Investing for Beginners

Saving versus investing

Saving means keeping money in cash — for example in a savings account — where the balance does not fall and you earn interest. Investing means buying assets that can rise or fall in value, such as company shares, bonds or funds, in the hope of a higher return over the long term.

The trade-off is risk. Cash savings are predictable but can lose value in real terms if prices rise faster than your interest. Investments can grow more over many years but can also fall, and there is no guarantee you will get back what you put in. This is why investing is generally considered money you can leave alone for at least five years.

Common types of investment

Most everyday investing involves one or more of the following:

• Shares (equities) — a stake in a single company; the value moves with the company and the market
• Bonds (gilts and corporate bonds) — effectively lending to a government or company in return for interest
• Funds — a ready-made basket of many investments, which spreads your money and is often lower cost when it simply tracks an index
• Investment trusts and exchange-traded funds (ETFs) — other ways to hold a diversified basket of assets

Getting started sensibly

Many people begin by making sure they have an emergency cash buffer and no expensive debt before they invest. It often makes sense to use a tax-efficient wrapper such as a stocks and shares ISA, to keep costs low, and to spread money across different investments rather than betting on one.

Watch out for fees, as charges eat into returns over time. Be wary of anything promising high or "guaranteed" returns — genuine investments carry risk, and promises of certainty are a common feature of scams.