How to start building your nest egg this Easter

Rob Morgan outlines some key principles for those just starting to invest or thinking about doing so.

| 6 min read

Taking up investing to build a nest egg for the future can be daunting at first, and just thinking about financial goals can be stressful. Fortunately, you don’t have to be an expert to start your investing journey and a few basic investing tips can set you well on your way to achieving your goals.

How to build a nest egg this Easter

1. Get your head around investing

Demystifying the financial world can be a challenge. However, the earlier you grasp the basics, the more opportunity you have to reap the rewards of good habits. Our ‘new to investing’ page can be a valuable resource if you're starting out. It explains the basics, as well as the risks of investing. It's a great place to start and build up your knowledge.

You can follow beginner investor Erica’s investment journey through her videos, which includes some of the best investment tips for beginners on topics such as:

  • When you should start thinking about investing
  • Understanding risk
  • How the main types of investments – shares and bonds – work
  • Diversification – the cornerstone of sensible investing
  • How to invest tax efficiently to boost long term returns.

You can also follow Erica’s journey on Instagram. Alternatively, our articles and videos are posted on our Facebook, Twitter and LinkedIn pages.

2. Be an investor, not a speculator

Speculating in shares, cryptocurrencies or commodities might seem alluring and fun, but it’s a form of gambling rather than investing. Rapid gains can quickly turn to losses, which might be fine for those who can afford to lose their money but certainly isn’t for those who can’t.

In contrast, investing is a measured and long-term process. It still involves taking risk but doing so in a way that minimises and mitigates it to more reliably harness the growth available across global economies and individual companies. The most important factor in investing is time, which is why anything less than five years is considered too short a period. Stock markets sometimes endure downturns lasting several years. Many people’s first experiences of stock markets are speculative before they come to understand that longer term investing tends to win out – a case of tortoise and hare.

3. Don't put all your eggs in one basket

If you invest too much in one area you can be too reliant on its fortunes. Diversification can allow you to secure strong long-term returns but without excessive risk and reliance on one or more areas. It’s the process of dividing your investments between different investments, as well as different asset classes, such as shares, bonds, property, cash and others.

By investing in a fund, you are spreading your money and risk across dozens of different companies, either managed by an expert or designed to track an index. That’s why investors often use funds to provide wide-ranging exposure to a market or asset class.

For funds investing in shares, a single fund typically offers 50 to 80 holdings – ideal for the investor without the time or inclination to select their own. By holding several funds specialising in different areas, you can build a very diversified portfolio quickly and simply.

It’s even possible to invest in a well-balanced portfolio covering lots of different areas of the stock market as well as other assets through a single funds. These ‘multi-asset’ funds can offer a great short cut for new investors and are designed to achieve a broad investment objective and keep to a certain level of risk.

Find out more about funds

4. Use tax-efficient allowances

It is important to shield your growing nest egg from the erosive effects of tax. ISAs, or Individual Savings Accounts (ISAs), are a valuable shield against tax for UK investors. You can currently put away up to £20,000 a year in ISAs, and any income or investment gains are free from income tax or capital gains tax. This could be even more important this year following reductions in the dividend allowance and capital gains tax allowance.

ISAs are available either as Cash, which is like having a tax-free bank or building society account, or Stocks & Shares where your money can be invested in a variety of assets in search of higher returns. A Stocks & Shares ISA could deliver a higher return than Cash ISAs over the longer term but there is a risk the value of your investments could fall – especially in the short term.

While ISAs can be accessed at any time, pensions are often a more effective means of investing specifically for retirement owing to the tax relief available on payments into them. Currently, anyone under 75 with relevant UK earnings can receive tax relief when they contribute within the annual allowance to a personal pension such as the Charles Stanley Direct SIPP. A top up of 20% is automatically added in the form of basic rate tax relief, any further higher or additional rate income tax relief can be reclaimed – a potentially a simple way of reducing your income tax bill for the year and investing efficiently for retirement.

Find out more about Stocks & Shares ISAs

5. Get some help if you need it

Learning all the investment principles can be daunting but you don’t have to do it on your own. Financial Coaching could be just what you need if you are a beginner and have lots of questions to ask. You can choose exactly what you want to talk about, and it can give you the answers you need to start thinking clearly about your next steps.

Sorting your finances and having a clear plan can have a positive impact more broadly on life and wellbeing. What’s more financial coaching is also very accessible. We offer a free, no commitment, 15-minute call to discuss your needs with a qualified financial planner, and you can then opt for a more in-depth video call at a fixed hourly fee of £150 if you want to get the further help you need to make the right decisions.

What is a financial coach?

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

Investing basics guide

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The information in this article is based on our understanding of UK Legislation, Taxation and HMRC guidance, all of which are subject to change. The tax treatment of pensions depends on individual circumstances and is subject to change in future. This article is solely for information purposes and does not constitute advice or a personal recommendation.