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Summary
- Learn the basics of the stock market working and understand the associated risks and returns.
- Though there is a whole universe of choices for your investment, including property, gold, shares, cryptocurrencies or bonds, we will look at shares and funds.
- Your portfolio has to be aligned to your short and long-term goals.
- As a thumb rule, it is best to take a small amount of risk if you are a beginner.
In case you are a beginner looking to start investing in the UK stock market, this article is for you. By learning the basic steps for safely investing your money in stocks, you could indeed be giving yourself a great future gift. However, before jumping in to buy any stocks, it's crucial to learn the basics of the stock market working and understand the associated risks and returns.
First of all, investment means putting aside a part of your money for the future in a way that you can get some return out of it. It simply means buying something whose value could rise over time. Though there is a whole universe of choices for your investment, including property, gold, shares, cryptocurrencies or bonds, we will look at shares and funds.
Shares and funds
A share simply means a small stake in a firm. If the firm does well, you make a profit and vice versa.
At the same time, a fund can either be managed or an index tracked one. While the former is managed by a team of an investment professional, the latter follows the movement of an index like the FTSE 100.
Once you decide on how much to invest, you need to figure out your money goals to build a clear investment strategy. With regards to your goals, the best plan is to focus on the long-term. This way, you get a chance to maximise your returns.
Then, once you learn about the stock market basics, you need to have your personalised stocks portfolio ready. And then simply start investing.
Understand your money goals
Your portfolio has to be aligned to with your goals. For instance, if you are nearing retirement and want a regular source of income, a good way could be to choose shares than pay out a regular dividend.
If you are lucky enough to have started investing early in your career, you have more time on your side. In such a case, try to invest in growth shares that are likely to increase in value over time.
Go as per your risk appetite
You need to understand that no investment is free of risk, and there is no guarantee that your money’s value will surely go up in a specified period of time. So, depending on various market factors, you could either make or lose money. Your returns could also fluctuate.
As a thumb rule, it is best to take a small amount of risk if you are a beginner. The only catch is that low-risk investments usually earn lower returns.
Few other beginner tips
As a thumb rule, invest for a minimum of five years to ride through any bumps in the market.
In case you hire an investment consultant for managing your funds, be watchful of the fees. Even if the percentage value appears miniscule, it might run into hundreds of pounds every year irrespective of the performance of the fund.
For direct buying individual shares as well, you may require a stockbroking service and pay them their dealing charges, as applicable.
Spread your risk by going in for a mix of stocks and funds.
And last but not least, prefer investing in bite-sized chunks rather than a big one-time investment.
