Choosing investments is the first of three important steps to think about when becoming an investor. Once you’ve decided on an investment platform and you’ve chosen an account, you might want to think about exactly how to invest your money and do your own research in order to decide what’s right for you, your needs, and your attitude to risk.
It’s also important to remember that investing isn’t for everybody. Saving tends to be for the short term while investing is for the longer term, which should be at least 5 years.
How to make your investment?
Before you choose your investments, it’s worth thinking about whether you want to invest regularly, or if you’d prefer to make a one-off instruction.
It’s hard to judge the best time to invest, so drip-feeding your money into your chosen investments could be a sensible option.
Investing with a monthly Direct Debit is one way to do this. You can set one up to invest automatically, from £25 per investment. But while this does have its benefits, you’ll need to check the charges and whether it’s even an option for the investments you’ve chosen.
What type of investment should you choose?
There’s plenty of choices when it comes to investing, and for some beginners, this can be overwhelming.
To try to narrow down your options, you can learn about investing for beginners, which will teach you the different types of investment available. For example, two of the main ways to invest are in shares and funds.
When buying shares, you’re buying a part of a company, in exchange for a share in how it performs. They trade live on a stock exchange, on which shares in different companies are bought and sold.
In the case of funds, individual investors give their money to a fund manager who invests all the money, choosing investments on everyone’s behalf based on the fund’s objectives. They aim to grow the money over time or produce a recurring income, or a combination of both. You’ll pay a fee to own a ‘unit’ in a fund, in exchange for the manager’s expertise and time spent looking after your money.
For beginners, funds offer more diversification than shares. There are a number of tools to help investors make their own decisions, as well as a range of ready-made portfolios.
How to pick the best investment platform for your needs?
Before you leap onto the first platform you find, you should think carefully about what you need. As a beginner, you are likely to look for a service that is easy to get into. Also, the best investment platform for beginners should have a simple interface and setup.
You should also think about precisely how much you’d like to invest. It’s worth being realistic in this aspect and worth doing a little research before you open an account anywhere. On top of that, there are generally two main types of online investment platforms out there. There are those which give you ready-made portfolios and offer a passive investment approach, and those which give you a more involved self-invested DIY approach.
What to consider when choosing an investment platform?
Readymade or DIY approach?
The difference here lies in how you invest your money. With a ready-made or passive option, you simply fill in a few details, keep your account topped up, and rely on the investment platform, robo investor, or wealth manager to do the rest for you. This might be a good option if you are a true novice to investing or if you’re worried about risk.
Robo investing is a great choice if you are looking for a passive investment as there’s no need for you to manage or monitor your portfolio yourself. You don’t even have to pick the stocks or funds, that’s all handled for you.
A DIY platform, however, gives you much more control. These services allow you to decide where your money goes, and what you invest in the long run. These platforms tend to be a little more in-depth and will allow you to pick from a wide range of stocks and funds including index funds, mutual funds, and ETFs.
However, many beginners avoid the DIY approach at first because of the risks involved. A DIY trading platform is a great option if you already know a little bit about how investing works and you are happy to pick your own stocks or funds.
If you’re not quite ready for that, but keen to grow into it, there are a few providers out there who offer you a passive approach to begin with, and the option to go down the DIY route later. Crucially, the choice is yours, but taking the ready-made approach could be an option if you are an absolute beginner. Or if you simply want a straightforward way to invest your money that you can set up and leave.
Fees and charges
Of course, all trading platforms need to make money somehow. Some charge flat fees for trading, while others will charge you a yearly commission on any money you choose to invest. If a platform offers ongoing fees per month, for example, it’s likely that there will be features and services that require these charges.
It’s worth looking closely at fee differences depending on the type of product or portfolio you opt into. For example, some platforms may charge you more for an ISA with full management compared to a fixed allocation option.
Of course, if you are trading via a DIY platform, be sure to look out for trading fees, as these will likely apply per purchase. You may even find that there are additional costs such as forex fees if trading in foreign stocks.
It’s is of paramount importance that you do your due diligence when it comes to these fees. Some services look cheap to begin with, but you should ensure your share dealing is fairly priced. Basic platform fees aren’t always expected, but again, there will be a clear reason that these are in place.