Building a strong financial foundation: A guide to personal investing for beginners

Becoming financially secure is a goal of many UK adults. Once you have a bit of a safety net, you may begin to look at ways to expand your finances and turn your sights to investing.

Investing isn’t quite the exciting world the film industry portrays it, but it can give you a bit of a thrill. Some newbie investors like to start by working with professionals to guide them which is a sensible choice.

If you are thinking about personal investing but aren’t sure, here’s a rundown of the basics to help inform your decision.

Understanding financial goals and risk tolerance

One of the first rules of investing is that there will be risk. How much of that risk you are willing to tolerate is up to you. The general rule of thumb is the higher the risk, the higher the potential rewards. However, it is not recommended that you jump in both feet first.

Use your financial goals as a guide initially. For example, you may need to generate £5,000 for a new car which means you can afford to be cautious and start by investing smaller sums of money in more secure options.

Exploring investment types

When you start looking into investing you will notice that there are lots of different asset types for you to invest in. The most common are stocks, bonds and mutual funds.

For beginners who are looking to dip their toe into investing, stocks and shares are the simplest options. Start by picking a few shares in a company, buy them and then keep an eye on them. You will notice that the market fluctuates. This is where the risk comes in. If you sell your shares at the wrong time, you could lose your money. But if you get it right, you may end up with a profit.

Basics of portfolio diversification

You may be tempted to stick to industries that you have some knowledge in as you invest more, but this creates unnecessary risk. If you do this and the industry is hit with issues such as labour strikes, crop shortages or supply issues, you risk losing a lot of money. Economic issues can be hard to predict, but keeping an eye on the news will help to inform your investments.

Prioritising diversification within your portfolio helps to spread the risk around, minimising the risk of losing everything.

Avoiding common beginner mistakes

When you are investing with your own money, it can be easy to get emotionally invested when making decisions. Investing your hard-earned money is a tough thing to do, especially as you are aware that you risk losing it. Try to separate the emotion from the investment. This allows you to make more logical, level-headed choices.

Research is key when it comes to investing. Make sure you take your time to really look at the entity you are considering. Look at their ESG reporting as well as their financials – you want to make sure they have a long and prosperous future which you can profit from.