How do I start investing?

Q. How do I start investing? I want to start but don’t know how

A. Don’t worry, you are not alone! And well done admitting to your unpreparedness rather than jumping straight in anyway, as regrettably many do, and putting your money into the things your friends happen to be talking about at the moment, such as tech shares or cryptocurrency.

Investing can be very simple or incredibly complicated. If you want to make all your investment decisions yourself, it will require you to do a lot of work to understand the basics and then apply what you have learnt to making specific decisions about where to invest your money – about which shares or funds to invest in. Learning the rules and applying them successfully is hard: even professional investors who spend their lives on the task frequently stumble.

But I’m going to assume that you want to keep things as simple as possible. If, as I assume, you are relatively young and want to invest for the long term, perhaps for retirement, there is a very straightforward option for you that in all likelihood will produce returns just as good as you might get from a far more sophisticated approach.

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The first thing to say about this simple option is that it involves investing all your money in the stock market. While other approaches exist, and in other circumstances combining shares with other assets is advisable, for a young first-time investor the stock market offers the most straightforward path to generating significant long-term wealth.

To be specific, the simple option we have in mind for first-timers is to put their money into a fund that will invest it in the shares of a very large number of companies from all over the world. Such a fund is called a ‘global tracker’ because it aims to track the performance of the world’s stock markets in aggregate. So if those stock markets grow, on average, by 10% in a particular year, so will your fund.

You might be thinking that a better approach would be to focus instead on particular countries – America is currently far and away investors’ favourite – or to attempt to pick the best companies. But the evidence suggests that investment strategies based on trying to identify the best economies or the best companies struggle to perform better than that simple tracker fund. The tracker gives you a huge amount of ‘diversification’ – you have your eggs in many baskets – and it does so at a very low cost. More sophisticated approaches will cost more, and those costs have to be recouped and more before you as the investor see any benefit from them relative to the tracker fund.

This, by the way, is the opinion of no less an authority than Warren Buffett, the world’s most celebrated investor. His advice to his executors about how to invest his money on behalf of his widow after his death was to choose a simple tracker fund. One global tracker fund is the Legal & General Global Equity Index Fund, which features on our Select 50 list of recommended funds. By the way, whether you choose this fund or any other, be sure to opt for the ‘accumulation’ version and not the ‘income’ one. If you are investing for the long term, you want the income produced by your investments to be used to buy more of them; the ‘accumulation’ version of a fund does this automatically for you.

Another key tactic for a new investor is to invest regularly – every month, say – rather than via a big lump sum. The danger of the latter course of action is that you put a large amount of money into the market at the wrong time, just as it is peaking (some commentators believe that the US market, which represents a large proportion of the global stock market, is at unsustainable levels just now).

While over a very long time horizon investing even at such an inopportune moment may not stop you making good gains, it would certainly be a big psychological blow if you invested tomorrow and the stock market promptly halved – perhaps an unlikely scenario but not an impossible one. It might put you off investing for life. But you can do away with that risk if you ‘drip-feed’ your money into the market month by month.

If you put in the same amount every month, you automatically buy fewer shares (or units of a fund) when prices are high, and more when prices are low. So you even benefit from a fall in the market. 

• Read more on investing regularly

If you want to take a slightly more active approach to choosing your investments, you might want to consider funds chosen by professional investment analysts. One selection of such funds is Fidelity’s Select 50 list.

You have only two other decisions to make. The first is which investment platform to use – naturally we hope you’ll opt for Fidelity – and the second is the type of account in which to hold your investments. You can choose between an ISA, a SIPP (a type of pension) and an investment account. The first two offer significant tax breaks and are the obvious choices if they are available to you. 

If you want to learn more about investment once you have made your first fund choices, our website offers a wealth of content, which we add to constantly. You can receive a selection of our investment articles in your inbox regularly if you sign up to our email newsletters here.

Important information -  investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on personal circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.