If you’ve built up savings but haven’t taken the plunge into investing, you’re not alone. The Financial Conduct Authority says around seven million UK adults with at least £10,000 in cash are missing out on the benefits of investing.
Experts point to worries about risk and limited knowledge, with Aberdeen Investments finding a £20,000 gap in pension pots between those with poor and good financial literacy.
Whether you’re a first-time investor or more experienced, Which? answers five key investing questions to help you make the most of your money.
Please note: the content contained in this article is for information purposes only and does not constitute financial or investment advice.
1. What’s the best way to start investing?
Before you begin, make sure your finances are in good shape and you have a safety net in place. It’s also worth setting clear goals – whether that’s growing your money over time or generating a regular income.
Once you’re ready, you’ll need to decide what to invest in. A financial adviser can guide you, though many people prefer to make their own choices.
Beginners often start with low-cost index funds, which give broad market exposure with less risk. More confident investors may opt for individual shares or alternative assets such as commodities or corporate bonds.
You’ll also need to choose an investment platform to buy and sell through.
- Find out more: best investment platforms 2025
2. How do I calculate my return on investment?
Return on investment (ROI) is one of the most important metrics an investor should learn. Expressed as a percentage, ROI measures the profit generated by an investment relative to its cost.
For example, if you invest £1,000 into an asset, and the value grows to £1,200 after one year, your ROI is 20% for that year.
ROI is a good way to track the performance of your investments over time. You can also look at past returns to help you decide where you want to invest next.
Most investment platforms will give you the one-year and five-year returns for shares and funds. You may see multi-year returns expressed as ‘annualised returns’, which simply averages the annual return across the entire period.
ROI has its limitations, so you should also consider other measurements of performance, such as net asset value (NAV), which measures the overall value of an entity’s assets minus its liabilities (such as debt or pension obligations).
For companies and investment funds, NAV is typically expressed as a per-share value, and helps you understand how much that share is worth after accounting for liabilities.
- Find out more: how to begin investing
3. Why is the stock market down today?
Markets move for many reasons, including global events, economic data and government announcements.
For example, in 2022 the mini-Budget under former Prime Minister Liz Truss triggered a sharp sell-off in UK government bonds, pushing up borrowing costs and shaking investor confidence.
In contrast, the boom in artificial intelligence, including tools such as ChatGPT, has helped drive up the value of tech stocks in recent years.
It’s important not to get too caught up in daily rises and falls. A well-diversified portfolio is the best defence against volatility, and investing should always be seen as a long-term commitment.
4. How can I diversify my portfolio?
Diversification means spreading your money across different types of investments so you are not relying on one area alone.
A common approach is asset allocation, where you split your portfolio between cash, bonds and shares. It also helps to invest across industries that do not always move together, such as banking and consumer goods.
You can further reduce risk by looking beyond the UK and investing in global markets, thereby minimising exposure to regional downturns.
- Find out more: how to balance your investment portfolio
5. What is passive investing and how does it work?
Passive funds, also known as tracker funds, are designed to follow the performance of a market index such as the FTSE 100 or Dow Jones. They usually do this by buying shares in all the companies in that index, in proportion to their market value.
Actively managed funds are different. These are run by portfolio managers who select shares, bonds and other assets with the aim of outperforming the market. Holdings will often change as managers respond to shifts in the economy.
Passive funds usually cost less to run; ongoing charges are sometimes as low as 0.1% a year. That is £1 for every £1,000 you invest.
- Find out more: how to invest in funds