear set of goals will help you make more calculated moves in the market and stay on track rather than getting overwhelmed by temporary setbacks and powerful emotions.
Set financial goals
First, take a few moments to consider your overarching reason for investing. Are you putting this money to work for a specific purchase, like a home deposit, or is this a part of your retirement strategy? Perhaps you’re investing for a more near-term goal, like funding a wedding, dream vacation, or your child’s education. Whatever the case, defining your goal from the outset will help you set an appropriate investment timeframe, which will help further refine the types of investments you make to increase the odds of hitting your targets.
If you’re looking at long-term growth, experts suggest keeping your investments for at least five years. This period allows you to ride out market volatility and potentially achieve better returns. A savings account might be more suitable for shorter-term goals, like saving for a house deposit. As you near retirement (and thus, the end of your life), you do not have the luxury of time. Market corrections can wipe a big chunk of your investments and you won’t have time to wait. Therefore, as you age, shifting towards lower-risk investments is a prudent way to protect your capital.
For those who prefer safer options, consider fixed-rate bonds, notice accounts, or easy-access savings accounts. These provide more predictable returns without exposing you to the market’s ups and downs.
Assess your risk tolerance
After you know “why” you’re investing your money, you can turn your attention to “what” you’re putting your money into. At this stage, you must consider the risk you’re willing to take with your money. To put it more bluntly, how much are you willing to lose for potential gains? More conservative investments like bonds have a higher chance of succeeding, but the returns may not align with a particular investment goal.
By contrast, high-growth stocks have the potential to outperform other assets significantly, but there’s a greater degree of uncertainty, and it may take longer for these plans to pan out. Knowing the expected risk-to-return profile for each of your investments helps tremendously when assessing the success of each of your holdings.
Evaluate your financial situation
This one is very important: take a close look at your current financial status. Some investments require a minimum amount, and knowing how much you can afford to invest is essential. Prioritise paying off high-interest debts, like credit card balances or personal loans, before considering investments. This way, the returns from your investments won’t be offset by the interest on your debts. Additionally, it’s wise to have an emergency fund that covers three to six months of living expenses to handle unexpected situations.
Best Ways to Invest Money
Picking which financial products to buy is always personal, but it helps to have an overview of the basic investment categories. Each investment class has distinctive pros and cons investors consider when assessing the best way to invest a lump sum of money in the UK.
Shares – The traditional choice
If you want to become a co-owner of a business and benefit from potential profits, then consider buying shares (aka stock) in a publicly traded company. On markets like the London Stock Exchange, buyers and sellers meet every workday to exchange shares in companies of all shapes and sizes, including some of the largest multinational brands in the UK.
When you buy shares, you get a stake in your chosen brand, which gives you price exposure to that company’s profits or losses. Some stocks also have bonus features like “dividends,” cash payments you’ll receive at regular intervals just for being a shareholder.
Pros ✅
- Potential for high returns
- Control over your investments
- Dividends provide regular income
- Opportunity to invest in companies you believe in
- Capital gains can be significant
- Flexible investment options
Cons ❌
- High risk of losing money
- Requires substantial research and time
- Market volatility can impact value
- Emotional decision-making can affect performance
- Transaction fees can accumulate
- Not diversified, increasing risk
However, the volatility of stocks can be a double-edged sword. On the one hand, companies that do well could appreciate significantly faster than other investments. However, when you choose a company that performs poorly — or macroeconomic factors influence a brand’s profitability — you’ll probably feel a greater sting in your portfolio. Investors who get involved with stocks often diversify their holdings with a mix of companies at different stages of growth and in various industries to manage their expected risk.
Funds and ETFs – Well diversified and tax
If investors don’t have the time or inclination to pick out individual investments, they might consider pooling their money with others in a pre-diversified “fund.” In the UK, these funds meet the Undertakings for the Collective Investment in Transferable Securities (UCITS) standards for transparency to provide investors with peace of mind that their fund shares have gone through rigorous EU regulations.
Pros ✅
- Diversification reduces risk
- Professionally managed
- Access to a wide range of assets
- Lower transaction costs
- Convenient and time-saving
- Suitable for beginners
Cons ❌
- Management fees can reduce returns
- Less control over individual investments
- Can be affected by market fluctuations
- Potentially lower returns
- May include unwanted assets
- Tracking errors can impact performance
In “mutual funds,” an investment firm actively manages a portfolio of assets on its shareholders’ behalf and collects a regular fee for its services. There are also more passive “index funds,” which seek to track the performance of a major market index like the FTSE 100 rather than trying to outperform the market. In either case, these funds typically trade just once daily at the close of a trading session.
“ETF” stands for exchange-traded fund, and it shares many of the characteristics of mutual or index funds. The distinction between ETFs and other financial products is that they trade like shares in single companies, even though they represent ownership in a basket of assets. The greater liquidity and accessibility ETFs provide versus mutual funds may make them more attractive to some investors.
Trusts – Best for large sums of money
Investment trusts are a variation on funds, except a public company is the one that pools capital from shareholders and invests to generate returns.
Investment trusts are “closed-ended,” meaning they have a fixed number of shares. What this means is that the fund manager focuses on long-term investment strategies without needing to buy or sell assets to meet investor demand, unlike “open-ended” funds like unit trusts.
Pros ✅
- Professional management
- Diversification across various assets
- Potential for regular income through dividends
- Access to a wide range of investment opportunities
- Long-term growth potential
Cons ❌
- Management fees can be high
- Less control over individual investments
- Performance can be affected by market volatility
- Potential for lower liquidity
- Risk of underperformance compared to other investments
You can always see if an investment trust trades at a premium or discount versus its asset portfolio’s value before deciding to invest. The potential positives of investing in trusts versus other funds are that shareholders get the advantage of an active and experienced management team plus the possibility for higher dividends.
Similarities Between Investment Trusts and Open-End Funds
Both investment trusts and open-end funds gather money from many investors to create a larger pool, making it possible to invest in a variety of assets. Both types of investments are managed by professionals who decide where to invest the pooled funds.
Differences Between Investment Trusts and Open-End Funds
Open-end funds, also known as unit trusts or OEICs (Open-Ended Investment Companies) in the UK, expand and contract based on investor activity. When new money comes in, new units are created, and when investors cash out, units are cancelled. This dynamic nature allows the fund to grow or shrink in response to demand.
Investment trusts operate differently. They have a fixed number of shares, and these shares are traded on the stock market. This means that to buy shares, an investor must purchase them from another investor willing to sell. The fixed structure provides more stability for the fund manager, who does not need to sell assets to meet redemption requests.
Impact of Closed- and Open-Ended Structures on Investors
In volatile markets, open-end fund managers might need to sell assets quickly to provide cash for investors wanting to exit, which can lead to selling at unfavourable prices. This can hurt the overall return for remaining investors. In contrast, investment trusts do not face this pressure as they match buyers with sellers, allowing managers to hold onto investments without being forced to sell during downturns. This can provide a more stable investment environment during market turbulence.
Bonds/Gilts – Best for the risk-averse investor
Bonds and gilts are “IOUs” where you receive interest payments from the borrowers. The major difference between these products is that gilts only come from the UK government, while a company typically issues bonds.
Pros ✅
- Steady and predictable income
- Lower risk compared to stocks
- Preservation of capital
- Diversification from equity investments
- Government bonds (gilts) are highly secure
Cons ❌
- Lower potential for high returns
- Interest rate risk can affect value
- Credit risk from issuer default
- Lower liquidity
- Inflation can erode returns
How Do Bonds Work?
When you buy a bond, you lend money to the issuer in return for regular interest payments, known as coupons. At the bond’s maturity, you eventually get your initial investment back. You can also sell bonds before they mature, but their price can fluctuate based on market conditions.
For example, a start-up issuing a high-interest bond due to its higher risk might see its bond price increase significantly if the company becomes successful and less risky. Conversely, a company in trouble might have to offer higher interest rates to attract investors, reflecting its higher risk.
Are Bonds a Good Investment?
The risk varies. Savings bonds and gilts are low-risk, while corporate bonds carry higher risk. Ultimately, the bond’s price can change based on perceived risk, the issuer’s financial stability, and market conditions.
What are Corporate Bonds?
Corporate bonds are debt securities issued by companies to raise money. They pay interest and return the principal at maturity. The interest rate reflects the issuer’s risk. Large, stable companies offer lower rates compared to smaller, riskier firms. Junk bonds offer higher returns due to their higher risk.
What are Gilts?
Gilts are government bonds that are considered very safe. They typically pay a fixed coupon twice yearly and have a set maturity date. Index-linked gilts adjust both the coupon and the principal according to inflation rates. They offer a secure income but modest capital growth compared to other investments.
Risks of bonds and gilts
While there’s always the risk of a default, bonds and gilts are generally considered safer than investing in shares, and they have more predictable returns thanks to the fixed interest rate. The downside of these investments is that they often take longer to mature and don’t offer the same degree of capital appreciation as you might get from a stock.
Real Estate and REITs – Traditional investing with a twist
Buying UK real estate is more tangible than the other investments on this list since it represents ownership in a physical home or commercial property. While there is always the classic scenario where you could finance a real estate purchase and either hold it or rent it out, there are other ways to get exposure to this sector without needing as much upfront capital.
Pros ✅
- Potential for rental income
- Long-term capital appreciation
- Diversification of investment portfolio
- Tangible asset with intrinsic value
- Tax benefits and deductions
Cons ❌
- High initial capital requirement
- Property market can be volatile
- Maintenance and management costs
- Illiquidity – harder to sell quickly
- Legal and regulatory hurdles
For example, Real Estate Investment Trusts (REITs) function similarly to stocks, but they represent shared ownership in a real estate venture. There are also more investment apps that help UK investors purchase a stake in property development to get exposure to price appreciation and dividend returns.
REITs are perfect for those wanting real estate exposure without direct property ownership. These trusts use investors’ money to buy and manage income-generating properties. REITs are traded on exchanges like stocks, offering high liquidity. They must distribute 90% of taxable profits as dividends, making them attractive for income-seeking investors.
Peer-to-Peer Lending
For those comfortable with higher risk, peer-to-peer lending can potentially offer attractive returns. You lend money directly to businesses or individuals, potentially earning higher interest rates than traditional savings accounts.
Pros ✅
- Higher interest rates compared to savings
- Diversification by lending to multiple borrowers
- Potential for regular income
- Accessible investment for small amounts
- Flexibility in choosing borrowers and rates
Cons ❌
- Risk of borrower default
- Not covered by Financial Services Compensation Scheme
- Early or late repayments can affect returns
- Platform risk – P2P site could go bust
- Taxable income from interest
To start lending money, choose a P2P platform that suits you. You’ll need to:
- Open an account and deposit funds.
- Set your desired interest rate or agree to a rate offered by the platform.
- Lend your money for a fixed period, typically ranging from three to five years. Some platforms charge a lending fee, often around 1% of the loan amount.
Remember, investing always carries some level of risk, and that’s even more so in P2P lending.
Default Risk: Borrowers might not repay their loans. Unlike bank savings, P2P funds are not covered by the Financial Services Compensation Scheme. Some platforms have contingency funds to cover defaults, but these vary.
Early or Late Repayment Risk: Early repayments might reduce your expected profits as you’ll need to relend the money, possibly at a lower rate. Late repayments can disrupt your cash flow.
Platform Risk: If the P2P platform itself goes bust, you could lose money. However, FCA-regulated platforms must keep lenders’ funds in separate accounts to mitigate this risk.
P2P Lending and Tax
Earnings from P2P lending are considered taxable income. Most people won’t pay tax due to the personal savings allowance (£1,000 for basic rate taxpayers and £500 for higher rate taxpayers). Any interest above these thresholds is taxed at your marginal rate.
An Innovative Finance ISA (IFISA) allows you to earn tax-free interest from P2P loans. The overall ISA limit is £20,000 per tax year, shared among all ISAs, including IFISAs, Cash ISAs, Lifetime ISAs, and Stocks and Shares ISAs. Interest and gains within an IFISA are tax-free and don’t need to be declared to HMRC.
Some platforms offer an ‘autobid’ feature, allowing you to set parameters for automatic lending, such as the amount to lend per borrower and the minimum interest rate you’re willing to accept.
Investing via Stocks and Shares ISAs
A stocks and shares ISA, also known as an investment ISA, allows you to invest in shares, bonds, and other assets while enjoying tax-free growth. Each adult in the UK has an annual tax-free ISA allowance of £20,000, which can be fully allocated to stocks and shares ISA or split among different types of ISAs. The primary benefit of a stocks and shares ISA is that you don’t pay any dividends, capital gains, or income tax on the profits or interest earned from your investments.
I’ve found stocks and shares ISAs to be a great option for long-term savings goals. While they carry more risk than cash ISAs (we’ll analyse these later), they also offer the potential for higher returns.
Who can open one? Anyone 18 or over and living in the UK is eligible. You can’t open one for someone else—it has to be in your own name.
There are two main types of stocks and shares ISAs:
- Self-selected: You choose exactly what to invest in and when to buy or sell.
- Managed: A professional makes investment decisions based on your risk tolerance and goals.
What can you invest in? The options are quite broad:
- Individual company shares
- Investment funds
- Government and corporate bonds
- Unit trusts
- Exchange-traded funds (ETFs)
When choosing a stocks and shares ISA, I consider three key factors: control, choice, and cost. How much involvement do I want in managing my investments? What range of assets does the provider offer? What fees will I be charged?
Investing through a stocks and shares ISA offers some great benefits:
- Tax-free returns
- Potential for higher growth than cash savings
- Flexibility to invest in a wide range of assets
- Compound growth over time
If you’re looking for alternatives, pensions and Lifetime ISAs also offer tax benefits for long-term savings. However, they come with restrictions on when you can access your money.
For short-term savings or if you’re very risk-averse, a regular savings account or cash ISA might be more suitable.
Why Invest?
The primary reason people invest is to make their money work for them. Putting money into financial vehicles like stocks, index funds, or ETFs provides greater opportunity for future upside and passive income. Although investors have to take on risk, they can calculate their expected volatility by reviewing the historical rate of return for a particular asset category and spreading their funds between multiple holdings.
With a well-crafted portfolio, investors could gain on the UK’s annual inflation rate, preserving their purchasing power for the long term. Investments also make it easier for people to achieve their financial milestones, including buying a house, paying for a car, or enjoying a stress-free retirement.
Finding a purpose for investing
Every investor needs a “why” to get involved in the markets. What’s the purpose behind taking on this potential risk, and how will you measure success? Also, what’s the timeline you need for your investments to pan out to achieve your goals?
For example, if you’re building a retirement portfolio, you have decades for investments to grow, which gives you greater leeway to mix and match assets ranging from reliable passive income plays to more speculative growth stocks.
By contrast, if you want funds faster for a specific goal, such as paying for a trip, you may need to make more calculated, low-risk moves with higher odds of near-term growth. Knowing the purpose of your investments helps you make more clear-headed decisions with the highest success rate.
A Few Final Things You Should Know About Investing
You can go crazy reading books and watching courses on the “science” behind investing, but there’s no single formula for building a great portfolio. Instead, investors typically follow general techniques and principles to manage their risk, analyse their results, and make adjustments along the way.
Diversification: A common strategy investors lean on when focusing on the long term is “diversification,” or investing in multiple assets in different categories. The advantage of a diversified portfolio is it protects against market volatility because you don’t have all your capital concentrated in a specific company or market segment. The more diverse a portfolio is, the greater the odds you won’t experience extreme swings down since the uncorrelated assets provide a buffer against losses.
Longevity trumps timing the market: Trying to guess when to jump into the market is tricky, even for professional day and swing traders. However, history has shown that by consistently investing over a long time — especially in major market indices — you tend to benefit from the economy’s overall upward trend. While it sometimes takes years to see this play out, odds are you will be rewarded for patience if you choose asset categories with a track record for steady, long-term performance.
Lump sum versus dollar-cost averaging: Investors have differing opinions on the best way to invest money in the UK, but two common strategies include lump sum buying and dollar-cost averaging (DCA). In the first approach, you buy your entire position in an investment right from the start; for DCA, you set a schedule and repeatedly buy into your preferred assets. The advantage of lump sum investing is that you have lower tax and fee implications since you only enter once. On the downside, you risk choosing an inopportune moment with your only purchase. By contrast, DCA is the best way to invest small amounts of money in the UK since it helps smooth out your average cost per share, but also carries a higher fee burden.
Fees and Charges: Speaking of fees, be sure to run the expected transaction costs and management fees when calculating your price analysis. While they may not seem like a lot each time you pay them, these fees will add up over time and affect your potential returns. By running the numbers of your fees, you’ll have a more level-headed understanding of what to expect from your investments.
Save Or Invest? What to Do
For those unfamiliar with investing, taking money out of savings and putting it into something that isn’t guaranteed may seem like too much of a risk. While it’s never a bad idea to “play it safe” and put cash aside, there are limitations to being too reliant on this method.
No doubt, savings accounts offer the best liquidity and don’t cost anything in fees, but they can’t provide the same potential for price appreciation or passive income that you can get with investments. Even though there’s greater risk with any investment, you won’t see your money go as far if you keep it tucked away in savings.
Differences between saving and investing
The critical difference between saving and investing lies in their risk-to-return profiles. Saving gives you a few major guarantees on your money. First, you can withdraw your cash whenever you need it for purchases or emergencies. Second, as long as your bank follows the Financial Services Compensation Scheme (FSCS), you’re guaranteed to have money in your account up to £85,000 per depositor, even if the bank defaults. Savings accounts also offer guaranteed interest rates, so you always know how much you earn from your stored funds.
However, you’ll pay indirectly for all the security savings accounts offer. Even though you’re not paying fund managers, you’ll lose out on the potentially higher returns that investments like stocks, bonds, or real estate offer. True, investments don’t come with guarantees, but they each have varying historical track records of success and differing risk profiles to help you gauge the probability of a lucrative trade.
Also, while investments aren’t as liquid as savings, they aren’t meant to be withdrawn on a whim. People who buy into investments should have a multi-year outlook to give their assets time to mature and reach the level they want to achieve their financial goals.
Inflation explained
Inflation is another big reason you should be cautious about how much of your portfolio you keep in savings. By now, you’ve seen how the prices for goods and services rise over the years. For example, back in the 1960s, you could buy a loaf of bread for 5p, but now that costs closer to £1.20.
As economies grow and expand, there’s a tendency for prices to rise, and inflation is the measure of this average increase in prices. The problem with saving is that it’s more challenging to outpace the average inflation rate in the UK, often meaning you’re guaranteed to lose purchasing power as the years wear on. Even if you keep putting money in your savings account, it’ll keep getting swallowed by the inflation rate, meaning you won’t be able to purchase as many goods and services with this money later on.
By contrast, investments offer the potential for a higher rate of return, which gives you greater odds of matching or even beating the average inflation rate. Investing aims to outpace inflation, so you have a strong purchasing power whenever you decide to withdraw your funds. Again, there are no guarantees your investments will do better than the inflation rate, but you’re guaranteed to lose out to inflation if you solely focus on saving money.
When to save and when to invest?
Deciding whether to save or invest boils ultimately down to three aspects: your goals, timeframe, and comfort with risk. If you’re saving for something short-term, like a holiday next year, saving is your best bet. This is because investments need time to recover from market dips, usually recommended at least five years.
For long-term goals, like retirement, investing is the smartest move. It allows your money to grow through compound interest and helps combat inflation. Workplace pensions in the UK are a great example of this, as they invest contributions to build a larger retirement fund.
For medium-term goals, such as buying a house in ten years, your decision should weigh heavily on how much risk you’re willing to accept. Savings accounts offer stability with fixed interest rates, protecting your money from market fluctuations, though inflation might erode its value over time. Current savings rates can reach up to 8% for regular savings accounts, which is quite competitive. However, you should calculate at least 2.5-3% inflation per year.
Investing carries the potential for higher returns but also comes with the risk of losing money, especially in the short term. If you’re okay with the ups and downs of the stock market (and trust me, the stock market has a lot of ups and downs) and have at least five years to let your money grow, investing might be more suitable for achieving higher growth.
Best Ways to Save Money In the UK
As we’ve seen, saving money is a great way to fulfil our short-term goals. However, there is still room for some small profits, even when the timeframe is much smaller than 5 years. Even though you likely won’t beat inflation, the gains you will make are better than nothing.
Easy Access Savings: These accounts are perfect for emergency funds because they let you access your money anytime. However, they come with lower interest rates, making them less ideal for long-term savings. Many platforms offer this option nowadays.
Notice Account Savings: With these accounts, you must give notice—like 30 or 60 days—before withdrawing money. They generally offer better rates than easy-access accounts. But they don’t lead the market in rates, and accessing your cash quickly in an emergency can incur penalties.
Fixed Rate Savings Accounts or Bonds: By locking your money away for a set period (one, three, or five years), you can benefit from higher interest rates. This option suits medium-term savings goals. Also, safe as they might be, these types of savings are not entirely risk-free.
ISAs (Individual Savings Accounts): Cash ISAs let you save without paying income tax on the interest. Basic-rate taxpayers have a £1,000 annual savings allowance, making ISAs more beneficial for higher-rate taxpayers or those with substantial savings. Cash Lifetime ISAs offer a 25% government bonus on savings up to £4,000 annually, provided the funds are used for buying a first home or for retirement after age 60.
Regular Savings Accounts: These accounts reward you with higher interest rates if you commit to saving a specific amount each month. They are often tied to current accounts and can offer competitive rates. Restrictions usually include limits on withdrawals and the total amount you can save.
Maximising Interest: To get the best return, find the highest interest rates that align with your need for access to funds. Bank-linked savings often provide higher rates, so explore options offered by your bank or consider switching. Regular savers can offer good rates but come with saving limits, so using multiple accounts can be beneficial. If you can afford to lock your money away, fixed-rate options typically offer better rates than easy-access accounts.
Investments and Age: Making Time Your Friend
Investing can be a powerful tool for capital appreciation at any stage of life, but the strategies and considerations naturally change as we age. Let’s explore how age impacts investment decisions and what factors should be considered to maximise returns and minimise risks.
Investing for beginners
When you’re young, time is your greatest ally in investing. Starting early allows you to take full advantage of compound interest, where the interest on your investment earns interest itself. A famous adage often wrongly attributed to Albert Einstein says that compound interest is “the most powerful force in the universe.”
Even though Einstein was never that interested in investing, there is some truth to this saying. The longer your money is invested, the more it can grow exponentially. For example, investing £1,000 at an annual return of 5% will grow to over £160,000 in 40 years just by adding £100 per month.
Investing in your 30s and 40s
In your 30s and 40s, balancing growth with risk management becomes crucial. While you might still lean towards growth-oriented investments like stocks, diversifying your portfolio to include bonds and other relatively stable assets can protect against market volatility. Many people in this age group also consider investing in property, as it can provide both rental income and capital appreciation over time.
Investing in your 50s and 60s and beyond
As you approach retirement, the focus often shifts from growth to preservation of capital and generating a reliable income stream. This is a time to reassess your risk tolerance. Investment choices might include a mix of bonds, dividend-paying stocks, and real estate investment trusts (REITs), which offer regular income without the hands-on management required for rental properties.
The Importance of Retirement Planning
Regardless of when you start investing, having a clear retirement plan is essential. Many are unaware of how much they need to save to maintain their desired lifestyle in retirement. The average pension pot in the UK is £61,897, which is often insufficient for a comfortable retirement. Tools like retirement calculators can help determine how much to save annually to reach your goals. For instance, to retire comfortably at 65, you might need a pension pot of £660,000
Adjusting Strategies as You Age
Investing is not a set-it-and-forget-it activity. Your strategy should evolve as you age and as your financial situation changes. Regularly reviewing and adjusting your portfolio can help ensure that your investments align with your changing risk tolerance and retirement goals.
Best Investment Platforms for UK Citizens
Here are some of the top investment platforms in the UK for 2024.
Hargreaves Lansdown It’s a bit like the Rolls-Royce of investment platforms – not the cheapest, but you’re getting top-notch service. They’ve got a whopping £135 billion in assets under management, which speaks volumes about their trustworthiness. What I love about HL is their comprehensive range of investment options and stellar educational resources. If you’re just starting out, their guides and tutorials are gold.
interactive investor Now, if you’re looking for something more budget-friendly, Interactive Investor might be right up your alley. They’ve switched to a flat-fee model, which can be a real money-saver if you’ve got a sizeable portfolio. According to a recent study by Lang Cat, II could save investors with £100,000 or more up to £30,000 in fees over 30 years compared to some percentage-based fee platforms. That’s not pocket change!
Freetrade For the tech-savvy among us, Freetrade is making waves with its commission-free trading model. It’s part of a new breed of ‘neo-brokers’ that are shaking up the industry. A report by Deloitte suggests that these platforms are particularly appealing to younger investors, with 58% of neo-broker users being under 34 years old.
One thing I’ve noticed is that more and more platforms are offering sustainable investing options. Nutmeg, for instance, has seen a 300% increase in sustainable investing assets under management since 2019. It’s clear that ethical investing is no longer just a niche interest – it’s becoming mainstream.
Investing Basics: The Need-to-Knows
Risk vs. Reward: Investing involves risk. Unlike a savings account, there’s no guarantee you’ll get back what you put in. You could see big gains or suffer losses.
Diverse Investment Options: You can invest in mainstream assets like shares, bonds, funds, and property, or more exotic ones like vintage cars and fine art.
Stock Market Investing: Most people start with stock markets, buying shares in companies. It’s essential to remember that investing is a gamble; you could make significant gains or lose everything.
Long-Term Approach: Investing isn’t like the dramatic portrayals in films. It’s usually a slow, steady process where you keep an eye on your investments over time.
Understanding Stock Markets: A stock market is where you buy and sell shares. Companies offer shares to raise money, and investors buy them, hoping the company’s success will boost share value.
Share Price Fluctuations: Share prices change based on company performance, economic conditions, and investor sentiment.
Potential Growth: While fixed-rate savings bonds offer guaranteed returns, they often don’t beat inflation. The stock market offers the potential for higher returns but comes with risk.
Investment Returns: The S&P 500, a major stock index, has an average annual return of 10.7% since 1957, but this includes years of significant gains and losses.
Algorithmic Investing: The Future of Investing
Algorithmic trading, or algo-trading, has surged in popularity in recent years. Rather than investors manually executing orders, pre-programmed instructions handle transactions based on time, price, and volume. This automated approach eliminates emotional decisions, reduces manual errors, and offers rapid trade execution.
For those unfamiliar with investing, algorithmic investing, including the use of robo-advisors, offers a promising solution. Robo-advisors create portfolios based on your risk profile, making investing more accessible.
Interestingly, research indicates a strong preference among younger investors for robo-advisors over traditional ones. Many 18-44-year-olds believe that digital tools, including ChatGPT, are the future of financial advice. Of course, while AI tools are powerful, they are not infallible and can be influenced by misinformation and inherent biases.
Frequently Asked Questions
What is the best thing to invest money in the UK?
Investing in stocks and shares of major companies can offer strong returns and high dividend yields. Buy-to-let property remains a solid choice, with potential for high rental yields. Diversifying with funds provides steady returns and spreads risk.
Where should I put £20k in savings in the UK?
I’d recommend spreading that £20k across a few options for the best returns and safety. High-interest savings accounts are a good start – some offer up to 5% interest currently. Cash ISAs are tax-efficient and worth considering. You could look into stocks and shares ISAs for potentially higher returns, but be aware of the risks.
Premium Bonds are another popular choice, offering tax-free prizes instead of interest. Don’t forget to keep some funds easily accessible for emergencies. Recent studies show diversifying savings can lead to better overall financial health. Always compare rates and terms before deciding.
What is the safest investment with the highest return in the UK?
There’s no perfect investment that’s both super safe and high-yielding, but I can suggest some solid options. Premium Bonds are incredibly safe, backed by the government, with a chance to win tax-free prizes. For guaranteed returns, fixed-rate savings bonds from reputable banks offer decent interest rates with FSCS protection.
Index funds tracking the FTSE 100 or All-Share provide good long-term growth potential with moderate risk. If you’re willing to lock money away, some fixed-term cash ISAs offer competitive rates. Recent studies show that a mix of these investments can provide a balanced approach to safety and returns. Always consider your risk tolerance and financial goals when choosing.
How can you start investing in the UK with little money?
Starting to invest with little money in the UK is easier than ever. I’d recommend looking into micro-investing apps like Moneybox or Plum, which let you invest spare change from your purchases. Robo-advisors like Nutmeg or Wealthify offer low-cost, diversified portfolios with small minimum investments. For DIY investing, platforms like Freetrade or Trading 212 allow you to buy fractional shares with no fees. Consider regular investments in low-cost index funds or ETFs to benefit from pound-cost averaging. Research shows that starting early, even with small amounts, can lead to significant long-term growth thanks to compound interest. Remember to always invest within your means and understand the risks involved.
