While cash savings might seem like a simple, low-risk option, investing some of your wealth could potentially deliver higher returns and help your money keep pace with inflation.
Yet, research published by FTAdviser has found that 1 in 5 UK adults lack investing knowledge and have never heard of a Stocks and Shares ISA.
Moreover, a study by Lloyds Banking Group has revealed that 50% of UK adults are scared of investing, with 38% stating that complicated jargon is the cause of their anxiety.
If you’d like to make your money work harder by investing but you’re not sure how to get started, learning these three key investing terms for beginners might boost your confidence.
1. Asset class
When you begin building an investment portfolio, you’ll need to decide where you want to put your money.
While there are thousands of investment opportunities to choose from, they’re grouped into a handful of “asset classes”.
An asset class is a group of investments with similar characteristics. While there are many different asset classes, there are four main types:
It’s important to get to grips with the different types of asset classes as this will help you to “diversify” your portfolio…
2. Diversification
Imagine that you put all or most of your money in domestic investments. This “home bias” could mean that the overall value of your portfolio will fall if there is a downturn in the UK economy.
In contrast, “diversifying” your portfolio by spreading your money across a variety of asset classes, sectors, and geographical locations could reduce your overall risk.
This is because different types of investments respond to market conditions in different ways. So, if one of your investments performs poorly, others may perform better, which could offset any losses.
As such, diversification may also help smooth out your returns over time and enhance growth opportunities.
Read more: How one powerful chart shows the importance of diversification
3. Pound cost averaging
This is a strategy that involves investing a fixed amount of money at regular intervals, regardless of how the market is performing at any given time.
The idea is that you’ll buy more shares or units when the prices are lower and fewer shares when the prices are higher, potentially reducing the average cost per share over time.
This approach could also reduce the risk of making emotional decisions or knee-jerk reactions to any short-term fluctuations in the market.
Read more: 4 compelling reasons to focus on “time in the market” rather than “timing the market”
As an example, suppose you decide to invest £100 every month in stock. If the share price is:
- £5, you buy 20 shares
- £2, you buy 50 shares
- £10, you buy 10 shares.
No matter what the price is, you stick to your monthly fixed investment amount.
Over time, this could lower the average cost you pay per share – compared to what you might have paid had you invested all your money at once when the price was high – and gives you an average of the market’s return (hence the name) in the long term.
Get in touch
If you’d like to learn more about how to develop an investment strategy that aligns with your needs and goals, we can help.
To find out more, please get in touch. Email hello@sovereign-ifa.co.uk or call us on 01454 416653.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
Approved by Best Practice IFA Group Ltd on 19/05/2025