How to invest money with minimal risk
Doing nothing with your money reduces its value, so how do you balance the desire to invest with a cautious approach? Discover how to invest money with minimal risk in this article.
This article is not advice. If you would like to receive advice on your savings and investments, consider speaking to a Financial Adviser.
Investing can seem intimidating, especially if you’re new to it. But there are ways to reduce your risk and make money, especially if you have a large lump sum.
In this article you’ll learn how to invest money with minimal risk, why time grows your investments, and how to start investing in the UK.
If you’re already an investor, read our guide on how to minimise risk in your investment portfolio.
What is investment risk?
The chance of making money on an investment weighed up against the likelihood you’ll lose it. Every investment has some level of risk, so it's important to find the right balance for you.
The best place to invest money without risk doesn’t exist
There’s always risk in finance – even if you keep your money in a low-interest account. The future is uncertain, and banks can fail if too many people withdraw their money at once.
But if you learn how to invest while minimising risk, you can grow your money in the long term.
Time, consistency, and structure can minimise risk
Here’s how to lower your investment risk:
- invest gradually over a long period of time
- set up automatic payments in banking apps to stay consistent
- choose low-risk investments, like index funds, which spread your money across many companies
What are index funds?
An index fund is a type of investment that tracks a specific stock market index, like the S&P 500, FTSE 100, or Nasdaq 100. It lets you invest in many companies at once, reducing risk by spreading your money across multiple businesses.
Are index funds a good investment?
How you invest your money is up to you. Nobody knows what the future holds, so you must decide how much risk you’re willing to take on.
Since 1985, the FTSE 100 index has increased by 584%. This is despite the financial crisis of 2008 and the COVID-19 pandemic of the early 2020s.
Cautious investors spread their money across different companies and focus on long term growth, rather than trying to predict changes in the short term.
The FTSE 100 has increased by 584% over 40 years.
Let’s explore how to invest money in the UK for a cautious investor, looking to build their first balanced portfolio.
How to invest money in the UK
Step one: set money aside to invest
You can start investing with a small amount of money. It’s important to decide on an amount that works for you. In general, you should consider investing an amount that you could lose without worrying about it.
You can set regular payments to go out via online or mobile banking. This means you can automate buying investments on payday, making your payments less noticeable to encourage a sustainable investment habit.
Step two: open an account
There are multiple ways to invest in the UK. Some investors use a traditional broker, some automate investing, and others prefer to pick their own investments. Check the fees before you invest, as some platforms charge more than others.
Not all brokers or platforms will let you invest in index funds. But here are three of the most popular platforms that do:
Institutions like the FCA (Financial Conduct Authority) regulate financial businesses. You should always check that the provider of the service is properly regulated. If you’re still uncertain, you should speak with a Financial Adviser before spending your money.
A handful of platforms let you open a Stocks and Shares ISA, which shields your profits from tax. You can pay a maximum of £20,000 into ISAs every year.
Step three: invest your money
If you’re new to investing, start with small low-risk investments to learn the basics. While you build confidence, keep extra cash in a high-interest savings account to protect it from inflation. That way, you'll have money set aside for when you're ready to invest more.
Lower-risk investments grow more slowly. But over time, if gains remain consistent, your investments can achieve considerable results.
Where to invest money to get good returns for beginners
In general, picking low-risk funds can make money over the long-term, though there are no guarantees. Short-term investing tries to profit from market swings, but it’s risky – even experts make mistakes.
That’s why many investors build a balanced portfolio, containing a range of investment types. Spreading your risk helps protect your money from unexpected market changes.
How do you identify investment risk?
Most investments come with a risk rating, but grading systems can be confusing. A good rule of thumb is that the higher the rate of return, the greater the risk you’ll lose money. This is because high interest is often used as an incentive to finance riskier ventures.
If the variability of investing in stocks and shares is unappealing to you, then you could consider buying fixed-rate bonds. This means that you know exactly how much you’ll earn over a set period, but there are downsides to this approach too.
Consider cash: making the most of your savings
Keeping cash in high-interest accounts helps it grow over time.
Your AER (Annual Equivalent Rate) should be higher than inflation – otherwise, your savings lose value.
With Flagstone’s savings platform, you can compare and access exclusive savings rates from 60+ banks, all in one place.
Frequently asked questions on how to invest money
Where should I put £20,000 in savings in the UK?
Nobody can tell you where to invest your money, but £20,000 is enough to max out your annual ISA allowance. This means you could invest it in a Stocks and Shares ISA and spread the funds across several types of shares, including individual companies (higher risk), and index funds (lower risk). Any money you earn from an ISA, either in the form of interest or dividends, is tax free.
While you decide how to invest, you can earn high interest on your cash by spreading it across multiple savings accounts with Flagstone. This can help your money grow and protect its value against inflation.
Is investing worth it?
In most cases, yes. But it’s important to decide whether making fast, riskier gains or a steady increase over time is better for you. Most investors seek to balance their investments to enjoy the benefits of both, with the understanding that they can lose money on their riskier investments.
How to invest money with minimal risk
Risk is an inevitable part of investing, so protecting your money matters. But risk tolerance varies – some people are more comfortable with risk than others. Your attitude to risk can also change over time, due to all sorts of factors including:
- your age and how close you are to retirement
- your financial goals and current income
- market conditions and economic conditions
Cautious investors can make money that outpaces inflation. But only if they set themselves up for success by structuring their investments and savings strategically.
More ambitious investors, with a higher risk tolerance, can scale their investments to generate passive income streams.
