Now you have just got to do it
There is nothing much to be said about investing in cash. Look at Cash or any number of other sources of advice. Don't forget to use the tax reliefs available to you if you haven't already used them for equities (see below).
Equities: fundamental rules
To invest in equities (or cash) there are only three rules:
- you must minimise costs,
- you must use your tax reliefs.
- you must have some diversification.
Notice there are no rules about stockpicking or value investing or 'buy low, sell high' or any of the other mantras that so interest amateur investors. Provided you diversify you do not need to worry about any of this for Simple Investing. This ought to be a relief.
The way you go about following the fundamental rules will depend on your wealth and other personal factors. Here are some guidelines.
The easiest way to invest in equities is through an investment product like a fund. But once you do this you are paying the costs of the product provider. You need to be sure that they are worth paying.
Some funds have sufficiently low fees that they are a natural step for those dipping their first toe into equities, giving diversification at low cost.
Many savers find themselves driven towards inappropriate products because they assume that direct investing is too difficult or too expensive or only for the wealthy. This is no longer true, and you should break this mindset by making a few direct investments as early as you can.
Note that tax plays no part in this decision. You get most tax advantages from wrappers, not from products. Taxation of products is different, not better or worse.
You will probably need a SIPP provider, an ISA provider and an execution-only broker (the larger brokers are called 'platforms'), eventually. They are as easy to set up and operate as an online bank account. Pay particular attention to the costs of each account, and whether you would save money by using just one provider. Pay particular attention to the information on SIPPs and ISAs (don't be misled into thinking these are investments - they are not, they are 'wrappers' in which the investments lie)
The best and most complete broker comparison table comes once a year in Investors Chronicle.
Your first decision is how much to put in a SIPP and how much in an ISA (or its even smarter sister, LISA) . The tax advantages of a SIPP are considerable, but you are locked in until retirement. Only you can decide if the one is worth the other. An ISA gives less tax benefit but is more flexible (you can always take your money out). You will also want to consider whether any of your ISA allowance should be invested in cash.
Don't forget that ISAs and SIPPS are tax free forever (or until the legislation changes). If you invest outside your ISA without using the full allowance you are making a bet that you will never pay tax on the income from that investment. In fact we cannot think of any circumstance where it would be right for you to invest outside your ISA while still having unused annual ISA allowance.
Whatever equities you have left will be invested through your brokerage account.
To achieve adequate diversification with individual shares you need at least 10 and preferably 20 different shares. That is why you will probably start with trackers. Remember it's the diversification across your whole portfolio that matters, not diversification within each wrapper.
Refine & Execute
Now you are ready to go. You can evaluate the cost and convenience of product alternatives against your base plan of direct investment.
- There's nothing wrong with starting with one single, low-cost, well-diversified tracker. E.g. one that tracks the total world stock markets. Own it for a year, see how you feel.
- You may want to buy a few well-diversified funds instead of 20 shares: fine, see if it's cheaper, or if you feel more comfortable.
- You may find that the costs of equity investment are higher than you thought and you'd like to revise your plans: fine, that's what planning is for.
- You may........
But remember this: you should aspire to direct investment in your own accounts. That will always be the cheapest and best way of investing in equities with any reasonable amount of money. You may never achieve that aspiration, like you may never achieve a perfect diet, but in both cases you need to understand the consequences of the choices you are making.