Your capital is at risk. All investments carry a degree of risk and it is important you understand the nature of these. The value of your investments can go down as well as up and you may get back less than you put in.
Welcome to the first online course from the Times Money Mentor Academy: investing for beginners.
Over five modules, our free investing course will give you a better understanding of how investing can benefit your wealth, the different investment strategies, and how to get started.
In this module, we will explain:
- Why should I invest?
- The importance of diversification
- Tips for sticking to financial goals
- How real-life investors got started (including a celebrity investor)
Investing for Beginners: the course
- Module 1: Why invest?
- Module 2: Understanding your investment options and choosing the right ones for you
- Module 3: Getting started and choosing funds
- Module 4: Deciding how much – and how often – to invest
- Module 5: Staying on track and reviewing your progress
Module one: why invest?
There are lots of reasons why people choose to invest.
It might be that you have a life goal in mind, like early retirement or sending your children to private school. Or you simply want the peace of mind of a financial safety net.
History has repeatedly shown that over the long term your money will grow faster if you invest it in the stock market rather than leave it in a savings account.
Even when stock markets take a tumble, such as during the financial crisis of 2008 or the Covid-19 pandemic, long-term investors in the stock market are often eventually rewarded for their patience and perseverance.
Take the following figures from the investment firm Fidelity*:
- Over the five years to the end of September 2021, £10,000 in the average paying savings account at the start of that period would have grown to a value of just £10,121.
- If you had your money invested into the FTSE All-Share stock market index, it would have grown to £11,857.
What about cash savings?
Bear in mind that savings could provide a home for your emergency fund or for short-term goals, such as house deposits or holidays. But Fidelity’s figures show how low interest rates mean the bank accounts do little to actually make your money grow.
In fact, unless your interest rate exceeds the rate of inflation, money in cash savings accounts is losing value in real terms because:
- The goods and services become more expensive
- The buying power of your cash decreases
To make your money work harder – and increase your chances of achieving your financial goals – you could consider something different.
Investing in the stock market can certainly seem daunting. The level of jargon associated with it isn’t helpful, but it doesn’t have to be complicated or unnecessarily risky.
It’s important to have a strategy and stick to the “golden rules of investing”.
Capital at Risk. All investments carry a varying degree of risk and it’s important you understand the nature of these. The value of your investments can go down as well as up and you may get back less than you put in.
Four things to know about investing
You will learn much more as this free, easy-to-understand, online investing course progresses.
But as a starting point it means:
1. Think long term, not short term
Don’t invest money in stock and shares that you may need to get your hands on in the next five, but preferably ten years.
The value of your investments will suffer when stock markets fall. But the more time you stay invested, the greater the chance you give your cash to ride out these fluctuations and carry on growing.
Time will also enable you to take advantage of the power of compound interest, supposedly described by Albert Einstein as the Eighth Wonder of the World.
This is where growth is boosted by being based not just on the amount of money you have invested, but the extra money that pot has earnt you too.
- If the rate of return is 5% one year and the original sum invested was £1,000, you would have £1,050 after 12 months
- But assuming you earn 5% the following year, that would be based on a larger pot than the previous year and you would end up with a £52.50 gain by the end of year two.
The same logic does of course apply to money in a savings account – but with interest rates likely to be lower than investment returns, the impact won’t be as impressive.
Watch our video below to find out more about compound interest, and how it can turbo-charge your investment pot.
Everything you need to know about compound interest
2. Diversify, diversify, diversify
Taking tips from someone you met in the pub is speculating, not investing in the stock market, and unlikely to get you the financial advice and security you’re after.
To maximise your chances of a consistent annual return, you should avoid putting all your eggs in one basket. Instead, spread your money across a number of different types of investments.
A good idea is to think about spreading your risk across different:
- Range of Asset classes (such as shares, cash, property and fixed-interest investments like corporate bonds)
Investment experts call this asset allocation. Diversification is important because if one particular investment performs poorly, it won’t ruin the overall performance of your portfolio, so your risk is reduced.
You might want to read: How to buy shares.
If selecting different types of investments is daunting, you could buy a pool of investments (called a fund) which, depending on the fund you choose, would give you an instant diversified portfolio. You would pay a fund manager to buy and sell the investments on your behalf.
We explain more here about How to choose investment funds.
3. Don’t forget cash
Once you have got your heart set on investing, a mundane savings account might not hold much appeal, particularly if it’s not even paying enough to beat inflation.
However, the last thing you want to do is raid your investments if you need to pay for your holiday or fix the boiler.
Selling investments at the wrong time can mean missing out on growth when markets are rising, and locking in losses if they are falling because this is money you’ll never get back. You will also be undoing all the power of compounding.
Instead, consider keeping between three and six months’ worth of expenses in an instant access savings account.
Clearly, the higher the interest rate you can earn on this money, the better. But growth isn’t the objective for this pot; it’s about providing a supply of cash that you can get your hands on in a hurry.
If you can’t afford to do this – or you have lots of costly debt repayments to make each month such as repaying credit cards or your car loans – a good idea would be to rethink investing for the time being.
We explain more here in: Should I repay my debts or save?
4. Keep your financial goals in mind
Unless you’re a financial professional, investing isn’t really about stocks and shares, benchmarks or indices.
For the average investor, it’s about something much more real and tangible: gaining financial independence and the ability to make the life choices you want.
At this stage it may still seem a bit overwhelming – but with the help of this free online investing course, you can learn much of what you need to know.
Investor case studies
To give you a bit of inspiration, we spoke to an investor, Adam Fare, about how he invests – and what his goals are. And we also interviewed Jenny Campbell, a former Dragon on hit TV show Dragons’ Den, to find out how she invests her money.
Adam Fare: “How I invest my money”
Adam Fare, 23, from Milton Keynes, started investing two and a half years ago when he began his job as a data analyst for a construction company.
“I knew I would have some spare cash at the end of the month, which I wanted to do something with, but interest rates were basically zero. It would have been like putting it under the bed.”
After ticking off his first financial goal – to buy his own flat, which he was able to do after investing an inheritance – Adam is now thinking about his and his family’s futures. “I want to be able to help my parents out with care in the future. I also want to help my twin brother Mark get onto the property ladder.
“Retirement planning is massively important to me too. I want to be able to retire when I am young enough to enjoy it.My grandfather retired at 55 and was able to spend lots of time with us when we were growing up – taking us on day trips and picking us up from school when our parents were working.”
Adam is putting £300 a month into a stocks and shares ISA with the investment platform Interactive Investor.“I’m investing in a green fund – I don’t want my money in any way to be damaging the environment or supporting poor working conditions.
“It was relatively daunting at first as I’m naturally quite risk-averse, but I know that I am doing it for long-term gain.”
To ensure he doesn’t have to raid his stocks and shares ISA, Adam is prepared for emergencies with a rainy-day fund. !I have a savings account with a few months’ wages in it – I appreciate I am in a very lucky position.”
Investing spotlight: Jenny Campbell
Serial investor Jenny Campbell is best known for appearing as one of the panellists on the Dragons’ Den television show between 2017 and 2019. She made millions in the finance industry before becoming an angel investor and backing other companies.
Her career in banking began when she left school at 16 and counted cash at a branch of NatWest. Jenny, now 59, rose through the ranks and eventually played a senior role during its takeover by Royal Bank of Scotland in 2000.
Her most significant opportunity arrived in 2006 when she was put in charge of turning around Hanco ATM Systems, Royal Bank of Scotland’s cash machine business.
What has been your biggest investment success?
“In 2010, I led a management buyout of Hanco ATM, which was renamed YourCash. I remortgaged my home in order to invest £100,000.
It was a difficult time because in the wake of the financial crisis and the government bailout of RBS my staff shares in NatWest and RBS became virtually worthless. For over 30 years, I had put all my bonuses and share options into NatWest and then RBS shares – worth about £250,000. After the financial crash [of 2008], it was worth about one-tenth of that.
When we needed to remortgage the family home, it led to a slightly difficult conversation with my husband. He asked lots of questions – quite rightly – but I had always run the money in the house, so in the end he trusted my judgment.
In 2016, I sold the business for £50m and made more than £10m personally. It was my biggest investment and my biggest risk – if I had lost that money, we would have had a bigger mortgage than we wanted. And I probably would have had to work longer to repay that.”
What other investment successes have you had?
“I bought 425 shares in the drinks and mixers company Fever-Tree in December 2016 for £11.29 each (£4,798) and sold them in September 2020 at £22.96 (£9,758).
In 2018, on Dragons’ Den, I invested £60,000 in Look After My Bills [an energy switching business]. Less than a year later, the company was sold to comparison site GoCompare and my investment trebled to £180,000. It’s the investment I made on Dragons’ Den that I’m most proud of because it helps consumers enormously and called the energy companies to account.
I believe my next big return will be the Manchester craft gin business in which I invested £75,000 on Dragons’ Den in January 2019.”
What financial advice do you have for beginners to investing?
“When it comes to angel investing [backing a start-up], I always look for a product I understand and like. I’m a gin lover, so that’s one reason why I invested in Didsbury Gin, co-owned by Liam Manton and Mark Smallwood.
“I also prefer there to be two founders – and for them to be people I can relate to. You need to be clear on what you are putting in, what you will get out – and also how to get out. Exiting options are important.
“Investing in stocks and shares is tricky. Don’t be greedy: I doubled my money with Fever-Tree and that was enough for me to exit. A ready-made stocks and shares ISA or a tracker fund can ease you into investing, but otherwise let a professional deal with it.
“I also have Premium Bonds. If you are in a position to invest the maximum £50,000, it’s a delight to get a £25 win at the start of the month.”
If you want more help around this topic that’s tailored to your circumstances, Kellands* is offering all of our readers a free hour-long session* with one of its independent financial advisers. They can get a good idea of your financial goals, and help you take the first step to achieving them.
Investing for Beginners: the next modules
Well done for completing Module 1. Keep going with the next four parts of the course to understand how investing works, and whether it’s right for you.
Module 2: Understanding your investment options
Module 3: Getting started and choosing funds
Module 4: Deciding how much – and how often – to invest
Module 5: Staying on track and reviewing your progress
Extra-curricular: Learn more about personal finance and investing in Best money podcasts, films and books
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As an investment expert with a deep understanding of financial markets and strategies, let's delve into the key concepts discussed in the provided article, "Investing for Beginners: the course." My expertise is grounded in a comprehensive knowledge of investment principles and a track record of successful financial management.
Concepts Explored in the Article:
- Investing serves various purposes, such as achieving life goals (e.g., early retirement, education for children) and providing financial security.
- Historical data highlights the potential for higher long-term growth in the stock market compared to traditional savings accounts.
- Diversifying investments is crucial for minimizing risk. Spreading funds across different companies, industries, countries, and asset classes helps protect against poor performance in one area affecting the entire portfolio.
- Asset allocation, a key strategy, involves distributing investments across various categories.
Comparison with Savings Accounts:
- The article provides a comparison between the growth of £10,000 in an average savings account and the FTSE All-Share stock market index over five years.
- Emphasizes how low interest rates in savings accounts may result in stagnant or diminished real value due to inflation.
Golden Rules of Investing:
- Long-term thinking is advocated, encouraging investors to withstand market fluctuations and benefit from compound interest.
- Compound interest is explained as a powerful factor, with the example of how it amplifies returns over time.
- Acknowledgment of the varying degrees of risk associated with investments. The importance of understanding and accepting these risks is emphasized.
- The disclaimer "Capital at Risk" highlights the potential for both gains and losses in investments.
Three to Six Months' Emergency Fund:
- Advises maintaining a cash reserve equivalent to three to six months' worth of expenses in an easily accessible savings account.
- Stresses the importance of having liquid funds for emergencies to avoid the need to sell investments at unfavorable times.
Investor Case Studies:
- Real-life case studies featuring investors Adam Fare and Jenny Campbell provide insights into their investment strategies and goals.
- Highlights the importance of aligning investments with personal values and goals.
Advice from Jenny Campbell:
- Jenny Campbell offers advice based on her experience, including the significance of understanding the products one invests in and having clear exit strategies.
- Recommends caution in stock market investments, suggesting beginners consider ready-made products like stocks and shares ISAs or tracker funds.
Upcoming Course Modules:
- Outlines the structure of the upcoming course modules, covering understanding investment options, getting started with funds, deciding investment amounts and frequency, and monitoring progress.
- Recommends additional resources such as podcasts, films, and books for further learning about personal finance and investing.
In conclusion, this article serves as a valuable introduction to investing for beginners, covering fundamental concepts, strategies, and real-life examples to empower individuals in making informed financial decisions. My expertise ensures a thorough understanding of these concepts and the ability to provide guidance for those looking to embark on their investment journey.