10 investing tips for newcomers

What you’ll learn:

• Smart ways to construct your portfolio.
• How to spread risk.
• Ensuring investments are tax-efficient.

Lockdown prompted many people to take up new hobbies. Investing was a popular choice, it appears.

New Smart Investor account openings were up by 88% in 2020, when compared to 2019.

Research from Barclays Smart Investor shows that over 8 in 10 new investors plan to keep up their investing habits once restrictions are lifted.

Nearly half (43%) plan to make small sacrifices to balance their post-lockdown spending with their newfound hobby.

When asked where they might make these savings, 72% said expensive dinners and meals out, with a third limiting daily coffees (29%) and after work drinks (27%).

The next step for these savvy savers is to ensure they are well equipped to become savvy investors too.

Here are 10 tips for new investors to get on the right track:

1. Don’t be a follower of fashion

This avoids letting one area of investing dominate your savings and risking having all your eggs in one basket. Diversification – spreading your money across various companies, regions and industries – is crucial to make sure you’re not relying on one type of investment too heavily. This helps to protect your portfolio and reduce the overall risk of losing money. You can also keep savings in cash as another way of diversifying your overall portfolio.

2. Avoid buying anything you don't understand

Make sure you understand exactly what your money is investing in before you commit. If something isn’t clear, find out more – our Research Centre can help. Or if in doubt, leave it out.

3. Spread risk by investing in funds

Instead of buying shares in individual companies it’s possible to invest money in a fund which offers the opportunity to invest in shares of lots of different companies. Money is pooled with that of other investors, and invested by a fund manager in companies that have potential to generate returns.

4. Research the funds

While you might not opt to spend all your spare time reading up on investments, it’s crucial that you take the time to get your head around exactly what your money is invested in and the level of potential risk involved.

To get an initial flavour of how a fund works check out our funds list. Here you can find an overview of a fund, how the manager runs it, a little about the company behind the fund and crucially, why we like it. The Key Investor Information Document (KIID) provides important information to help with your decision making. There is also a fund factsheet for each fund, that you might find useful.

5. Invest regularly

Monthly payments into your funds will help you to smooth out the highs and lows in share prices. When they go up, the value of your shares rise and when they go down, your next contribution buys more. Be aware that fees could outweigh costs of very small regular investments.

6. Harness the power of compound growth

Leaving money invested for the longer term allows you to benefit from compound growth, which can turbocharge your returns . This is how it works: If you invest £10,000 and you receive 5% in income, after the first year you will see £500 added to your investment pot.

In the second year as well as earning returns on your original £10,000, you also make gains on the £500 growth. Should the rate of income remain at 5%, your investment of £10,500 would grow by £525 - a total of £11,025.

In subsequent years, the same formula applies, meaning your money grows at a faster rate by leaving the gains invested.

The 5% growth assumption here is simply for illustration purposes.

7. Ignore short-term noise

When markets fall it’s natural to worry about what that means for the value of your own investments. It might be tempting to sell your holdings, but it’s worth remembering that losses are only on paper unless you sell your investments. Always think long-term.

8. Keep funds under review

Ensure that your choices are still suitable, particularly if your circumstances change.

9. Resist chopping and changing

While reviewing funds is important, you don’t want to be buying and selling the whole time. This goes against the popular theory that patience is a trait of a smart investor. It can also bump up costs as buying and selling triggers charges.

10. Use your tax-free allowance

Each April investors are given a fresh ISA allowance which allows you to shelter up to £20,000 from tax. You don’t have to invest all of your ISA allowance as a lump sum if you’re not sure how or where to invest. You can add the money to your account and hold it in cash until you decide how to invest it.

Getting invested

The Barclays Funds List is a great place to start. Our list is made up of a number of funds from each of the investment sectors we believe are key for building a diversified portfolio.

Not sure how to choose?

The Barclays Ready-made Investments (RMI) is a range of diversified funds which allow you to select the level of risk you are most comfortable with. These multi-asset funds invest in passive funds across a range of asset classes and regions, offering a globally diversified one-stop solution for investors. Ready-made Investments are not the only funds that we offer and they won’t be appropriate for everyone.