By now you should have ticked off steps 1-3 of our Money-Smart Guide (go back to read them now if you haven’t). You’ve conquered debt, built an emergency fund, and understand your account options. Now, let’s dive into the most powerful wealth-building tool: investing early.

 

What is investing?

Investing is when you buy assets like stocks, funds, or bonds, with the aim that they’ll appreciate in value.

Investing can be a great way to grow your money over the long term and can offer higher returns than a current or savings account. It’s best suited to longer term goals (at least five years) as this gives your money time to ride the highs and lows.

While investing does involve risk – and you should expect some ups and downs along the way – historically speaking markets have tended to rise in value over the long term.

🎓 Read more about the investing basics.

 

Why should you start investing now?

Investing isn’t just about growing your money – it’s about having time on your side and using it to create lasting wealth. Starting early gives you a significant advantage, particularly with the magic of compound interest and the stability of pound-cost averaging.

 

Compound interest: your magic wealth multiplier

Compound interest is the snowball effect of investing or saving. It’s earning gains not only on your initial investment but also on the accumulated interest. Think of it as your returns earning returns!

  • How it works: If you invest £1,000 and earn a 7% return, you have £1,070 after a year. The next year, you earn 7% on £1,070, not just the original £1,000. Over time, this difference becomes substantial.
  • Why it works: The earlier you start, the more time your money has to compound and the higher your potential returns. This is why “time in the market” is more important than “timing the market.”

 

How pound-cost averaging smooths out market volatility

Pound cost averaging is a strategy where you invest a fixed amount of money at regular intervals, regardless of the asset’s price. This method helps you buy more shares when prices are low and fewer when prices are high.

  • How it works: Instead of trying to time the market, you consistently invest, say, £100 per month. This means you’ll capture the average return of the market.
  • Why it works: It can reduce the impact of market volatility and eliminates the risk of investing a lump sum at the market’s peak. Over the long term, you could end up with larger gains than if you only invest once or twice a year.

 

How to invest with confidence

Whether you’re an newbie or a seasoned investor, Moneybox makes it easy to invest.

  • Three simple starting options: Choose from Cautious, Balanced, or Adventurous options, each built by experts and including diversified tracker funds.
  • Build your own portfolio: Select from a range of tracker funds, ETFs, and individual US stocks.
  • Use your ISA allowance: Invest up to £20,000 each tax year with a Stocks & Shares ISA.

Open a Stocks & Shares ISA today to get started today and get tax-free gains on investments up to £20,000 per tax year. Plus, you’ll earn 3.8% AER (variable) on any money you hold as cash before investing it.

Capital at risk. ISA and tax rules apply.

Explore Moneybox Stocks & Shares ISA

Remember these investing essentials

  • Time in the market: Focus on long-term growth, not short-term fluctuations.
  • Ride out volatility: Avoid panic-selling during market downturns.
  • Consistency is key: Regular investing maximises the benefits of compound interest and pound-cost averaging.

Investing faux pas to avoid

  • Trying to predict the market: It’s all about time in the market, not timing the market.
  • Panic selling: If you sell as soon as you see your investments dip, you could experience a greater loss.
  • Not investing consistently: Don’t miss out on the benefits of regular investing to capture the average return of the market!

 

Capital at risk. All investing should be long term. The value of your investments can go up and down, and you may get back less than you invest.

Tax treatment depends on individual circumstances and may be subject to change in the future.