An Introduction to Investing for Beginners

If you’re saving for a goal that’s more than five years away, investing a portion of your money could help it grow over time and stay ahead of inflation.

Protect yourself

What are investments?

Investments are assets you purchase or allocate your money to with the goal of earning a return.

Most investments fall into four main categories, known as ‘asset classes’, based on their similar features:

• Shares – owning a portion of a company.

• Cash – savings held in a bank or building society account.

• Property – investing in real estate, either residential or commercial.
• Fixed Interest Securities (Bonds) – lending money to a company or government in exchange for regular interest payments.

Need guidance on making smart investment decisions?

Unsure whether investing is right for you or not sure how to begin?

Learn how to understand risk, diversify your portfolio, and find regulated investment opportunities by visiting the Financial Conduct Authority’s InvestSmart website.

The collection of assets an investor owns is known as their portfolio.

A common strategy to reduce overall risk is to diversify — that is, to spread investments across different asset classes. This can help protect your portfolio from poor performance in any one area.

There are many ways to invest, but a popular approach is through collective or pooled funds, such as unit trusts, OEICs (Open-Ended Investment Companies), or Investment Trusts.

Find out more about stocks and shares in our guide

Returns

Returns are the profits you earn from your investments.

Depending on the type of investment, returns can come in various forms:

• • Dividends from shares
  • Rental income from property
  • Interest from cash savings or fixed interest securities
  • Capital gains or losses, which are the difference between what you paid and what you sell for

An instant access cash account lets you withdraw money at any time and is generally seen as low-risk. However, investments like bonds, shares, or property may fluctuate in value but typically offer higher growth potential over the long term, though the returns will vary by asset type.

Learn more in our guide: “What’s the Difference Between Saving and Investing Your Money?”

Budget planner

To help you manage your money, try our free and easy-to-use Budget planner.

How fees reduce investment returns

Managing investments requires both time and money, and service providers—like fund management companies—typically charge fees for their services.

These costs can reduce your overall returns, so it’s important to understand them before investing.

When selecting a financial adviser, consider both upfront and ongoing fees. Also review the costs tied to the investment itself, including the Annual Management Charge and the Ongoing Charges Figure (OCF), which covers additional expenses. Being aware of these charges will give you a clearer picture of the true cost of managing your investments and receiving professional advice.

Risks

No one enjoys risking their savings, but the reality is that all investments carry some level of risk.

At its core, investing involves a trade-off: higher potential returns usually come with higher risk, while lower-risk options tend to offer more modest gains.

The level of risk varies depending on the type of investment:

• Savings accounts are considered secure but may lose value in real terms over time, as interest earned might not keep up with inflation.
• Fixed interest securities can decline in value if interest rates rise, making their fixed returns less attractive to new investors.
• Stock market investments typically outperform inflation over the long term, but prices can fluctuate. If you need to sell during a downturn, you might face losses.

When investing, consider how much fluctuation in value you’re comfortable with and how much risk you can afford to take without compromising your financial goals.

Smart investing means building a balanced portfolio that aligns with your risk tolerance—a strategy known as asset allocation. For help crafting the right mix, consider consulting a regulated financial adviser.

Help with the cost of living