10-Step Guide to Invest with Confidence (For Beginners)

Learning to invest confidently allows you to make the most of your money. You can increase your income rather than reduce it by letting money sit in a current account.

Currently, many people cannot invest because they do not know what to do, do not have the confidence to make decisions, or do not like risk.

This is sad because you are leaving money on the table. Learn how to gain confidence and make the most of your money.

When you invest, your capital is at risk and you may lose money.

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How to Invest with Confidence Beginner Guide

The key to investing with confidence is to understand how investing works and why it is important. You can also build up your confidence by starting with small amounts of money.

1. Understand Why You Need to Invest

Before you invest, the first step is to understand why investing is important. There are two underlying reasons: preventing loss of money and growing your money.

Loss of Money

Loss of money occurs naturally due to inflation, even if you do not spend a penny. Every year, prices rise. This happens wherever you are and whatever you do.

This price rise means you need more money to buy the same product. An apple may cost £1 in one year, and £1.02 in the next year.

This does not seem like a big increase but if you apply this to all products you buy in a year, the extra costs add up quickly. Over time, the same amount of money will buy you less and less.

Thus, there is a cost of waiting to invest.

Growing Your Money

When you invest money, you gain access to compound interest. Compound interest means that you gain interest on interest. It is a powerful way to make money.

2. Do Not Let a Lack of Confidence Stop You

Saying things like I do not know how to invest or investing money is too difficult for me are excuses. With time, almost anything can be learned.

Passing a university exam seems impossible, but most students actually pass after a year of studying. This is because they have spent time with the subject and worked to understand it.

Investing is no different. Except that you do not have to spend years studying. You do not have to know everything, but you have to know the right things.

This way, you can learn to invest with confidence.

Why Risk-Averse Individuals Win in Investing

I also used to be without confidence in my investment skills and feared the risk of investing.

When I started reading about personal finance, I learned one thing that surprised me: being risk averse is a strong point.

This is because being risk averse, or cautious, means that you:

• Are less likely to become involved with high-risk investments that people should stay away from anyway
• Will assess your investment and your decisions more critically
• Are less likely to gamble with your investments

You may feel like you are at a disadvantage because most successful investors we hear of have taken risks in one way or another.

And it may be true that you can make more money with risky investments. But you are also much more likely to lose your money.

Do not let fear stop you from investing. Being risk averse is a strong point rather than a weakness.

3. Learn More about Investing

To learn to invest with confidence, books are your best friend. First, you can have a look at what your local library offers.

Then, I recommend reading Tim Hale’s Smarter Investing: Simpler Decisions for Better Results. You can also have a look at the best books for financial independence.

4. Set Your Investment Goals

People decide to invest for different reasons. Some want to put their spare cash to use, whereas others want to save for retirement or retire early. Whatever your goals are, make sure they are SMART:

• Specific
• Measurable
• Achievable
• Relevant
• Time-based

SMART investing will ensure you have a clear roadmap and always know what your next step should be. If you start investing aimlessly, you are more likely to make mistakes such as panic buying and selling.

This can end up costing you a lot of money.

You also need to ensure that your goals are realistic and not overly ambitious. Depending on your investment vehicle, the expected return differs.

For example, with index trackers, you can expect around 7% interest per year.

5. Decide What to Invest in

There are many different asset classes you can invest in. Each of them comes with its own benefits and risks. With some asset classes, for example, cryptocurrencies, you have a greater chance of making it big.

On the downside, there is also a greater risk of losing everything. Thus, you should choose your assets carefully.

Investment funds are the most popular investment choice. These are baskets that contain stocks of many different companies. Usually, you buy a fund, leave it in your brokerage account and it will grow over time.

If you want to invest in stocks, it is important to research them beforehand. You can use an app such as Finimize to get a beginner-friendly analysis of US stocks.

Read more in my Finimize App review.

6. Open a Brokerage Account

To buy stocks, you need to be signed up with an investment platform. You then deposit money from your bank account and use this to buy stocks or funds.

There are two important criteria for choosing an online broker, the fees and stocks available on the platform.

7. Open an ISA

If you want to grow your money, it makes sense to start out with a Stocks and Shares individual savings account (S&S ISA).

Shockingly, less than 5% of people in the UK have an S&S ISA. This is even though ISAs are the most effective way to invest.

They enable you to invest £20,000 per year tax free. If you are reading this article from the US, ISAs are the UK Roth IRA equivalent.

This allowance renews in April every tax year, although the specific amount might change. You can check the specific allowance for the current tax year here.

You can also only pay into one S&S ISA per tax year. If you have paid into two ISAs by mistake, you will only get tax relief for one of them.

8. Open a SIPP

Opening a self-invested personal pension (SIPP) is an alternative to a general investment account.

This is a method to avoid tax after you have exhausted your ISA allowance.

For every pound you add to your SIPP, the government will add 20% or 40% if you are a high-rate taxpayer. The limit for this is £40,000, meaning you will not get any bonus for contributions beyond that.

The disadvantage of a SIPP is that you cannot withdraw money easily. Instead, you have to wait until you are nearing retirement age.

The minimum age to access your SIPP penalty free is 60, but this will probably change until you retire.

9. Set Your Investment Budget

You may prefer to invest a lump sum, or invest money on a monthly or yearly basis. How much you want to invest depends partly on the investment time frame and your goals.

Another major factor is how much money you have available to invest with confidence. If you want to invest regularly, the amount should be manageable on a monthly basis.

This ensures that you still have enough money to live comfortably and maintain your emergency and sinking funds.

Finding the optimal amount can take some time. One approach is to start small and increase the amount you invest every month until you reach the limit of what you feel comfortable with.

If you are good at managing your money, you can also wait till payday at the end of the month and see how much money you have left.

This is my preferred method to invest with confidence but it does not work for everyone.

If you are new to investing, you may also prefer to start with a small amount.

This allows you to test out the waters and build up the confidence to invest larger amounts.

10. Review Your Investments

Once some time has passed, you may want to look at your investments again. You may have learned something new or find that your portfolio needs some adjustments.

You may choose to review your portfolio quarterly or yearly. If you are unsure, you can also do this together with an independent financial advisor.

Frequently Asked Questions

How Much Money Can You Make by Investing?

Investing returns vary greatly and depend on many factors:

• Your investment amount
• Time in the market
• Investment platform
• Investment vehicle

Generally, the higher the risk, the more money you can expect to make. However, for the inexperienced investor, the risk to lose your money is usually higher which makes taking the risk not worth it.

Thus, new investors should aim for a slower, safer route to invest with confidence. With this, you can expect a return of around 7% per year. Note that this amount is an average value and actual returns may vary every year.

For example, if you start with £100 and do not make any further contributions, you will have £107 after the first year (on average). After the second year, you can expect to have £107.50.

The extra £0.50 are due to the fact that you will earn interest on the full £107, not only the £100 you contributed. This is called compound interest.

However, this calculation does not take into account the platform fees. Obviously, these will reduce your investment return.

Therefore, you want to use a platform with low fees to minimise these losses and invest with confidence.

Do You Need a Financial Advisor to Invest with Confidence?

The short answer is no. You can easily learn to make all decisions yourself unless you want to invest large sums of money.

In this case, it may make sense to consult a financial advisor to maximise your tax efficiency.

The reason investing by yourself is generally better than consulting an advisor is that financial advisors will charge for their advice. This will diminish your investment returns.

Secondly, not all financial advisors are trustworthy.

Some will inevitably be biased and recommend the products that allow them to make the most commission. Finding someone you can trust can be hard for new investors with little experience.

However, ultimately, the choice of using a financial advisor is yours to make. Paying the fees for a financial advisor and investing with confidence is better than not investing at all in most cases.

How to Invest with Confidence as a Beginner Summary

Investing may seem scary and if you are lacking confidence and are fearing the risk, you are not alone. However, you can learn to invest with confidence and being risk averse can be turned into a strong point.

You will learn to invest with confidence through reading and looking around. Everyone has the potential to be an investor.

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