Five things you need to know if you’re starting investing for the first time, according to experts

Investing can be an excellent way to grow your wealth – often at a faster rate than cash saving. But many are averse to it because of the perceived potential pitfalls, with recent research by wealth manager Rathbones finding more than a quarter of Britons view investing as too risky. If this is you, but you’re wanting to get started for the first time, then there are plenty of key need-to-knows, which we run through below. Shorts You are likely already investing – via your pension Though only around two in five Britons have invested in stocks and shares according to research by personal finance website Finder, far more are doing so without knowing. Around 82 per cent of employees in the UK have a workplace pension. For most people, this money is being invested. Your workplace pension is likely to be invested in a mix of assets – company shares, government and corporate bonds (debt), property, and cash. The money will be managed by your employer’s chosen provider and unless you chose a specific fund yourself, your money is automatically placed into the scheme’s default investment option. If you’re worried about getting started with investing, Chris Beauchamp, chief market analyst at investment platform IG says your pension is “a brilliant place to start”. He said you could look at changing some of your pension investments yourself. Experts generally say that with investing, you’re best working over a period of many years, as it gives you a chance to recover from slight corrections or market dips. “With your pension you have the luxury of a longer-term timeframe,” Beauchamp said. Make sure you’re using tax-free allowances Crucially, experts say the best place to start with investing is to use tax-free allowances. You can put £20,000 into ISAs each year, and the growth is tax-free, whereas if you invest in a general investment account, you may have to pay tax on your gains. Sarah Coles, head of personal finance at investment platform AJ Bell, says: “It’s worth starting with a stocks and shares ISA, because all growth and income is tax-free – and you don’t need to put any details on a tax return either. “If you’re happy tying the money up to age 55 (rising to 57 in 2028) you can also invest in your pension [where growth is also tax-free]. Most people have an annual allowance that’s equal to their salary, or £60,000, whichever is lowest. “If you want to invest more than £20,000 a year and need access to the money, you can do so in a general trading account, but be aware you will need to keep track of gains and income and declare them to HMRC.” You can earn £3,000 in gains per tax year (April to April) before having to worry about capital gains tax (CGT), but after that you will pay a rate of 18 or 24 per cent on your gains, depending on the level of income tax you pay. Invest diversely People often think of investing as stock picking – selecting individual companies and hoping they rise in value – but that does not need to be the case. “Investing doesn’t have to be about researching and selecting individual company stocks. In fact, often the best strategy is to keep things really simple,” says Craig Rickman, personal finance editor at interactive investor. One option for doing this if starting out is to invest in what is known as exchange traded funds (ETFs) – which are essentially a package of different investments that you pay a small fee to invest in. “The advantage of these is that they spread your investment over hundreds of companies at once, so if some of them perform poorly, others may perform better and offset them,” adds Coles. If you still feel daunted by this, you can get someone to choose investments for you. “If you’re not comfortable choosing your own investments or building a portfolio from scratch, managed portfolios can help,” says Rickman, though beware there will be extra fees for doing this. Keep some cash as well While investing can produce better returns than cash over a long-term timeframe, you can lose money as well as gain it. You don’t want to have to withdraw from your investments when your stocks have dipped, so you should keep some cash reserves for emergencies, such as a boiler replacement or a new car. “As a rough rule of thumb, you should be working towards having enough cash to cover three to six months’ worth of essential spending in an easy access account for emergencies,” explains Coles. Don’t panic if things go wrong If you do end up facing a dip in your investment portfolio’s value, experts say you should resist the urge to panic sell. “Investing is a long-term game, and up and downs are par for the course, so selling shares when markets drop is best avoided as you may turn paper losses into real ones,” Rickman says. There are some circumstances where you can consider selling in a calm manner. “If falls expose the fact you were taking more risk than you thought, or were too heavily overweight in some areas, you may want to make changes to rebalance your portfolio, but don’t feel you need to make extreme or sudden moves,” says Coles. Susannah Streeter, chief investment strategist at Wealth Club sums things up by saying: “Ultimately, successful investing is less about predicting every twist and turn in the market and more about having a plan, spreading your risk and sticking to it over the long term. “For investors who have done their homework, diversified their portfolios and kept enough cash for emergencies, market volatility is part of the journey.”