What is investing?
Let’s start at the beginning – what actually is investing? Well, it’s when you use your money to buy things that you hope will increase in value over time. If they do, you can sell them down the line for a profit.
The things that you can buy are called ‘An asset is anything that holds value and which can be bought and sold freely.’ in the financial world, and there’s quite a few of them. Some of the big ones include Stocks, also known as shares or equities, represent units of ownership in a company., Funds, also called ‘tracker funds’, are financial instruments that have been set up to match or ‘track’ the price of a market index. Investing in a fund lets you get exposure to different financial assets like shares and bonds, without having to buy them directly., and The financial world’s version of an ‘I owe you’, bonds can be issued by companies or governments. You’d invest in bonds to receive an annual interest payment, plus the initial value of the bond back when it ‘expires’..
- Stocks lets you own a piece of a company
- Funds spread your money across a group a different companies
- Bonds let you earn annual interest, plus a lump sum of money when the bond expires
Steps to take before you invest
Now the fun bit. You’re thinking about investing, but have you got your bases covered? The most important thing to do before you start investing is making sure you have an emergency fund in place.
This should cover your regular outgoings (rent, bills, food, fun) for three months, minimum. Think of your emergency fund as the first step on your personal finance journey. Once it’s in place, you’re ready to start working on your other financial goals.
Why do people invest?
In a nutshell, people invest to grow their money over time. And compared to saving, the returns on investing over time can be much higher.
Investing returns are best looked at over the long term, usually 5 years as a minimum. What you’ll soon realise is that over longer timeframes, investing returns tend to trend upwards in a smooth curve. So while market declines might seem scary when they happen, a useful metric to use when looking at stock market performance is average annual returns. That’s because the effects of market declines will become mixed in with the effects of market rises.
For example, by investing in Moneybox’s Adventurous Starting Option for 10 years between 2013 and 2023, you’d have achieved an average annual return of 10.1% – which is well ahead of inflation.*
So over time, investing returns can be much higher than the returns of saving – which is why people invest. But, here we need to remember that saving and investing are meant to help you achieve different goals, and you should have an emergency fund in place before you start investing for the long term.
How to start investing
To start investing, you’ll need to open an investing account. And when you open an investing account, it’s best to go with a Stocks & Shares ISA if you haven’t already opened or paid into one in the current tax year. That’s because any investment gains you make with a Stocks & Shares ISA are free from taxes that you might otherwise have to pay.
The Moneybox investing proposition was built with one thing in mind: to make investing easy, whether you’re starting from scratch or a seasoned hand. You can jump in with your choice of three Starting Options, which are just that – a starting portfolio of investments, handpicked by experts.
Or, if you want to take more control over your investments, you can customise your Starting Option to access Moneybox’s full range of funds, and if you’re investing with a Stocks & Shares ISA, our range of US stocks.
You can open a Stocks & Shares ISA in minutes, just go to Settings > Accounts in-app. Plus, if you’ve got investments in an ISA elsewhere, you can request a transfer entirely in-app after you’ve opened an ISA with Moneybox. When you transfer, there are no paper forms to fill out, and it only takes a few minutes. Just go to Settings > Transfer to get started.
* Past performance is not a reliable guide to future gains. You may get back less than you invest. Annual returns are net of fees and based on the scenario of £1,000 invested in 2013 followed by monthly deposits of £50.
All investing should be long term (min. 5 years). The value of your investments can go up and down, and you may get back less than you invest.
Tax treatment depends on individual circumstances and is subject to change.