What Is Investing?

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Investing

When you hear “My investments'“ you probably think of a millionaire buying stocks on Wall Street. But recently the landscape for investing has changed drastically.

It doesn’t have to be shares. Investing could be buying £1 of Tesla Stock, buying a pair of Yeezys for resale or obtaining a rental property. It comes in all shapes and forms.

However, with the rise of free trading websites and investment apps at your finger tips, almost anyone can now begin an investment portfolio.

Here, we will focus on investing in shares and the many different ways you can do this.

Isn’t it just for the rich?

In short, no.

The saying “you need money to make money” has some truth to it when looking at the world of investing, but it isn’t a fact.

Shares grow in value (hopefully) over time, so if you bought £100 of shares and it went up 20% in a year of course you would have made more money if you bought £100,000 of the same shares. However, your common sense should tell you that really. But if you turned £100 into £120 that is a great return on your money, just as much as £120k on £100k.

Investing can equally go sour, and the shares can lose value. If they went down in value by 20% which person would you rather be now? The guy that lost £20 or the one that just wiped £20,000 off his net worth?

It’s all about how the two above examples make you feel - are you a risk-taker?

If you can afford to lose the amount you are investing then you really have nothing to lose but if you need that money to live and you are expecting a big return from what you are putting in that’s where things begin to take a turn for the worse.

You should treat investing in the stock market like placing a bet. You wouldn’t bet all your money on a horse that should win, because anything can happen, it could fall, the rider could unseat etc. Nothing in life is guaranteed but people will happily lose £20, £30 even £50 on a bet because they enjoyed the thrill of it. Investing could be just as good for them, whilst the payout may not be 100-1, over years you could get back your money + substantial gains.

Of course nothing is guaranteed, so you should only ever invest money you would be comfortable with losing! Investments can just as easily go down in value and you should consider your attitude to risks before investing.

How do I invest?

This is not an easy question to answer - there are many different ways but let’s have a look at a few.

Invest in yourself

It may sound cringe-worthy but the best investment you can ever make is in yourself. Think about it, if you read more, workout more or become a better person then you improve your knowledge, strength and social skills. This can lead to you getting a better job, living longer and excelling at interviews. All of these things should lead to you earning more money.

Before you even think of investing in anything else you should consider if you can use the money to better yourself first, Spending £100 on books or education will likely give you a far higher return on investment than any stock market.

But if you are in a position where you are comfortable then investing in stocks and shares may be an option, let’s have a look at how you can do this in the UK.

Tax free - Stocks & Shares ISA

As spoken about in our page on ISAs here Individual Savings Accounts are a great way to earn bank interest without paying tax on the income you receive. So how does this help with Investments?

Well, there are accounts called Stocks & Shares ISAs which allow you to invest your money (up to £20k across all ISAs per tax year) into the stock market and not only are the dividends (shares of company profits you receive) tax free but so are any gains that you make when you sell the shares. Normally these gains would be liable to CGT if they exceed a certain amount within a year.

If you aren’t going to pay more than £20k into your other ISA products (Cash, Lifetime etc.) then this is the best way to begin your investment journey without having to worry about taxes.

With the introduction of fintech companies such as Nutmeg and Moneybox you can now invest into Stocks & Shares ISAs with as little as £1 and they will do the hard work of picking where to invest it for you. Open a Nutmeg account with our link here and receive 6 months fee-free.

If you want to be in control of your money and not have it invested for you, Trading212 and Freetrade are great options to explore. Trading212 allows you to save in a S&S ISA for free and access to thousands of stocks, whilst Freetrade charges monthly for a S&S ISA and has less stocks this could be a great option if you want to open a General Investment Account.

Many traditional investment providers are also available but may charge a fee. If you have questions on the other types of providers available be sure to let us know.

Maxed out your ISA? General Investment Account

Unless you have used your full £20k per tax year ISA allowance you will likely not want to look at this, as any gains exceeding the Annual Allowance for Capital Gains will be taxed. However, these may offer more flexibility than your standard Stocks & Shares ISAs as you can choose long-established fund managers where you can buy shares, ETFs, bonds etc.

If you are just looking to invest £100 or so, or come to grips with investing and how it works General Investment Accounts can be useful for this as you would be unlikely to breach the £12k gains on disposals or the £2k in dividends received making you liable to pay tax. If this is an option you are after, the previously mentioned apps Nutmeg, Trading212 and Freetrade could be just what you are after.

Pensions

A lot of people will say they aren’t an investor, but if you pay into any pension then your money is being invested on your behalf. Whether this be through a workplace pension which you have never seen or through a personal pension pot which you manage yourself. Your pension contributions are invested because they can take full advantage of long-term growth, with the average person working for nearly 50 years you can see how your wealth can accumulate quickly through a pension fund.

For more on pensions, check out our guidance here.

Still a little unsure?

If you want to learn more about investing, or want some further guidance on how these products work please drop us an email. If you would prefer to receive the advice of a financial adviser or a tax adviser we can also provide you with a list of trusted firms.

Have we missed anything? If there are any questions you may have or something you think would be useful to know please let us know!