How to invest to make your money work harder (2024)

A nationalobsession with squirreling savings away in secure cash deposits rather than choosing potentially higher-earning alternatives costs households more than £30 billion in lost returns last year.

Despite earning the lowest interest on savings for 20 years, savers piled into cash at a greater rate than ever in 2017 – with the total balance in deposits reaching a record high of £1.32 trillion.

Analysis by website Steps to Investing suggests savers who put aside in cash the recommended three months of household income as a financial safety net would be far better off investing any surplus in shares.

Had they done this last year rather than leaving money at the mercy of low saving rates they could have collectively earned more than ten times the income – £35 billion from share dividends – than the meagre £3.4 billion in interest on cash.

Follow our step-by-step guide to beating cash apathy and getting started in equities:

1. REMEMBER SOME CASH IS GOOD

Keepenough cash savings for emergencies – three months of household income is the rule of thumb.

It also represents the best place to build a pot for short- term goals such as a deposit on a home. Find the best rates in This is Money's independent best buy savings tables.

2. DO YOUR RESEARCH

Beforeinvesting, do some research. Ben Yearsley, investment expert at Plymouth- based Shore Financial Planning, says: ‘Do not just jump in and buy the first investment you read or hear about.

'Find investments – shares or funds – you feel comfortable with. Once you have invested do not keep looking and worrying about day-to-day performance.’

Look at specialist financial publications, newspapers and websites to build financial knowledge, including This Is Money.

3. EDUCATE YOURSELF ON INVESTING

First have a read through This is Money's DIY Investing section, which is aimed at those who want to invest themselves.

Download our free guide How to be a successful investor, which explains everything that you need to know about investing in jargon-free, easy-to-understand language.

Impartialwebsites such as the Money Advice Service are a good place to begin self-teaching.

The websites of banks and other financial companies, although not impartial, do offer a wealth of information that can be tapped into, even by those not wishing to buy their products.

For example, Janus Henderson’s Steps To Investing website includes videos aimed at demystifying investment while Santander Bank’s Investment Hub offers educational material about investing.

4. REDUCE RISK

You need to make sure that your investments are diversified, which essentially means don't put all your eggs in one basket.

If you buy just a few shares, then you are at risk of being hit hard if bad news befalls those companies. Rather than picking individual company shares, consider purchasing collective investments such as funds or investment trusts.

These are run by fund managers who invest in a range of companies, spreading your risk for you. Even if one holding performs badly, others will hopefully perform better, therefore smoothing out overall fund returns.

You should also consider holding other assets as well as shares or funds that invest in them.

Bonds have traditionally been considered less risky investment that deliver lower rewards but do not suffer the same volatility as stock markets.

For information about investment trusts visit the website of The Association of Investment Companies at theaic.co.uk. Fund listings and analysis can be found at Trustnet.

> How to invest in funds and investment trusts

5. STUDY FUND TYPES

Many people start investing using ‘tracker’ funds. These are passive funds because they mirror the performance of a specific stock market such as the FTSE All Share Index. They are popular because charges are low. But if stock markets drop, these funds follow them down.

The alternative is an active fund where managers make their own decisions about where to invest. Charges are higher but may be worth paying if the fund performs and beats the index.

> Read ourIndex Investingsection to find our more about trackers

6. DISCOVER WHAT LIES BENEATH

Nervous investors often start with a cautious investment fund which will split exposure across equities, property, bonds and cash.

Yearsley says: ‘These funds will not turn you into an investment millionaire but nor will they crash and burn if markets take a turn for the worse.’

Ones to consider include Investec Cautious Managed, Neptune Balanced Fund, Hargreaves Lansdown Multi-Manager Equity and Bond and Baillie Gifford Managed.

> Read This is Money's 50 best funds round-up

7. INVEST LITTLE AND OFTEN

Beginby making regular monthly contributions rather than a single lump sum investment.

Starting a long term plan when younger, even with modest amounts – say £50 a month – will allow a pot to grow steadily over the years, relatively pain free.

> How to invest in an Isa easily

8. ASSESS YOUR ATTITUDE TO RISK

Fewpeople are comfortable with the idea of losing money. But just as powerful is the regret of being too cautious.

The best response is to spread money across different investments. Get help with assessing attitude to risk from a qualified financial adviser.

Find an adviser through Unbiased at thisismoney.co.uk/adviser or with rival service vouchedfor.

Alternatively try the Personal Finance Society atthepfs.org.

9. BUY SHREWDLY AND THINK ABOUT HOW YOU DO IT

Online investing services allow investors to choose from the wide range of funds, investment trusts and shares on offer - and manage their investments easily.

The best one for you will depend on how you plan to invest. Do you want to pick shares or funds yourself, keep costs low with passive investing, have someone help you with model portfolios or use a robo-adviser that does pretty much everything for you.

This is Money's investing platform tool can help you work out which is the right for you depending on how you choose to invest. You can also read our guide to what the different DIY investing platforms offer here.

Holly Mackay, of consultancy Boring Money, knows a thing or two about the best ways to buy investments. She offersher tips here on using online wealth management and model portfolio services that do the hard work of picking investments for you.

Among her favourite companies for newbie investors are Wealthify (where you can start investing with just £1), Nutmeg, Hargreaves Lansdown and Vanguard.