Investing seems complex when you first start, but picking the right investment funds for beginners can make it much more straightforward, and give you an easy on-ramp to building your wealth over the long term.
So if you’re wondering how to begin investing, picking out one or two top funds could be a great place to start.
“Investing is a measured and long-term process,” says Rob Morgan, chief investment analyst at Charles Stanley. “It 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.”
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Investment funds are a particularly good option for beginners because they offer a convenient way to manage the level of risk you’re taking. Investing in a fund spreads your money, and therefore your risk, across dozens of different companies.
There are funds for almost any type of investment, from sustainable funds that can grow your wealth while making a positive impact, to AI funds that track the world’s most cutting-edge technology.
What are the different types of investment funds?
There are several types of fund, including:
Each has its advantages and disadvantages. But the simplest and most relevant for beginner investors are ETFs.
An ETF is a fund that trades as a single share on a stock exchange. Its price changes in real time according to changes in the price of the assets it tracks. You can buy and sell it in a stocks and shares ISA, just as if it was a stock.
There are ETFs for almost everything, but beginners might be particularly interested in ETF index funds. These track a specific index, such as the UK’s FTSE 100 or the US’s S&P 500.
“If you’re not sure which companies you wish to own, you may want to consider a tracker fund, or an ETF,” says Claire Exley, head of advice and guidance at J.P. Morgan Personal Investing. “These will allow you to hold a small amount of, for example, every company listed in the FTSE 100.”
Index funds are usually low-cost: because they just track an index, there’s not much to pay by way of management fees.
Best of all, they usually outperform more active stock-picking strategies. AJ Bell’s December 2024 Manager versus Machine report found that only 33% of actively-managed funds (IE, those where the manager decides when to buy and sell stocks, rather than just tracking an index) outperformed a passive alternative.
Six funds for beginners
With input from Morgan, we’ve picked out six investment funds for beginners, which we’ve shared below.
Fidelity Index World
Risk level: medium-high
A low-cost, cheap tracker fund is a great starting point to gain exposure to a market or sector, giving you convenient ownership of all or most of the companies that make up that market’s index.
Fidelity Index World is a good fund for beginners to consider because it provides a convenient tracker for the global stock market.
But individual tracker funds can become skewed towards dominant parts of the market. Morgan cautions would-be investors that Fidelity Index World is currently heavily weighted to the US market and big tech stocks in particular, given their dominance of the global stock market.
Personal Assets Trust
Risk level: medium-low
Multi-asset funds are made up of multiple asset classes, offering a short cut to a diversified portfolio.
“If you have a good idea of the risk you want to take, and you want a hands-off approach to managing your investments, they could be a great option,” says Morgan.
Personal Assets Trust (LON:PNL) is a multi-asset investment trust that sets out primarily to avoid losing money in inflation-adjusted terms (making it a less risky investment compared to funds that are more concerned with growing wealth than preserving it).
The portfolio comprises four main asset types: equities, bonds, cash and gold.
This has proved a resilient combination. The returns from each of these asset classes tend to rise and fall independently of one another, meaning that it can hold up even in changing market conditions.
That makes it a tempting fund for beginner investors that are worried about the possibility of losing the money they put into their stocks and shares ISA.
Vanguard LifeStrategy Funds
Risk level: variable
Another form of mixed-asset fund suited to beginner investors is the Vanguard LifeStrategy range. The advantage of this range is that it has several different funds, each with a different risk profile, so investors can select the one that best suits them.
Interactive Investor includes three in its quick-start fund range for beginner investors: 20% Equity, 60% Equity and 80% Equity, though the full range also includes 40% and 100% equity options. The remainder of the portfolio is invested in bonds.
As a rule of thumb, the higher the percentage of equities, the higher the risk profile, and the higher the potential returns. Historically, a 60/40 portfolio, comprising 60% equities and 40% bonds, was viewed as balanced. Another rule of thumb is to subtract your age from 100, and invest that percentage of your portfolio into equities.
Royal London Short Term Money Market Fund
Risk level: low
Money market funds are an effective way to generate a cash-like risk profile within a stocks and shares ISA, and as such are rising in popularity as cash ISA reform rumours bubble.
In essence, money market funds invest your money as if it was cash. They tend to generate returns just above the Bank of England base rate.
Interactive Investor includes Royal London’s Short Term Money Market Fund in its quick-start range, and characterises it as very low risk. This is a very cautious option: your investment is very likely to fall in value with a money market fund, but it’s also unlikely to grow much beyond inflation.
M&G Global Dividend
Risk level: medium-high
One of the most important, but often-overlooked, aspects of investing in the stock market is dividends. These are the payments that companies make to their shareholders. Ultimately, it is dividend payments – or the expectation of future dividend payments – that gives shares their value.
A resilient stream of dividends is therefore a highly-prised trait in any company, and some funds set out specifically to hold companies that pay a reliable dividend. Not only will they pay you an income, but their share price will likely perform reasonably well too.
M&G Global Dividend harnesses the power of such dividend stocks, with a global perspective. It holds a wide variety of companies and could be of particular interest to investors seeking a rising income from their investments.
Scottish Mortgage
Risk level: high
Scottish Mortgage (LON:SMT) is one of the best-known investment trusts for innovation-led growth investing.
Investing is a risk trade-off. Lots of businesses that are relatively small and early-stage now have the potential to grow substantially over the long term, but there is a lot of uncertainty over whether or not they will do so, and in what timeframe.
Technology companies epitomise this. Those at the cutting edge can change the entire global economy, and generate huge returns for investors when they do so: just look at the explosive growth of businesses like Nvidia during the rise of artificial intelligence. But ten or even five years ago, no-one could have confidently predicted how fast Nvidia’s business would grow.
Growth stocks like these can often be volatile over the short term too. Their shares get priced up when the market is growing, as investors price in lofty growth expectations. But when markets turn, this can quickly make them look overpriced, prompting a selloff and sharp declines in their price.
Morgan believes that anyone taking a long-term approach to investing ought to consider investing in a fund that looks for long-term growth through technological innovation. They ought to be able to ride out short-term volatility and reap the long-term rewards.
Scottish Mortgage invests in private companies like Elon Musk’s SpaceX or TikTok owner ByteDance, as well as those listed on global stock markets, offering opportunities that are otherwise hard for beginner investors to access.