How To Start Investing

So, it’s a long post today! How to start investing, right from the basics. Every time I post about receiving dividend income, I get messages about how to start investing. How people want to, but have no idea how to start. That’s ok! Neither did I when I first started. It can seem very scary, especially as there are warnings about losing money. No one wants to lose money, right? But, if you start investing and plan to be in it for the long term, historically you’ll win out in the end.

 

Why investing? Well, if you had the cash sitting around in a savings account, then over time, it will lose money. Not in the sense that your balance would go down, but rather it would lose its value due to inflation. If you have any spare change – once you’ve got an emergency fund sorted – then putting some of that into investments will help you grow your money.

 

The first thing you need to do before starting to invest is to get a strict budget in place. You need to know what your income and outgoings are, so you can plan just how much money you can put aside to start investing. Did you know that you can invest from £25 a month? It will add up over time 🙂 so get that budget in place, and then you are in a good place to start thinking about invest.

 

Where to invest

So, I have said many times that I have a stocks and Shares ISA with Hargreaves Lansdown. I chose their platform as I think it is very easy to use, the information is easy to find and I just liked how the setup is there. There are multiple platforms to choose from, so have a look around.

 

You also need to make a decision on what type of account you are going to have for your investments. There are three main ones to choose from:

1. A stocks and shares ISA (Individual Savings Account). This is a tax free haven for your money. You can currently put £20,000 into a stocks and Shares ISA each year, but you can only put money in a single one each year. But, this is good for the tax free bit – if you earn any dividends or capital gains then they are not taxed in this account.
2. a SIPP – Self Invested Personal Pension. These are a type of pension where you make your own investment decisions. Pensions are meant for your retirement, so you normally can’t access your money until any time after your 55th birthday (57th from 2028). Pension and tax rules can change and tax reliefs depend on your circumstances.
3. a Fund and Share account. A flexible account which lets you buy, sell and hold all of your investments in the same place.

 

Like I said, I have my investments within the stocks and Shares ISA, so I don’t have to pay any tax or capital gains on my investments. It seems like a good solution!

 

What to invest in

So, there are two types of holdings you can invest in – a stock or a fund.

 

A stock is a holding in an individual company. This is seen as more high risk as you are having money held by just the one company. However, this can see more growth and the dividend returns can be higher, due to the nature of the risk being higher.

 

Or, you can invest in a fund. A fund is seen as lower risk as it is a mixture of companies within a fund. So, the likelihood of all of the companies going bust at once is extremely low, so the risk is lower. You can either get an accumulation fund, where any dividends are automatically reinvested back into the fund so you don’t receive them but the price should raise faster, or an income fund where you receive the dividends.

 

How do you choose what to invest in?

So, I can’t tell you what individual stocks or funds to invest in, as I’m not a financial advisor. You need to do your own research! But, you need to decide on a strategy first. One way is to buy holdings for them to rise in price and make money that way. Are you wanting to create a dividend income stream like I do? Could you wanting to do a mixture of the two? How much risk do you think you can handle? For example, could you take a 20% dip in your portfolio if there was a sudden drop in the markets (like recently) and manage to sit it out until the markets returned. If you don’t think you could, then you need to be low risk.

 

Another thing to consider is how long you intend to invest for. Investing is a long term thing. If you need the cash with five years, then it probably isn’t a good thing to invest it. If you can invest and hold for thirty years, then you’re good to go. Definitely plan to hold your investments for 10 years+ to see the maximum returns.

One you’ve done your research into the different types and have a vague strategy in place, then go for it. One of the biggest regrets I have is to not start investing sooner. Yes, it can seem very daunting and it can seem like you have NO idea what you’re doing but the best way is to get started. You might make mistakes early on, but you will learn by doing. If you start by putting £25 into a low risk fund and build from there, you will soon find your feet when it comes to investing. Then, you might end up having months where you receive £300+ in dividend income! It is a slow and steady wins the race type of journey. I do up-to-the minute investment updates over on my Patreon if you want to join me over there!

 

Are you thinking about investing? What is stopping you at the moment? I’d love to hear from you!

 

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