Investing is the process of using your money to help grow a business. To invest, you give money to a business and in exchange they give you a share of the business, this is where the term share holder comes from. Due to how money works in the financial system, if you leave money in a bank earning a small amount of interest, inflation eats away at this money making it less valuable overtime. If you’ve ever heard about how you could buy a home in 1940 for £5000 but now they’re on average £300,000, this is due to inflation. Having a well thought out investment plan can not only counteract inflation, it can generate you money. The aim of this guide is to teach you how to do that.
What is investing?
In its simplest definition, investing is buying things in the hopes the price goes up. If I buy an apple for 10p today I could hope that it goes up to 11p tomorrow. This is investing. The most common method is to use the stock market. A stock market is just the same as a food market except instead of selling food they sell little slices of companies, called shares. If Facebook is worth £100 and I buy 1 share at £10 then I own 10% of Facebook. Investing has many potential forms from buying shares, setting up your own business or even overpaying your mortgage (Read my guide on that here) but this post will focus on bonds, shares and funds specifically.
I’m already saving money, isn’t that investing?
Saving money every month is great and shows you’re making real steps to changing your financial future but putting money into a savings account is not investing. When you deposit money into a savings account the bank turns around and uses that money to do the investing. They pay you a couple of percent and keep the rest! Once you learn how to invest you can keep all the profits for yourself. To display the power of compound interest, if you started investing £100 a month at 20, gaining 7% interest a year, by the current retirement age of 67 you would have £425,128.68. If you start just 10 years later at 30, by the same retirement age of 67 you would have £207,095.59, a difference of over £200,000 in just 10 years! Can you afford to burn £200,000? I certaintly can’t.
Why you should start investing.
There’s a famous saying “The best time to start investing was yesterday, the second best time is today”. This is because of a phenomenon called compound interest. This is essentially the way that money you earn from investments then get reinvested which grows how much you earn, with the cycle repeating. Investing is incredibly easy in 2025, long gone are the days of expensive brokers requiring phone calls to place an order. There are now apps that let you invest fee free and are backed by financial regulators and insurers ensuring that your money is protected in a similar way to a bank. It should be noted though that unlike a savings account, your money is not protected from bad decision making. If you make a bad investment and your account goes to 0 then you are not entitled to compensation. Money in a savings account is protected. If you put £1000 in you’re guaranteed to get the money back.
Understanding risk.
Risk as defined by a dictionary is ‘a situation exposing to danger’. Danger sounds scary but every single thing you do on a day to day basis carries a potential risk. Every time you drink water you have a risk of choking. Every time you walk down the street you have a risk of tripping and breaking a leg. Two things are crucial to account for when dealing with risk. What is the chance of an event happening and how can we mitigate that risk? Going back to the previous example of the risk of drinking water you mitigate the risk by ensuring you are sat up when you drink and that you are alert. Just like how when you walk down the street you mitigate the tripping risk by wearing appropriate footwear and watching where you walk. All these steps mitigate the risk and make it so that in your day to day life you can go about your life with the risk not resulting in a negative consequence. The same process occurs when investing. You analyse the risk of an investment and take measures to reduce that risk. Risk sounds scary, but it is a good thing. Risk brings reward. Something like a government bond (loaning money to the government) has a very low risk rating when you invest in reliable trusted countries like the UK, US, Canada etc but carry a higher risk rating if you take a bond out in say Zimbabwe. Due to this, UK bonds have a low return on investment whilst bonds from a country like Zimbabwe or South Africa have a higher return on investment but you stand a far greater chance of losing your money. Your risk management decision would essentially be “am I willing to lose my £1000 to gain £100 or would I prefer to only get £25 on my £1000 but have a higher chance of getting my money back”.
So where do I invest to mitigate risk?
This is a very personal decision. My risk tolerance (how willing I am to accept higher risks) is likely very different to yours. One of my favourite hobbies is sky diving, whilst yours might be snuggling up on the sofa reading a book. This is why it is so difficult to mitigate risk for someone else, its a very personal feeling. The general advice, is to have a higher risk tolerance when you’re young and then slowly transition to a lower risk profile as you come close to retirement. This allows you to maximise investment gains when you’re young and then secure your income for retirement as you get to that age. For me persoanlly, I have around 85% of my portfolio in the S&P500 (America’s top 500 companies) and then the remaining 15% spread between individual stocks and a very small share of crypto, around 2.5%.
So how do I start investing?
To start investing, you need to understand how much money you actually have to invest. This is why creating a budget is so important. You don’t want all your money tied up in investments and then your car breaks and you have to sell your stocks when the market is down, meaning you lost money. The best part about investing, is that any amount of money is better than not investing. £10 a month invested in the stock market is better than £10 a month sat in a savings account (once you have established an emergency fund). I personally use Trading 212. It is a free to use platform that has no platform fees and is insured and regulated. I have found them the easiest to use with a nice looking app design and the social community on their is helpful and friendly. Once you have an account you simply add money from your bank account and then choose something to invest into. Whilst you’re new to investing it is often recommended to pick something relatively safe and reliable like the S&P500, which is what makes up the vast majority of my portfolio.
Wealth destroying traps to avoid
- Avoid CFD’s. CFD’s are a very complex side of the stock market that is essentially gambling on a stocks price on a given day. It is extremely risk, on average 90% of people who get into CFD’s lose money. Avoid it at all costs if you want to grow your wealth.
- Don’t chase a sinking ship. You look up your favourite brand and see their stock price is down 80% this year. What a bargain! Well, before you buy the stock sit back and think about why the price has fallen so much. You might love their clothing or the taste of the ice cream but maybe they have just lost a major lawsuit meaning they owe billions or maybe they have had a rodent infestation in the factory meaning they have had to close the factory and it will take 2 years to clean and repair. Just because a stock is cheap, doesn’t mean its valuable.
- Avoid penny stocks. Penny stocks are companies who currently have such a low value (or so many shares) that each share is worth roughly a penny. Yes, you can own a lot of shares but a gram of gold is worth more than a kilogram of sand. These companies are often extremely volatile and can often plummet to being absolutely worthless overnight. It is generally best to avoid them.
In summary,
Get started investing today. It really doesn’t matter if you start with just £10, just get started! Investing truly has the potential to change your life. One of the richest men in the world (Warren Buffet) got there just by investing, he never created a product or ran a major tech firm, he just started investing and his wealth compounded overtime. Whilst it is unlikely you’ll become the next Warren Buffet, there is more than a good chance that you will end up with more money than what you started with! If the blog was helpful to you, consider bookmarking the blog as I publish new blog posts on a weekly basis.