A beginner’s guide to investing for young people

Why should young people start investing?

In 2023, inflation averaged 4.5%, meaning money in low-interest savings accounts is losing value in real terms. Investing can help you outpace inflation, preserving and growing the purchasing power of your money.

Starting early can significantly boost your wealth thanks to compound interest. For example, investing £100 a month from the age of 20 could grow to around £111,000 by the age of 50, assuming a 5% annual return. If you start at the age of 30, the same investment would only grow to about £62,000 by the age of 50.

Investing helps you achieve long-term goals like buying a home, starting a business, or saving for retirement. It's more effective than relying solely on savings.

Beginner-friendly investment products

Here’s a breakdown of the main investment products available in the UK:

• Individual Savings Accounts (ISAs):
  A tax-efficient account allowing up to £20,000 per year into investments like shares, funds, and bonds or cash. No tax on profits or dividends. Start with as little as £25–£100 per month.
• Lifetime ISA (LISA):
  Designed for saving for a first home or retirement. Under 40s can contribute up to £4,000 per year and receive a 25% government bonus (up to £1,000 annually).
• Investment Platforms and Apps:
  Apps like Moneybox, Plum, and Freetrade are beginner-friendly, allowing small, regular investments with minimal effort. Features like round-ups (investing spare change) make it easy to start.
• Workplace Pensions and Private Pensions:
  Auto-enrolment means most people are contributing to a workplace pension. Employers match contributions, giving ‘free money’ towards retirement. Check your pension statements regularly and consider increasing contributions if you can.

Key points to consider

• Start small, start now:
  You don’t need large sums to begin investing. Platforms allow contributions from as little as £1–£25 per month. Starting early helps overcome risk through time in the market.
• Focus on diversification:
  Spread investments across different asset classes like shares, bonds, and funds. Index Funds and ETFs are beginner-friendly options that track entire markets, providing instant diversification with low fees.
• Understand risk and reward:
  Investments can fluctuate, but historically, markets trend upwards over the long term. Younger investors can take on more risk because they have time to recover from downturns.
• Avoid high fees:
  Small charges can erode long-term returns. Choose platforms with low fees—look for fees below 0.5% annually.
• Build a financial safety net first:
  Ensure you have an emergency fund of 3–6 months’ living expenses in a high-yield savings account before investing.

Mistakes to avoid

One common mistake is chasing ‘get rich quick’ schemes. These often involve unregulated investments, such as cryptocurrency scams or ‘hot stock tips’, which can be highly risky and lead to significant financial losses. Instead, focus on more stable, regulated investment options.

Another mistake is not doing enough research before investing. Always ensure that you are using FCA-authorised platforms and take the time to understand the basics of investing. This knowledge will help you make informed decisions and avoid potential pitfalls.

Finally, panic-selling during market drops is a mistake that can undermine your long-term investment strategy. Market volatility is normal, and it's important to stay invested for the long term rather than reacting impulsively to short-term market fluctuations. By maintaining a steady approach, you can better weather market downturns and benefit from eventual recoveries.

Conclusion

Investing as a young person is one of the best decisions you can make for your financial future. By starting early, using beginner-friendly tools and avoiding common pitfalls, you can set yourself up for financial success.

At Crowe Financial Planning, we can help you:

• understand the basics of investing and assess your risk tolerance
• choose the right products, from ISAs to pensions, tailored to your financial goals
• build a sustainable, long-term investment strategy to grow wealth with confidence.

The value of investments can fall as well as rise. You may not get back what you invest