Investing for beginners: what you need to know

What is investing?

When you invest your money, it means you’re buying a piece of something that could go up in value over time. And that means you could get back more than you paid for it when you choose to sell it, although there’s no guarantee.

Nowadays you can invest in lots of different things, from equities (stocks and shares) to commodities (like gold). You can also choose from options that invest responsibly on your behalf or specific ones which have an approach that suits your financial goals and values. The different types of investments are usually put in categories, known as asset classes. Generally it’s a good idea to have a mix of different types of investments from different places.

Why should you invest?

Most people invest because it gives their money the chance to grow. That’s because investing your money gives you the potential for higher returns than if you were to save it in a standard savings account. Your money is generally secure in a bank or building society, whereas there are risks involved with investing.

The longer you leave your money invested, the more likely it is to grow. This is because each year you have the opportunity to achieve growth, not only on the money you’ve invested, but also on the growth you may have already experienced. This effect of growth on growth is called ‘compounding’ and it can help to build up the final value of your investments.

Put simply, the final value of your investments depends on four main factors:

How to invest money

There are lots of ways you can invest your money. But most people investing for a long-term goal (such as retirement) will invest in a pension plan. That’s because they’re a tax-efficient way of potentially building up a pot of money over time.