Investing for beginners

EXPLORE: Difference between savings and investing

What is investing?

Investing is about buying something with the hope that it’ll be worth more in future, usually so you can sell it at a profit. In this case, its buying stocks, shares or bonds. While there is a risk that you might get back less than you put in (if the things you buy go down in value), there’s potential to make a profit on your money over time.

What the difference between savings and investing

It’s different to saving. When you use a typical savings account, your money’s available to take out whenever you need it. It’s also not exposed to the same risks – you’ll get back what you put in, plus a certain amount of interest. The risk with saving though, is that low interest rates mean growth falls short of rising prices (inflation).

Opening a savings account is a way of putting your money to one side until you need it

When you keep your money in savings, you won't see the value go down. But if you keep money there for a long period, rising prices (inflation) means your money may not have the same buying power when you come to spend it as it did when you put it away.

It’s low risk, but lower reward.

Investing is about using your money to try and benefit from the future potential of the thing you invest in

When you invest, you tie your initial outlay – sometimes referred to as your capital – to the performance of assets like shares or bonds. As the value of the assets rises and falls, so does the value of your investment. There’s more risk, but the potential for a higher reward if things go well.

For many it’s about finding a balance between savings (where the risk is your savings might not keep up with rising price inflation) and investments (where your capital is at risk so you could get back less than you put in).

So why do people invest?

The simple reason is that investing increases the chance of growing your money over the long-term. That’s over 5 years to you and me.
People who invest know that while they can take their money back at any point, they try and keep it going for as long as possible

Is investing right for me?

You should think about the money you save as falling into three categories:

Money for emergencies

Money for planned uses

Money for long term goals

For many, it’s about getting the right balance between saving and investing, depending on what you want to use your money for, and when.
Your emergency fund and money for planned uses (or any other short-term expenses) should be kept in an easily accessible savings or bank account.

Once you've got that money set aside, you can then start planning for the future and think about how investing could help you achieve your goals.

When deciding whether investing’s right for you, and if now’s the right time for you, here are a few examples of the type of things to consider:

Do you have a medium to long-term view on your savings?
Are you happy to take a degree of risk for the potential for greater returns?
Is this money you won’t need instant access to?
Do you have any outstanding debts like personal loans and overdrafts? You should consider repaying these first before investing.
Do your age, health or circumstances give you any doubts about whether you should invest?

What’s my goal?

You might just see investing as a way to make your money work harder for you, and that’s absolutely fine.

But it can help to be clear about what you’re investing towards.
Here are 3 typical approaches:

Just looking for better returns on savings rates.
Aiming for a specific goal (like going on the trip of a lifetime) within a clear timescale
Organising your finances around an ambitious stretch goal (like paying off your mortgage early or having a new dream home to enjoy in later life).

Deciding what priorities are most important to you can help determine the best way to achieve your financial goals.

How will investing benefit me?

Whatever your goals, investing for the longer term can have a range of benefits:

Take advantage of tax benefits - Investing in a Stocks and Shares ISA means any returns are tax efficient. This means you do not pay Income Tax or Capital Gains Tax on assets held within a Stocks and Shares ISA.
Help beat inflation - Money can lose some of its buying power over the long term. Interest rates on instant access savings often don’t keep pace with inflation so you may want to consider investing to potentially reduce the long-term impact of inflation.
Pay in a lump sum to provide a regular income - Some kinds of investments are designed to provide regular income payments.

How much do I need to start investing?

You can start investing with Santander from as little as £20 per month.

Regular investing can be a great way to start. ‘Little and often’ means you build up your investments slowly and helps reduce some of the investing risk. But if you can afford to add a lump sum you’ll see the potential for better returns sooner.

How involved do I need to be?

It’s possible to be very hands-on and choose your own investments. For example, choosing specific bonds or company shares and deciding when to buy and sell them. But for most people, especially if you’re new to investing, putting your money into a fund is likely to be a more practical option.

In a fund, your money is added together with that of others and – in exchange for a fee – an expert (the fund manager) makes the decisions. Different funds follow different approaches to help you make the most of your money.

Investing through one or more funds can be particularly helpful if you’ve built up a decent savings pot and want to see if you can get better returns for it by investing but aren’t sure where to start.

As with all investments your capital is at risk, and you may get back less than you invest. Investments should be held for the medium to long term (5+ years), unless there is a fixed term that applies. The tax treatment of your investment depends on your individual circumstances and may be subject to change in the future.

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