A beginners guide

All investments carry some sort of risk, so it’s important to be aware of how your money could be affected. Not all risk is equal, so the potential for gains or losses may vary from one investment to another.


This guide can help with…


  • Learning the basics
  • Understanding your financial goals
  • Your investment options
  • Getting started and understanding the risks

Step 1: The basics of investing?

An investment in its simplest form is when you buy something with the hope of it increasing in value. However, when you invest there are no guarantees and you could receive back less than you invested.

When you first decide to invest you don’t need to start with a large sum of money, just be comfortable with the amount of money that you choose to invest.

There are a number of different ways that you could choose to invest, including stocks and shares and funds.

Step 2: Why do people invest?

If you have savings and you'd like to try to grow your money over the long term, then you could consider investing some of it.

You can also save for the future in cash accounts and the interest can also provide additional income and liquidity should you need it. The downside to cash savings is that inflation can eat away at the value of your savings over time.

We show the possible impacts of inflation in the table below. Investing does come with greater risk than cash savings.

Average inflation

What £1,000 will be worth over time


Average Inflation


2.5% inflation

5.0% inflation

7.5% inflation

10.0% inflation


5 years

2.5% inflation


5.0% inflation


7.5% inflation


10.0% inflation



20 years

2.5% inflation


5.0% inflation


7.5% inflation


10.0% inflation


Step 3: What’s your reason for investing?

Invest for income

If you want to create income from investing one option is to choose investments that provide regular payments. For instance, shares may pay a dividend and a bond pays interest.

Invest for growth

Investing for growth is the aim of increasing the value of your investment known as capital gains. If you were investing in stocks and shares for example, growth would be the result of an increase in the price of the shares.

Compound growth

If you re-invest any income from your investments the overall value may increase faster and help you reach your financial goals. Both the original and the added income will accumulate any growth.

Most investors will invest for both growth and income, for example an income investor could use the income from their investments and reinvest this with the aim of generating, and a growth investor might sell their investment to gain an income.

Step 4: Your Investment options


When you purchase shares you’re buying a stake in a company. Shares are traded throughout the day on the stock exchange and the price can go up and down.

  • Pros: Capital gains

If you choose your stocks and shares wisely they could rise in value over time. Shares have generally provided better returns than cash if you're investing for a longer term, although this isn't guaranteed.

  • Cons: Capital losses

If you were to invest a company that isn't growing in value then the share price could drop. This can result in a loss of money to your investment.


A fund is a collective investment. Which means that your money is invested with other peoples. This is used to buy a mix of different assets. This may include shares, bonds, cash and more. This helps spread your risk.

  • Pros: Diversification

Funds spread their holdings across a number of different sectors, markets and stocks which can reduce the risk. If one holding performs poorly over a certain period, then you have a chance of other holdings performing better which can reduce the potential losses to your investment portfolio.

  • Cons: Liquidity

Some funds, such as property funds, may need to sell assets to pay people withdrawing money from the fund. If the asset is difficult to sell there could be a delay in receiving your money.

Exchange Traded Funds (ETFs)

Exchange Traded Funds trade on a stock exchange like shares. However unlike shares, which are focused on one company, ETFs invest in a range of assets and are designed to track an index, a commodity, a sector or currency.

  • Pros: Lower fees

The benefit of ETFs is cost effectiveness. They offer lower fees due to lower operating costs.

  • Cons: Performance

Performance - ETFS are trackers - they aim to match market movements rather than trying to outperform it.

Please note: We are not able to trade or hold US listed ETFs.

Investment Trusts

An investment trust is a company that raises money through selling shares to investors and then pool the money to purchase and sell a range of investments. Investment trusts can vary with different aims and mixes of shares and assets

  • Pros: Potential returns

Investment trusts have extra features such as being able to borrow money that may increase potential gains but also increase risk.

  • Cons: Potential Price Volatility

The price of an investment trust can be influenced by the demand for the share. In a scenario where investors don’t feel the investment trusts is being managed as well as expected then this can impact the price when investors want to sell rather than buy.

Bonds and Gilts

Bonds and gilts are a way for companies or governments to raise money which is done by borrowing money from investors. When you invest in a bond or gilt you’re lending money to a company or government which in return provides a fixed rate of interest.

  • Pros: Stability

Bonds and gilts have lower risks than stocks and have the potential to provide a more stable return over time.

  • Cons: Growth Potential

The drawback of bonds and gilts is that they don’t provide higher long term returns compared to other stocks. Bonds and gilts can be impacted negatively by changes to interest rates, economic uncertainty and currency fluctuations.

Step 5: Are you ready to invest?

Before you make the next step to invest, please read the below statements and make sure you agree with all of them:

  • You have a minimum of three to six months net income easily available to cover any emergencies and any planned spending over the coming years.
  • You agree to take some risk in investing.
  • You are ready to invest for at least 5 years.
  • You don’t hold significant short-term debts, because they could cost you more in interest than the amount of return you see on your investment.
  • You’ve carried out your own research and feel confident that it’s the right time to invest.

Ways to invest

If you’re not sure about investing, seek financial advice. There will normally be a charge for that advice. You may be eligible for financial advice through our partnership with Schroders Personal Wealth.

Important legal information

The Lloyds Bank Direct Investments Service is operated by Halifax Share Dealing Limited. Registered Office: Trinity Road, Halifax, West Yorkshire, HX1 2RG. Registered in England and Wales no. 3195646. Halifax Share Dealing Limited is authorised and regulated by the Financial Conduct Authority under registration number 183332. A Member of the London Stock Exchange and an HM Revenue & Customs Approved ISA Manager.

Important share dealing information