Investing 101: your guide to getting started
What’s the first thing you think of when you hear the word ‘investor’? Maybe it's a person in a fancy suit shouting about stocks and shares in a city office, surrounded by screens full of complicated graphs. Maybe it’s someone who has heaps of money, or maybe it’s someone who likes taking risks with their money.
But investing isn’t just for finance experts, the super rich or thrillseekers. Anyone can learn about investing! And you can start small, with as little as £1, and pick something that fits how you feel about risk and return. (Risk refers to the possibility of losing the money you invest, and return is what you could make on top of your original investment, if it goes up in value. We’ll cover this more, a little later on.)
But even though anyone can be an investor, it’s still important to understand the basics of investing, including things like fees, so you can make the right decisions for your money.
So what even is investing?
Investing means putting your money into things like stocks, bonds and funds, with the goal of increasing its value. Unlike a savings account, which can be best for short-term goals, investing is a long-term strategy where you accept the risk of your money going down in value in the hope of a greater return.
Chances are you’re probably already investing without even realising it. If you have a pension, whether it’s personal or through your work, you’re an investor, because the money that goes into your pensions is invested. This is to help your contributions grow over the long term, to help support a comfortable retirement.
Why should I invest?
The primary goal of investing is to give your money the opportunity to grow. Over time, your investments can compound, meaning the returns you earn also start earning returns, creating a snowball effect. This is why starting early can be so beneficial – the longer your money’s invested, the more time it has to work for you.
Investing can also help your money keep up with inflation, which is the increase in the cost of living. While the value of your investments can fluctuate, many markets have generally risen over the long run, helping your money grow faster than it might in a savings account.
Saving versus investing
In the UK, we’re good at saving money, but when it comes to investing, we're not so confident. According to Hargreaves Lansdown in 2024, around 23% of all UK adults invest in the stock market. That might seem like a reasonable amount, but compared to other places like the United States, where it’s reported as 61%, it’s pretty low.
So what’s stopping us from investing? This likely comes down to a few things – worrying that you don’t know enough about investing, not feeling confident about the risk involved, or thinking you need a lot of money to get started.
Investing can feel intimidating. Jargon is everywhere in the finance world, which can make it feel like a private-members club for an exclusive group of people who are in the know.
But it doesn't have to be. Here’s a fun example to take the mystery out of how investing is different to saving:
Let’s go back in time to 2001. You’re hanging out with friends and go into a newsagent for a quick snack. You’ve already spent most of your birthday money on a snazzy new MP3 player called an ‘iPod’, so you pick a cheap and cheerful classic – the 10p Chomp bar.
You remember your auntie gave you a scratchcard for your birthday too, so you whip it out and discover you’ve just won £100! What a day. As you’re munching on your Chomp, you start thinking: what can you spend your lottery winnings on?
You’ve got three big ideas:
Put it in a savings account
Invest it
Buy 1,000 Chomps
All solid options, but now let’s zip forward and see how each of those would have worked out.
Putting the money in a savings account would likely have earned you around 2% in interest, giving you about £160 today, thanks to the magic of compounding. Not bad by any means.
But inflation (when the price of things go up over time) means that £160 today buys less stuff than it would have back in 2001. Today, £160 would get you 250 Chomps, which is pretty low compared to the 1,000 Chomps you’d have back in 2001.
That’s because the price of one Chomp shot up from 10p to 40p. So while you made a good bit on top of your original £100, you’ve got less to spend because of inflation.
But if you’d invested the £100 instead, say in an index fund which tracks the value of the S&P 500 (which is a group of some of the biggest US companies), your investment would be worth £789.54 by the end of 2024. Keeping inflation in mind, if you didn’t touch the £100 investment over 23 years, you’d see annual returns of around 5.15%, which not only tops a savings account but also outruns inflation (we’ve calculated this at 3.2%, just so you know). And with that money you’d be able to buy 2,255 Chomp bars today! (Obviously this is just an example –you’ll need to do your own research!)
Risk versus return
You know how some decisions are a no-brainer, and others make you feel a bit cautious? Investing is a bit like that. You've got risk and you've got return, and they're like two sides of the same coin.
The risk is the part that makes you stop and think. It's the possibility that your money could lose value instead of growing. It's that feeling of uncertainty because you don't know exactly what the future holds.
The return – or reward – is the good stuff. It's the potential for your money to grow. The more risk you're up for, the higher the potential return. But the bigger the potential loss, too.
It’s about finding the right balance for you. If you’re saving for a house deposit in the near future, you probably can't afford to lose a big chunk of money, so you might have a lower level of comfort with risk. In this instance, putting your money in a savings account is probably better suited to you. But if you have some money you won’t need in a pinch, or you’re willing to take risks over a longer timeframe, you might be willing to take on more risk for a bigger potential reward.
Getting ready to invest
Before you start, it’s a good idea to ask yourself a few questions to help you feel more prepared.
What’s your current financial situation? Do you have any high-interest debt, like on a credit card? It's often a good idea to pay that off first, since the interest you're paying on it is likely much higher than the returns you'd get from investing.
Do you have a safety net? This is an emergency pot of money that you should keep in a separate, easily accessible savings account. It’s really important in case something unexpected happens.
How comfortable do you feel about risk? How would you feel if the value of your investment suddenly went down? Every investment comes with some level of risk; and the value of your investments can go down as well as up. You should figure out how comfortable you are, and how much you could afford to potentially lose in the worst case, before you begin.
Are you comfortable making a plan and sticking to it? While it can be tempting to react to ups and downs, remember that investing is a long-term game. The value of your investments will fluctuate, but you don’t lose money until you take it out. By sticking to your plan and staying the course, you give your money the best chance to recover and grow over time.
Do you understand any fees or additional costs? Make sure you understand the small print and any fees associated with the investment. This helps you know exactly what you’re getting into and what to expect.
Are you ready to become an investor?
Investing can be a great way to give your money a chance to grow over the long term, and you don't need to be an expert to start. With Monzo, you can invest in ready-made funds based on risk, or pick from 11 exchange-traded funds and build your own portfolio. You can start investing from as little as £1. The most important thing is to feel confident in the decisions you're making and to choose an approach that feels right for you. Remember, you can start small and with a little knowledge and build it up as you go along.
The value of your investment can go up and down and you could get back less than you put in. Monzo current account required. UK residents 18+. Ts&Cs apply.