Investing: A beginner friendly summary

I consider myself a beginner at investing, even though I have been doing so since 2021. I don’t understand everything to do with stocks and shares. However, I know enough to allow me to have a low effort strategy to invest in the stock market. So, here is beginner friendly outlook on investing, from someone who wants to do it as lazily as possible, with reduced risk.

Disclaimer: I am not a financial advisor, so please do your own research. As with everything on this blog, I talk about my personal experience and how I handle it, but it is not advice.

Taking advantage of the returns form investing will be handy for the future

Investing: The fear around it

When I mention I invest, and someone says they are too scared, I completely empathise with them. Those of us in our early 20s right now (early 2020s) are aware of the financial crisis of ’08. Yeah, we weren’t working, but we witnessed the changes. Our parents’ jobs may have been affected, maybe our living situations. I remember that’s when budget cuts were mentioned, with regards to the services available at my school. It was not a good time. So, obviously it’s fine for someone to fear the stock market. That was known as the market crash. People lost money and lots of it. Why would anyone choose to risk that for themselves, having witnessed that? – Their fear is justified.

Why I invest

I have done some research and still chosen to invest. Why? Because I understand that fluctuation of the market is a risk, and possibly an unavoidable one. I also know that having a Stocks and Shares (S&S) ISA for investing, will help me in the future when I retire.

I understand that the crash in ’08 was a scary time for people who invested, and those who pulled out may have made a loss. I read the stock market is meant to be a long-term investment, and that’s what I use it for. I don’t put my house deposit or emergency fund in the market. That is purely my retirement money, whether I retire in my 60s or 70s. A stock market crash is possible again, and not easy to predict. But the way I see it, if every single stock on earth crashed completely, I believe as a human species, we will have a bigger problem on our hands. And whatever that big problem is, my money probably won’t be my biggest focus. (grim)

With being alive in an aging population, it means we are living longer. Yes, I might work longer, but I might also live longer. Having the safety net of some money in the stock market, will hopefully mean I can supplement my pension, when I am no longer working. Which is where the S&S ISA comes in.

Investing: The risks

There are a few ways to invest. Some are low risk, which mean you are less likely to lose a lot of your money. Some are high risk, which is the opposite. However, with high risk, you also have room to make a lot of money, if things go well. Whereas, with low risk if things go well, the financial gain is smaller. (I don’t know by how much).

There is also risk in your choice of market. If you put all your eggs in one basket, how much do you trust that basket to not break? However, dispersing in multiple baskets, allows diversity to counteract the losses, if something goes wrong somewhere. For example, you invest in car manufacturing companies only. But then, something goes wrong in the production, which affects the whole industry, and those companies all make a loss. Then you have made a big loss, since you took the risk of not diversifying.

How I invest

I like minimum effort for my finances. Why? Because I like to focus my energy on other things. I don’t want to be watching the stock market, every day to see whether I made a gain or not. I want to be obsessed with other things. So, I invest in index funds. These are parts of the stock market, which hold a lot of different companies in one pot, so when I give them my money, it’s distributed within that pot. This means I don’t need to go buy individual stocks if I don’t want to.

The FTSE 100 and S&P 500 are examples of index funds. They hold the top 100 companies in the UK and the top 500 in the USA, respectively. The funds have an average return of 7% every year, and are low risk. There are also funds called ‘Target fund’. I read somewhere, that there is one that is targeted for each year. This fund starts off high risk, and as the years go by, it becomes more low risk. This is because you want low risk things, when you approach retirement, so your money is more guaranteed to come back to you. Doing high risk when you’re younger, is recommended since you have more time to financially recover, if anything goes wrong. But if the market crashed 5 years before you retire, depending on how fast it recovers, you might get a loss. Which sucks.

I currently do all my investing in my S&S ISA. It’s £16000 (subtract £4k for my LISA) and tax-free. There is an option to do this in a general Stocks and Shares account, but since it’s not an ISA, you do get taxed. I don’t even reach the tax-free limit for the ISAs, so I’m not even considering this other general account. (lol)

Investing: Where to start

There are plenty of financial platforms that you can choose to invest with. You just have to check for fees, because it’s not always free. For example, I was with Vanguard until December 2024, because they increased their fees to £4 per month, for the account I had. I’m pretty sure any bank offers this service too, and it’s even easier if you already bank with them. But I think they may have higher fees, because you are paying for more convenience. So it depends on how long you want to spend researching on this.

Most of the platforms now want a minimum deposit. It can vary between £50 and £500, so check that too. Some have apps, so you can watch it daily, or there some only web-based ones. It truly depends on you, and what time you’re willing to give to it.

My choice

Like I mentioned, I have used Vanguard before. It was such an easy platform to use and manage on my own. Unfortunately, the fee changes were just unfavourable for me. But if I reach the threshold to have lower fees, I would move back, it was really low maintenance. I tried Trading 212, and it didn’t fit well with me. I barely used the app, and I didn’t enjoy the way it all looked to me, there was too much on the screen at once. It seemed very gamified, and I only saw the appeal if you were someone interested in investing in specific stocks, rather than just index funds. Right now, I am with InvestEngine. It’s ok, a little confusing, and I’m still figuring out the automated deposits of my money. But it’s manageable, I’ll see how I feel in a couple of months.

I have helped my parents with theirs, and they are on Hargreaves Lansdown. Compared to Vanguard it seems more complicated. They only allow minimum deposits of £100 per month, which is not my thing, as I am still doing £50 per month.

In summary, you do you and do your research. I have only explained what I have manged to understand, but that does not mean I am an oracle.

TL;DR

-          Here is beginner friendly outlook on investing, from someone who wants to do it as lazily as possible, with reduced risk.

-          Why would anyone choose to risk that for themselves, having witnessed some of it prior?

-          But the way I see it, if every single stock on earth crashed completely, I believe as a human species, we will have a bigger problem on our hands.

-          I invest in index funds. These are parts of the stock market, which hold a lot of different companies in one pot. Using a Stocks and Shares ISA, which is tax-free to a limit.

-          You do you and do your research – There are a lot of platforms to invest with, so find one that works for you