Investing for beginners course: module three Updated November 23, 2021

Share

Our free investing for beginners course will teach you everything you need to know and give you the confidence to get started.

In this module we will show you:

• How to pick the right investment platform

• How to start choosing your holdings

• As usual, we have a case study of a real investor – plus an interview with a celebrity to find out how they invest

Our Investing for Beginners course will help you understand how to invest your money

Our Times Money Mentor easy to understand, online investing course has five modules in total. If you missed the first ones, check out module one and module two of the free course now.

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 three: Getting started and choosing funds

How to choose an investment platform

An investment platform is where you set up your account – such as a stocks and shares ISA, personal pension or general investment account – and buy and sell investments for your financial goals.

There are 31 investment platforms to choose from, according to the financial website Boringmoney.co.uk. Which one is right for you will ultimately come down to two key factors: cost and how easy it is to use.

An investment platform that makes sense for an experienced investor with a big pot of money may not work so well for someone at the start of their investment journey.

Equally, what suits a frequent trader may not work for somebody who is buying funds to hold long-term.

Find out more: Best investment platforms for beginners

Look closely at fees

Most investment platforms either charge:

• A percentage fee which is based on the size of your investment

• Or a fixed fee such as £9.99 a month

A typical percentage would be around the 0.35% mark. This means that if you had £10,000 in your investment account, the investment platform would take £35 a year if it charged a 0.35% fee.

This platform fee should include fund purchases and switches, but you are likely to have to pay more for share trades. If if this is important to you, check how much it will cost.

You may come across investment platforms that don’t charge platform fees – but you will have to pay a fee every time you buy or switch funds.

As a rule, fixed fees work better for investors with a large pot of money. Investors who are just starting out, and don’t have a sizeable sum to transfer over, are usually better off looking for the lowest percentage fees.

Find out more: The impact of fees on investment returns

Think about usability too

It’s important not to overlook the impact of charges on your returns – the lower the fees taking a chunk out of your investment returns, the more money you will make.

However, this does need to be countered by other issues such as customer service and the extent to which the investment platform makes life easy for you.

Our customer experience ratings will give you a feel for which investment platforms we rate highly for transparency and customer service.

If you don’t fancy choosing your own funds, also check if the platform offers ready-made portfolios. Or, if you relish the prospect of building your own, find out about the research and tools available.

Check whether the investment platform offers a mobile app if you want to manage your account on your phone.

Most platforms offer access to a huge array of investment funds and trusts – but if you want to buy shares too, check your platform offers them, as not all do.

Find out more: Best investment apps for everyday investors

Get the right wrapper

The ISA

Before you settle on an investment platform, there is one more thing to do which is select the type of account you want to open.

It usually makes more sense to start investing in stocks and shares ISAs rather than a general investment account.

• Unlike a general investment account, each year you can invest £20,000 in an ISA and all your investment returns will be sheltered from tax.

• But bear in mind that if you have already paid some money into another type of ISA – such as a cash ISA, lifetime ISA or innovative finance ISA – that will reduce the amount you can pay into a stocks and shares ISA in the same year.

Find out more: Everything you need to know about stocks and shares ISAs

The SIPP

Alternatively, you may choose to hold your money in a self-invested personal pension (SIPP).

• You won’t be able to get hold of your money until you are 55 (57 from 2028).

• While you may have to pay tax when you take cash out, the sum left invested will be sheltered from tax while it grows.

• The big incentive to put money in a pension is the tax relief on your contributions. This is, in effect, a government rebate of the tax you would have paid on your earnings, so 20% for basic-rate taxpayers and 40% for higher-rate payers.

Most platforms will offer the choice of investing in stocks and shares ISAs or a SIPP, but the latter may have additional charges, so make sure you have compared these before you make your final platform choice.

If you want to retire early, you might want to use this ISA trick.

To get your research started, take a look at Times Money Mentor’s independent ratings for ready-made stocks and shares ISAs, self-invested stocks and shares ISAs and SIPPs.

Researching your investment options

Finally, you are ready to start choosing different types of investments. Investment strategies can be as easy or as complicated as you choose.

Ready-made portfolios

Many investment platforms offer ready-made portfolios for ease. These will be made up of a selection of funds selected by your platform, and there are likely to be options for cautious, balanced and adventurous investors.

Choose multi-asset funds

You may also see platforms promoting funds that offer a straightforward and low-cost entry point for new investors.

• These funds are often multi-asset, which can mean investing in the stock market, bonds and cash.

• They provide investors with the diversification they will need to ensure that their types of investments aren’t too heavily exposed to downturns in any one asset or market sector.

• Options are available for different risk profiles – the greater the risk, the greater the proportion of the fund that is invested in shares.

• The funds might be from an investment company you are familiar with, or branded with the investment platform’s name.

Build your own portfolio

Alternatively, you may relish the opportunity to build your own balanced portfolio, selecting bond and stock market funds based on your own research for your financial goals.

We are some tips to help you find the right fund for you:

• Many platforms will have recommended fund lists compiled by in-house analysts, but don’t let this take the place of your own research.

• Find out how the lists are put together and remember these are just tips; there is no guarantee that they will perform better than other funds or that they will match your risk profile.

• Your platform may have tools to help you analyse performance. When you have a fund or two in mind, it can be helpful to compare them with others in the sector as well as the sector average.

• When you are looking at performance, it is also important not to focus too heavily on how the fund has performed over the past year or so. Look at its performance over five and ten years too. This will help you distinguish consistent from “flash in the pan” outperformance.

• Make sure you understand the investment strategy.

• It’s important not to compare apples with pears. Just because two funds are in the same sector, it doesn’t necessarily follow that they will have the same objectives or take the same risks.

• You also need to know what you are investing in when you choose a fund. You can find out more by reading fund factsheets on your platform or from the fund provider’s own website.

• Also in the fund factsheet will be information about fund charges. Make sure you’re not paying too much.

• Comparing the top 10 biggest holdings of the funds you are considering can also be a useful way of checking there isn’t too much overlap between your choices.

Find out more: How to choose investment funds

Play Video02:11

Fund charges

Fund fees cover the costs of running the fund and are paid in addition to platform fees. It’s important to understand the different types of investment fund.

Passive funds

• Trackers – or passive funds – will be the cheapest. The investment returns here simply mimic the performance of a stock market index.

• You can expect what is called the ongoing charges figure (OCF) to be below 0.2%, and in some cases less than 0.1%.

Active funds

• You will need to pay more for actively managed funds, typically over 0.5%. They are more expensive because a manager hand-picks stocks with the aim of beating the markets.

• If a fund charges more than 1%, you need to be confident that the investment returns will justify the meatier fee and that there isn’t a cheaper option delivering similar results with a comparable strategy.

Important: when you are dealing with such tiny percentages, it’s easy to gloss over them in the short term – but don’t underestimate their impact over time. High charges mean you are effectively losing money.

• Take the example of a £10,000 investment earning a nice 5% a year, with a 1% fee.

• After 10 years, it would have grown to £14,802 – but £1,486 would have been lost to charges.

• Were the money invested in a fund with a charge of 0.7%, the investor would have £15,235 after 10 years and only have paid £1,054 in charges.

How many funds do I need?

This comes down to personal preference and the amount of money you have to invest, with minimum investments often about £25 a month or £100 as a lump sum.

Confident investors with larger sums may build a portfolio with a good handful of funds spread across regions and asset classes. However, you may still be able to get a good degree of diversification with one fund, particularly if it’s multi-asset.

If you are apprehensive, you can always start with one and add more as your confidence grows.

What about shares?

Investing in shares directly is higher risk in losing money, but there is no denying the excitement that a handful of shares can give.

We are some points about shares:

• When you buy a share in a company you are buying a stake in the ownership of a company. The value of your investment will rise – or fall – in line with its performance.

• In return for your investment in the company you will also be entitled to dividend payments, should it decide to redistribute some of its profits back to investors.

• You will also get the right to vote in its annual general meeting and potentially extra perks too like vouchers if you invest in a retailer or hospitality firm.

• You can buy shares in any company listed on the London Stock Exchange. For higher risk investors, there is the Alternative Investment Market (AIM), which includes smaller, less established companies.

Different investors will seek out different shares.

An investor that wants stability and income may seek out a company in the FTSE 100, which is an index made up of the 100 largest companies on the London Stock Exchange.

A higher risk investor wanting to grow their money may look for companies in the FTSE Small Cap Index (made up of the smallest firms).

Many new investors will prefer the simplicity of funds to spread risk across different financial markets. But if you do want to buy shares, it’s important to view these holdings a little differently.

You should:

• Build a diversified portfolio with lots of different shares, or choose a few shares to supplement your core investment funds.

• Make sure you don’t sacrifice your financial wellbeing in an attempt to profit from a particular share.

• Some people like to use a small amount of money to invest in a couple of shares in addition to their main portfolio of funds and investment trusts: if the shares do well, they enjoy the rewards, if not, they still have their main portfolio to rely on.

Find out more: How to buy shares

Quiz time!

We’re half-way through this online investing course, so it’s a good time to test your knowledge. Take our quiz to make sure you’ve got a grip on some of the jargon that I’m afraid is unavoidable in the investment world.

The next step

Hopefully, you now feel more confident about the investment options open to you.

To give you a bit of inspiration, we spoke to an investor, Tom Perkins, about how he invests and what his financial decisions and goals are.

Find out more: Clueless about your finances? Help is here

We also interviewed Claude Littner, known for being one of Lord Sugar’s aides on The Apprentice, about his investments – and his tips for beginners.

Tom Perkins: “How I invest my money”

Frustrated by the terrible rates on his saving accounts, Tom Perkins, from the village of Sherburn in Elmet in north Yorkshire, started investing in July 2019.

Tom Perkins started investing with a self-invested personal pension last year

He initially opened a self-invested personal pension with investment platform AJ Bell Youinvest, but quickly opened a second account.

“I had primarily been looking at pensions, but decided to open a stocks and shares ISA too in January this year.”

Like many investors, he’s thinking about his long-term financial security, but he also has a shorter-term goal.

The 27-year-old chartered accountant bought a three-bedroom detached house with his wife Emily in January 2018, with the support of a 20% loan through the government’s Help to Buy Scheme. “I’m investing so that after five years I’ll be able to pay off my Help to Buy loan. Savings rates were so poor that this seemed like the best option to get value for money.”

Under the rules of the Help to Buy scheme, loans are interest-free for the first five years, but interest starts being charged from year six.

So far, his plan is working and he has £35,000 saved in his ISA: “I’m past halfway through the amount I need to save to repay the loan.”

Despite the market turbulence Tom’s ISA is still up by 4.5% since January.

Tom has invested in a variety of AJ Bell managed funds and has also taken advantage of its balanced-risk ready-made portfolio.

“I’m between a balanced and adventurous investor. I know that I have enough money in savings accounts to have some freedom with the money I invest.”

He has done this by supplementing his fund investments with a handful of shares. “I know shares are higher risk, but I can hold them for the long term and I see the potential for higher investment returns.”

Tom has used his own knowledge and personal experience to choose his shares and pursue his financial goals: among his holdings are the housebuilder Redrow, which built the house he shares with his wife, and the online supermarket Ocado. “I work in the food industry so it’s a business I understand.”

Beyond repaying his Help to Buy loan, Tom’s focus is financial security and the freedom to enjoy life. “It would just be good to get as much capital as I can. I’m on track to repay my mortgage in 15 years, but I would like to repay it sooner if I can.”

Investing spotlight: Claude Littner

Claude Littner is well known as the interviewer to fear on BBC reality show The Apprentice. He is also a successful businessman with almost 50 years’ experience.

Claude Littner has been one of Lord Sugar’s aides on The Apprentice since the 2015 series

A long-term associate and friend of Lord Sugar, Littner has been his aide on The Apprentice since 2015, and has also chaired a number of his companies, including Amstrad International, Amstrad Spain, Dancall Telecom and Viglen.

He has held other high-profile positions too, such as chief executive of Tottenham Hotspur football club.

Meanwhile, the University of West London Business School, where he is a visiting professor, renamed itself after him in 2014.

While he once came close to investing in a former Apprentice contestant’s business, he sticks to putting his money in shares, funds and businesses.

Can you tell me about a fund you invest in?

I invested in the Fundsmith Equity fund in 2015 and my holding has quadrupled since then. I chose this fund because I like Terry Smith, the guy who runs the fund, and the fact he invests for the long term and doesn’t regularly switch different types of investments.

Long-term holding is a successful approach and differs from the likes of [investment bank] Goldman Sachs, which, I find, buys and sells, buys and sells, buys and sells. It’s better to stay invested in a growing company and benefit from its enduring success.

How did you start investing and what other investment successes have you had?

In the late 1970s, I was a manager at [the consumer goods giant] Unilever. During my lunch breaks, I would sit with my boss, who would write his share portfolios on a blackboard and talk about his investments – I stole some of his ideas!

One of my early investments was in a company called Lonrho [a mining firm that became a conglomerate, dealing in newspapers, hotels, distribution and textiles], which was run by a man called Tiny Rowland. I only invested a couple of hundred pounds but I doubled my money.

I invested in Amstrad in the 1980s, before I was approached by Alan Sugar to run Amstrad International and Amstrad Spain in 1990. Again, I doubled my money by gradually selling those shares over a period of time.

When I was chief executive of Tottenham Hotspur [from 1993 to 1998], I also bought a lot of shares. As I was running the football club, I could see its growing success: those shares went up threefold and in 2000 I sold them to current chairman Daniel Levy. I ended up with £1m.

What advice do you have for beginners in investing?

My investing failures have been horrific.

For example, I once invested in a small probiotics company that looked promising but came to nothing and ended up losing money, and my shares in big-name companies like Shell have gone down 50% since I got them.So only use money you can afford to lose.

Be cautious, be wary. I tend to think I know better than a fund manager, which I don’t! So I would advise leaving it to a professional – but then again you have to be wary of fund managers like Neil Woodford [head of the collapsed Woodford Investment Management].

Do as much research as possible and look to the long term. The US market may be up right now, but there are lots of companies still in the doldrums.

Investing for Beginners: the next modules

Congratulations on completing module three. You should now be able to select a platform that works for you and start your investment shopping. In Module 4, we will help you work out how much you can afford to invest and explore lump-sum versus regular investing.