First time investing tips
Investing, if carried out correctly, can be a great way to earn money and potentially achieve your long-term financial goals. Learn the best tips to get you started.
Are you thinking about investing for the first time? Investing, if carried out correctly, can be a great way to earn money and potentially achieve your long-term financial goals. However, with so much information out there and lots of platforms to invest on, knowing where to start can often feel a little overwhelming.
With this in mind, we’ve put together a list of tips for first-time investors. Read on to learn more about how first-time investors can understand the market. From deciding on a strategy that works for you, to avoiding potential scams, we’ve unpacked it all below.
The influx of new investors
The Covid-19 pandemic led to an influx of interest and intrigue into investing, due to a lot of people having a substantial amount of time on their hands. While economies shrank, opportunities for new investors grew, bringing a wide range of people into the space.
A report by the FCA in March 2021 showed that new investors in the stock market tend to be considerably younger than in previous years, more racially diverse, and with a higher proportion of female investors.1
But out of these large stats, how many are young or first-time investors?
New young investors at an all-time high
A study by Investment Trends showed that the average age of a new investor in the UK was 37 in 2020. This is five years younger than what the average age of a new investor was in 2019.2 This pattern followed in many other countries too. In Australia, France, and Spain, half of new investors at present are aged 25-39.
Many other individual platforms, including ours, are seeing these changes too. With the insurgence of investing and trading apps and the overarching mobile-first culture becoming increasingly dominant across all age groups we can only expect the average beginning investing age to continue to drop. As this happens, it’s vital that new investors also understand the risks involved with investing.
Do new investors understand the risks?
In March 2021, the FCA released a report warning young people about the risks of investing.1 The report stated that, for many young people, the main factors behind their investing decisions included; the ‘thrill of investing’, as well as being a part of some of the most popular companies among their social groups. Additionally, new mobile platforms allow young investors to feel confident about investing - even if they might not have the experience necessary to navigate financial markets as confidently as seasoned veterans.
The report noted that these are individuals “for whom the challenge, competition and novelty are more important than conventional, more functional reasons for investing like wanting to make their money work harder or save for their retirement.”
Despite this, focusing on the functional reasons is vital when going into investing, to make good decisions. In the FCA’s report, one in three of those surveyed did not list a functional reason for why they have chosen to begin investing within their top three intentions.
Furthermore, four in ten young investors did not acknowledge that losing money was a possible risk of investing. It’s imperative that new investors understand the risks involved to avoid preventable financial problems. Since information (or, more importantly, misinformation) is often published on social media regarding the subject, young people need to be able to discern what’s right, from what’s wrong - and that’s where we come in.
How do young people typically invest?
Typically, younger investors have different priorities to previous generations. Today, social media plays a big part in influencing young people’s investment habits and decisions. From influencers on TikTok to dedicated Instagram accounts, financial advice is widely available, particularly on the subject of investing. Through social media trends and investing being a frequent topic within social circles, we have seen a huge uplift of young people in the investment space.
In fact, according to the FINRA 2021 study, one in two investors under the age of 30 opened a new investment account during 2020 as a result of a friend’s suggestion - and one in three because of a family member’s suggestion.3
First time investing tips
There’s a lot to consider before starting to invest, so we’ve enlisted the help of our own Chief Market Analyst, Chris Beauchamp, to provide some expert tips on what to consider when starting out as a first-time investor.
Keep it realistic
When starting out - and when you’re more experienced - it’s vital to only invest what you can afford to lose. You never know what could happen to your portfolio, and you don’t want to be in the position where you’re relying on the money you have tied up in stocks for your everyday life. Instead, put aside a small amount each month as an investment fund, and make sure you have plenty in the bank for bills and living expenses.
Decide on what strategy works for you
Some people enjoy short-term investing and are good at it. However, it requires iron nerves and discipline. Most people are better off with a longer-term view, that removes the need to constantly watch the markets. Short-term investing, also called trading, is very time intensive, and is ultimately not usually suited to people with day jobs.
Do your research
Not all strategies work for everyone, so it’s important to investigate which operates best for you. There’s a wealth of information out there, so before you dive straight in, ensure you have read up on all you can about investing. Including the basics of online investing and common scams.
Start with low-risk stocks or invest in a tracker fund
When starting out, it’s a good idea to put your money into low-risk stocks, that is to say stocks which move relatively little (have low volatility) and are part of a large index such as the FTSE 100, while you get acquainted with the whole process. Alternatively, you may choose to invest in an exchange-traded fund (ETF) which tracks the performance of the stocks in the FTSE 100. Risk management is really important at this stage, so start small and work your way up, whilst you master the art of investing.
Don’t try to trade or invest in everything
Too often, people flit from one market to another, looking for the ‘big move’, or they change strategies regularly. It’s important to remember, not every day has to have a share deal in it, and it’s ok not to know which way a market is going. Sticking with one or two markets and following a consistent investment strategy for a while instead of chopping and changing, is usually a sensible approach.
Don’t become over ambitious
First-time investors tend to lend less caution when it comes to starting out. It’s important to bear in mind how quickly markets can move, either for or against an investor and their position. It’s possible to make big gains, but the crucial risk here is that these gains come with potential for big losses. The most important element in investing is capital preservation – everything else is secondary, and making sure you don’t overleverage (take on too much potential risk when compared to your investment capital) is vital.
Investing is not for everyone
When investing, try to stay rational and objective. Sometimes, investing isn’t the right thing for an individual for financial, personal, or logistical reasons - and that’s ok. If you’re really interested in giving it a go, pair it with the right research and strategy. Sometimes, it can be a worthwhile time investment, but if it isn’t, don’t feel disheartened. Leave it a year, and if circumstances have changed, get back into it.
Do safe investments exist?
When it comes to investments, your capital is always at risk. It’s important to only take these risks with the money you are prepared to lose, as well as taking into consideration the investments that are safer than others.
Indices, such as the S&P 5004 or the FTSE 2505 are a way of investing into multiple companies within one fund. Here is an example of the average yearly returns across some of the most popular indices since their inception.
| Indexes | Average Annual Return Since Inception | Source |
| S&P 500 | 10.50% | Investopedia4 |
| Dow Jones | 8.70% | Wealth Simple6 |
| FTSE 100 | 7.75% | IG |
| FTSE 250 | 8.01% | Backtest5 |
A phrase all new investors should understand is "time in the market is better than timing the market". This means that rather than investors waiting to buy stocks at a cheaper price, or trying to perfectly align when to buy/sell a stock, it’s better to consistently buy stocks and hold them for a longer period of time. This means risk is lessened and returns are proven to be greater over longer periods of time.
Above is just an example of how compound interest works, you can learn more about it here.
There’s no better example of this than compound interest. Compound interest is something potential investors should learn about prior to starting their investment journey. Compound interest is the interest you earn on both your invested capital and the long-term accumulated interest of that capital, which has the potential to stockpile over time. At present, it’s nearly impossible to source savings accounts offering 5% interest rates, which is why proactively investing in products like shares and ETFs is more attractive for potential investors.
For example, if you were to simply invest £1000 and earn 5% interest on that investment per year, after one year it will be worth £1050. While this might not seem like much at first, in 25 years’ time it will be worth over £3000.
This is a great example of the power of regular investing, without the need to try to ‘time’ the market. If you can potentially triple your investment with just £1000, imagine what you can achieve with regular investing over time.
Develop your investing skills with us
Whether you’re a first timer or just simply looking to brush up on your investing knowledge, start working towards your investment goals with us today.
This information has been prepared by IG, a trading name of IG Australia Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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