Getting Started -- Your First Investing Steps

Here are the key points you need to know about getting started as an investor:

• Before you invest in the stock market i) get out of all non-mortgage debt and ii) have some spare cash set aside for a rainy day, ideally enough to live off for at least 3 months.
• Over periods of 5 years shares have done better than other types of asset (such as cash or bonds) in three times out of every four cases. Over longer periods shares have performed even better. Therefore you should invest for at least 5 years and preferably a lot longer.
• The UK stock market has returned an average of around 7% a year, in excess of inflation, since 1918. In terms of spending power, this rate of return means £10,000 would turn into £38,700 over the course of 20 years.
• No one knows how much the stock market will return in future. But the historical evidence suggests that it will continue to do better than cash over long periods of time.
• Charges are vitally important. Paying high charges can seriously affect the long-term return of your investment. The investment product with the lowest charges is the index tracker.
• Index trackers are the percentage play as far as investing in shares is concerned. Over periods of five years index trackers have produced a better return than 75% of managed funds, primarily because of their lower charges.
• Therefore the best way to start investing is by putting regular amounts of money such as £25, £50 or £100 per month into an index tracker, preferably within a low-cost ISA to protect your gains from tax. Find out more
• If you want to beat the average rate of return of the stock market you will need to choose a managed fund or invest directly in individual companies. But remember that the majority of people and funds fail to beat this market average. Find out more

For more details on the above read our full guide to Getting Started in Investing