Money Lesson 4:
Invest for the long term
Types of Assets You Can Invest In
Ownership in companies
Loans to companies or governments
Real estate investment
Like gold, silver, or oil
Including fine wine, art, and even cryptocurrency
If you’ve set up a budget, managed your debt, and started saving for short-term needs, the next area to focus on in your financial life is investing.
Investing is about growing and protecting your wealth over time. While saving is essential for short-term goals and financial security, investing helps your money grow over the long term — for example, to fund your retirement. In fact, you might not think of yourself as an investor currently, but if you have a job, chances are you already are investing through your workplace pension!
Investing can seem complicated at first, but with the right approach, it can be straightforward and accessible to anyone. In this article, we’ll break down the essentials to help you feel confident taking your first step into the world of investing.
What is Investing?
Investing means putting your money into assets, which are things you believe will increase in value over time, with the goal of selling them later for a profit. Unlike simply keeping cash in a savings account, investing gives your money the potential to grow faster.
In this article, we’ll focus on stocks and shares and bonds, as they are among the most popular and accessible options—especially with modern investment platforms that let you get started with as little as a few pounds. They are probably also what your pension is invested in - so it’s worth understanding a bit more about them!
Why should you Invest?
The main reason to invest—rather than just save—is that it gives your money a much better chance to grow over time and keep up with rising prices.
When you leave money in a savings account, it usually earns a small amount of interest. But prices of everyday things like food, energy, and travel tend to rise over the years. This is called inflation. If your savings don’t grow faster than prices increase, your money won’t go as far in the future as it does today.
Let’s look at an example using the interactive calculator below. The default setting shows what happens if you start with £20,000 and add £250 every month for 20 years—either into a savings account or by investing.
After 20 years:
Saving could grow to about £91,000
Investing might grow to around £182,000 — nearly double!
This shows how investing can help you build more wealth over time than saving alone. Try adjusting the numbers to see how your own goals and timeframes could impact the results.
So saving is fine for the short term as inflation will have little impact over this period. But over the long term, inflation will have a big impact so its importanty to invest rather than save to keep ahead.
What Are the Risks of Investing?
However, there’s a reason investing has the potential to deliver higher returns than saving: it comes with risk.
When you save money in a traditional savings account, it’s almost entirely safe. You’re guaranteed to get back what you put in, plus a small amount of interest. Even in the unlikely event that your bank runs into trouble, there are protections in place. For example, in the UK, the Financial Services Compensation Scheme (FSCS) protects deposits up to £85,000 per person, per institution. This low level of risk is why savings accounts tend to offer relatively low returns.
Investing is different. The value of investments can go up or down, and there are no guarantees. You could end up with less than you originally invested—especially in the short term. That’s why investments are designed to offer higher potential returns—to compensate for the added uncertainty.
But this doesn’t mean investing is something to fear. In fact, risk is a normal and necessary part of the process—it’s what creates the opportunity for your money to grow. The key is to understand and manage the level of risk you’re taking, so that it aligns with your personal goals, time horizon, and comfort level.
Later in this guide, we’ll walk you through practical strategies for managing risk, so you can invest with confidence and make informed decisions about your financial future.
How to get started with investing:
Check Whether Investing is Suitable For You
Before you begin investing, it’s important to make sure it’s the right step for you at this point in your financial journey. While we can’t give you personal financial advice, we can highlight some general questions to help you decide whether you’re in a good position to get started.
Do you have an emergency fund?
Before you invest, make sure you’ve set aside 3–6 months’ worth of living expenses in an accessible savings account. This acts as a safety net for unexpected costs—like urgent repairs or job loss—so you’re not forced to sell investments at a loss in an emergency.
Do you need the money within the next 5 years?
While it might seem tempting to skip saving and put all your money into investments, that strategy is risky. Beyond your emergency fund, any additional money you'll need in the short term, typically within the next five years, should be kept in savings rather than invested. This includes funds for a holiday, a new car, a house, etc.
The reason is that investment values can fluctuate significantly in the short term. If you invest money you might need within the next five years, there's a risk it could decrease in value just when you need to withdraw it. By reserving only long-term funds for investments, you allow yourself to weather market volatility, increasing the likelihood of withdrawing your money when its value has grown.
Are you comfortable taking some risk?
With investing, risk and reward go hand in hand. The more risk you take the greater the potential reward. No investment is risk free. Your money could go up and down in value and there is no guarantee you’ll get back what you put in.
Ask yourself what level of risk you’re willing to take (high, medium or low?) as this will guide what investments are suitable for you. This is often referred to as your ‘risk tolerance’.
If you’d have sleepless nights if your investments dropped in value, you may be better off choosing a lower risk profile. But if you’re investing for the long term, most people can take some risk—especially when it’s reduced through diversification. The longer your timeframe, the more risk you can usually afford to take.
Select an Investment Platform
If you've checked that investing is suitable for you, the first practical step is selecting a platform.
Historically, if you wanted to invest in stocks and shares you would need to have a broker who could place the trades for you. Brokers were often costly and may only accept people with large amounts of money, which made investing inaccessible to many people. However, in today’s world investing in stocks and shares is readily available to everyone via online platforms. It’s cheap, easy to set up, and you can start with as little as £1.
To start, the first thing you need to do is select an investment platform to use. With numerous platforms available, it's essential to choose one that aligns with your financial goals and offers reliability and security, especially amidst the prevalence of scams in the investment space. Here are key factors to consider when selecting an investment platform:
1. Reputation
Opt for well-known platforms with a proven track record and positive reviews from users. A reputable platform inspires confidence and ensures the safety of your investments.
2. Fees
Assess the fee structure of each platform. This can be complex, as platforms charge in different ways. Look at account fees, trading commissions, and FX charges. Even small fees can eat into long-term returns.
3. Features
Consider the user experience, educational tools, customer service, and mobile app functionality.
4. Investment Range
Ensure the platform offers the types of assets you’re interested in: stocks, funds, ETFs, bonds, etc.
5. Level of Support
Choose between:
- DIY platforms – You make all the investment decisions yourself.
- Ready-made portfolios – Choose from pre-built portfolios based on your risk profile.
- Financial advice – For personalised guidance (typically more expensive).
Not sure which investment platform to choose?
We’ve done the research for you. Check out our in-depth comparison table where we review fees, features, account types, and more—so you can find the right platform for your needs.
Compare Investment PlatformsPopular Investment Platforms
| Investment Platform | Overview | Financial Penguin Rating | Website |
|---|---|---|---|
|
Top pick for long-term investors looking for a full-featured, highly reputable platform. Offers a wide range of investments including funds, shares, SIPPs, and ISAs. Known for excellent research tools and customer service. Higher fees reflect the depth of features and trusted brand. |
5/5 Coins | Visit Site ↗ |
|
Best for Managed Portfolios. Ideal for hands-off investors. Backed by J.P. Morgan, offering professionally managed portfolios tailored to your risk level. Great for those wanting simplicity without picking individual investments. |
5/5 Coins | Visit Site ↗ |
|
Best for Low-Cost and Casual Investing. A standout platform for commission-free trading of stocks and ETFs. Great for hobby investors with an easy-to-use app, no trading fees, and competitive FX rates. No SIPPs or funds (yet). |
5/5 Coins | Visit Site ↗ |
Investment Platform
Investment Platform
Investment Platform
Open an Account & Deposit Funds
General Investment Account
No contribution limits or tax advantages. Gains and dividends may be taxed. Typically, this account suits individuals who have already utilised one of the other three accounts mentioned below, which provide tax advantages.
Stocks and Shares ISA
This account allows tax-free investment in terms of capital gains and income tax. However, there's an annual contribution limit, set at £20,000 for the 2024–2025 period, subject to future adjustments. Note that you can only open one Stocks and Shares ISA per fiscal year, and it's unavailable to those under 18. If you haven’t exhausted your ISA allowance, leveraging this account before opting for a General Investment Account is advisable due to the tax benefits.
Junior ISA
Designed for children, a Junior ISA offers similar tax benefits to the Stocks and Shares ISA. Parents or legal guardians can open this account, which becomes accessible to the child at 18. The contribution limit for the 2024–2025 period is £9,000, and like the adult ISA, this limit is subject to change. Withdrawals are restricted until the child turns 18, ensuring the funds are reserved for their future. Again, if your child hasn’t utilised their ISA allowance, prioritising this account over a General Investment Account due to its tax advantages is prudent.
Self-Invested Personal Pension (SIPP)
Ideal for long-term retirement savings. A SIPP is a personal pension that you have complete control over. While many have workplace pensions, a SIPP provides the flexibility to control your investment choices with the added benefit of tax relief on contributions. Contributions are tax-free until withdrawal, and a general rule for UK taxpayers allows tax relief on contributions up to £40,000 annually, a figure that encompasses both your contributions and any tax relief received. However, access to SIPP funds is restricted until you reach 55, a threshold that may adjust over time. If you anticipate needing access to funds before this age, opting for an ISA or General Investment Account may be more suitable.
When exploring investment platforms, you’ll encounter a variety of accounts each offering distinct tax advantages and contribution limits. Selecting the right account is crucial for maximising your investments. In the UK there are several options:
Once you’ve selected your account you’ll want to top it up with some funds. Most platforms allow you to link a bank account and deposit funds from this account straight away free of charge.
Decide What to Invest In
Once your account is set up, it’s time to choose your investments. There are three main types to consider:
Types of Investments
1. Stocks (Shares)
Stocks represent ownership in a company. When you buy a share, you're buying a stake in that business. You can earn:
- Capital gains – if the share price increases.
- Dividends – if the company pays out profits.
Platforms now allow fractional shares, so you can invest in companies like Apple even with a small amount.
2. Bonds
Bonds are loans to companies or governments. In return, you earn fixed interest (coupon payments) over a set period. Bonds are generally lower risk than stocks and are popular for stability and steady income.
3. Funds
Funds group together money from lots of investors to buy a mix of assets — like stocks and bonds — giving you instant diversification. Great for beginners!
Types of funds include:
- Mutual Funds (OEICs)
- Investment Trusts
- Index Funds
- ETFs (Exchange-Traded Funds)
You can choose actively managed funds (a professional picks the investments) or passive funds (which track a market index like the FTSE 100).
Choosing between stocks, bonds, and funds depends on your goals, risk comfort, and personal interests. Here’s a quick guide to help you decide:
If you’re younger or comfortable with ups and downs, stocks offer higher potential returns.
If you prefer more stability and lower risk, bonds might be a better fit.
If you're not sure where to start, funds are a great beginner-friendly option.
You might also want to invest in areas you care about — like technology, healthcare, or UK-based companies. That’s totally fine! But remember: don’t put all your eggs in one basket.
Spreading your money across different investments — called diversification — helps reduce risk. If you're picking individual stocks, building a well-diversified portfolio could mean owning shares in 20–30 different companies, which can be tricky to manage.
That’s where funds come in.
If you’re just starting out, cautious with risk, or investing a small amount, a fund is usually the easiest and safest place to begin. You can pick a fund focused on something you’re interested in, or if you want a simple, no-fuss option, go for a global index fund. These invest in thousands of companies around the world, have low fees, and give you instant diversification — all with minimal effort.
While we can’t recommend specific investment funds to you. Here’s a list of the most popular investment funds traded in 2024 in the UK, based on Interactive Investors Data, to help you understand what you might look for:
| Rank | Fund Name | 1Y | 3Y |
|---|---|---|---|
| 1 | Royal London Short Term Money Mkt Y Acc | +5.3% | +11.9% |
| 2 | L&G Global Technology Index Trust | +37.7% | +52.4% |
| 3 | Vanguard LifeStrategy 80% Equity A Acc | +13.2% | +15.4% |
| 4 | Vanguard US Equity Index | +25.7% | +34.7% |
| 5 | Fidelity Index World P Acc | +21.0% | +30.2% |
| 6 | HSBC FTSE All-World Index C Acc | +19.4% | +27.1% |
| 7 | Vanguard LifeStrategy 100% Equity | +16.8% | +24.2% |
| 8 | Vanguard FTSE Glb All Cp Idx £ Acc | +18.3% | +24.8% |
| 9 | Vanguard LifeStrategy 60% Equity A Acc | +9.7% | +7.2% |
| 10 | UBS S&P 500 Index C Acc | +27.6% | +39.4% |
Source: Interactive Investor / FE FundInfo. Performance data to 31 December 2024.
Past performance is not a guide to future returns. Fund values can go down as well as up.
Embrace Regular Investing
Instead of putting in a big lump sum every now and then, many investors find it helpful to invest a small amount regularly — say, £50 into your chosen fund each month. This approach offers several benefits:
Smooths out market ups and downs through a technique called pound-cost averaging
Builds a consistent investing habit
Reduces the pressure of trying to “time the market”
Can be automated, making it effortless
Most investment platforms let you set up automatic monthly contributions straight from your bank account. We recommend doing this as soon as you get paid — that way, your investments grow in the background without you even thinking about it.
Let your investments grow & review periodically
The key to successful investing is patience. Let your investments grow over time, and avoid reacting emotionally to short-term market changes.
That said, it’s wise to review your portfolio once a year to:
Check performance
Rebalance if needed
Adjust your contributions or risk level based on life changes
Great work — you’ve now got a solid understanding of what investing is, why it matters, and how it can help you grow your money over time. By putting your money to work, you’re taking a powerful step toward long-term financial health and building wealth for the future.
The next step on your financial journey is making sure you have the right insurance in place — to safeguard yourself, your income, and your loved ones if life throws something unexpected your way. In our next lesson, we’ll cover the types of insurance worth considering, and how they fit into a strong financial plan.