Saving and budgeting can sometimes be a real challenge.

That’s the reason why we decided to build Plum, to begin with!

And even if you have your finances under control and you’re consistently saving for your future, you may be left wondering what to do with your money.

Inflation can erode the actual spending power of your cash unless you can earn a rate of return to outpace it. So it’s essential to have a plan in place if you want to protect, and even grow your wealth over time.

One way to do this is by keeping your money in a savings account, but during times of high inflation (as we’re currently witnessing in the UK) your money may still be losing value if the interest rates offered are unable to keep up.

If you’re looking for a way to make your money work for you, by hopefully earning a return, you can consider investing it.

There are many different types of investments, including real estate or precious metals, but a common option is to buy company stocks/shares (either directly or contained within an investment fund).

Please remember that, as with all investing, your capital is at risk. You shouldn’t invest in or deal in any financial product unless you fully understand it and the inherent risks.

What are company stocks/shares?

A share is a unit of ownership for a particular business.

When a company wants to raise money it can issue stock and sell a fixed number of shares on the stock market.

The stock market is a blanket term that refers to the general trading of company shares. Investors will typically trade shares on a stock exchange, which is an institution that connects buyers and sellers of stocks.

There are numerous stock exchanges around the world, with some notable examples including the London Stock Exchange (LSE), the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotations (NASDAQ).

Investors can buy ‘fractional shares’, based on the amount of money they want to contribute. But certain benefits, like voting rights and dividend payments, may be reserved for investors who hold at least one whole share.

Why do people invest in the stock market?

The potential returns available when you invest can be far greater than the rate of interest you might earn in a bank.

However, unlike a savings account, where money is protected by the Financial Services Compensation Scheme (FSCS), any money you invest is at risk. So, whilst any investments you own are also protected, you could lose money if the value of those investments goes down.

People choose to invest in stocks hoping that the company's share price will increase. In this case, they may be paid dividends, or they can resell some or all of their shares at a higher price to earn a return on their investment.

What are the potential benefits of buying shares?

So far we’ve covered the reasons why people choose to invest, generally. But what specifically what advantages are offered by company stocks/shares:

1. The chance of a higher return (and greater losses)

If you choose to invest in a single business that you trust, you can get the full effect of any gains or losses, when compared to a portfolio that is diversified with many different companies. But you could be in for a bumpy ride!

2. Back a business you believe in

With up to 3,000 company stocks to choose from, you can invest in a business that aligns with your own values and even cast your vote on decisions affecting its future direction (if you own more than 1 share).

3. Earn an ongoing income from investments

If you own stock in a company that chooses to pay dividends to shareholders when they turn a profit, you can consolidate a return on your investment without needing to sell any of the shares you own.

When’s the right time to invest?

Only you can decide what’s right for your finances. But a few questions may be able to help you decide if now is a good time for you to start investing.

Q1. Have you paid off any high-interest debt?

Overdraft fees and credit card interest payments can mean you end up treading water rather than clearing the original debt. So before you think about investing for your future, think about clearing debt first.

If you’re paying off multiple debts then paying them off with a single debt consolidation loan could give you some breathing space to pay them off. You might be able to reduce the total amount you have to repay by securing a lower rate of interest (the 'Annual Percentage Rate', or APR).

Q2. Do you have an emergency fund in place?

An emergency fund is a savings pot that can be quickly accessed to cover essential living expenses, should something bad happen.

Your emergency fund can cover unexpected costs, like car repairs. Or to cover essential bills if you suddenly fall ill or lose your job.

Investment strategies can take many years to come to fruition. And being forced to cash in some or all of your investment at a time when short-term market conditions might be unfavourable, could cost you financially. That’s why it’s worth putting a financial buffer in place before investing.

Q3. Have you set clear investing goals?

Setting clear financial objectives will help you pick the style of investing that best suits you and determine what success looks like.

There’s no right or wrong way to invest, but having a clear strategy and defined goals can guide you through the decision-making process when you’re building and managing your portfolio.

You might be focused on trying to chase the maximum returns, or maybe more concerned with managing risk. Investors can also use the power of their capital to back socially responsible causes that align with their personal values, such as ESG investments (Environmental Social & Governance).

If these questions have confirmed that you feel like you’re ready to start investing for yourself, read on for more essential investing info!

What are some general investing tips?

This article is no substitute for a financial advisor. But if you’re just setting out on your investing journey, there are some general pointers which can help you at each step of the process:

Tip 1: Do your research

Knowledge is power. Having an understanding of how the stock market works and how different assets (e.g. stocks, bonds and funds) might behave may help contextualise the impact of world events on your portfolio value.

Tip 2: Pick the right platform

There are numerous investment platforms and apps in the UK, ranging from full-service brokers to robo advisors and DIY solutions. You’ll typically pay more for a bespoke service, but you can read more about fees below.

Tip 3: Decide your risk tolerance

There is always an element of risk when investing. This risk will tend to relate to the potential returns you might expect to receive and/or the length of time you anticipate you’ll need to keep your money invested.

Tip 4: Diversify your investments

A specialised portfolio will leave you more exposed to potential volatility in its market value. To try and counter this you can select a mix of assets in terms of industry, geography and class (e.g. real estate or precious metals).

Tip 5: Optimise your portfolio

When you start investing, it’s wise to be realistic about your expectations. Nobody gets it right the first time or all of the time. Start small, never invest more than you are prepared to lose and be prepared to fine-tune your selection of investments and your asset allocation.

What about investing fees and charges?

Whichever way you choose to invest, there will be fees and charges that apply. These fees may be structured slightly differently, depending on the trading platforms you use and the type of investments you pick.

Below are some of the most common costs that apply when investing. You should consider these in relation to the strategy you intend to pursue when picking the right investment app or platform for you:

• The monthly subscription charge is the ongoing cost you need to pay to have access to your platform of choice
• Platform provider fees are the costs associated with building and running whatever app or platform you use
• Investment management fees are the costs for any investment advice (incl. managed portfolios) or investment fund management
• Trading app commissions and currency conversion ‘FX markups’ are costs you pay if you place a buy/sell order (e.g. for a US stock)

How to invest in stocks

If you’ve made it this far, let’s assume you’ve decided to invest. And that company stocks are an appropriate investment for you, given your own financial position and appetite for risk.

The next question is how to buy shares for yourself.

Once you’ve decided on your strategy, it’s simple to trade stocks through the Plum mobile app. Meaning you can manage all your savings and investments in one place! Here’s how you can start investing in 3 simple steps.

1. Set your own Rules

Part of Plum’s power is our automated tools, but you always stay in control of your investments. You can deposit manually, or use our smart Rules to help you automatically set aside small amounts to fund your investments.

If you use automatic solutions, you should periodically review whether this option is suitable for your circumstances and investment time horizon.

This principle is the essence of dollar cost averaging, a passive trading strategy in which you merely attempt to keep pace with the financial markets (rather than trying to beat them by investing a lump sum at a strategic time).

2. Choose your stocks

We have up to 3,000 individual stocks for you to choose from. Just decide how much you’d like to invest in a particular company and we’ll buy as many shares (or fractionals) as we can, according to the share price at the time.

Alternatively, you can set up Price Alerts to notify you when your chosen instrument reaches the desired price.

3. Invest with low fees

The minimum investment is £1 and you can place an unlimited number of commission-free trades (though an ‘FX’ currency conversion markup and regulatory charges still apply).

What other investments are offered by Plum?

Although, as we’ve already covered, there are some distinct benefits of investing in company stock. Investors looking for a simple way to diversify their portfolio may look to include investment funds.

Investment funds are managed by a professional fund manager, who will seek to maximise returns while achieving a specific aim.

A fund’s aim could be to focus on a certain sector, such as Technology or Healthcare. Or a fund might attempt to mirror the performance of a particular stock exchange or index, like the S&P 500 or FTSE all-market index.

Funds allow everyday investors to pool their money and take advantage of efficiencies from operating as a group. This means that funds can be heavily diversified (which means they contain lots of individual assets, in the hope that any losses only affect a small portion of the portfolio).

You can use Plum to invest via a Stocks and Shares ISA, to take advantage of tax-free earnings, or a General Investment Account (GIA). We have up to 21 different funds available for Premium subscribers. Alternatively, you can consolidate pensions and invest for retirement via a Plum Self-Invested Personal Pension.

The opinions expressed in this article are for general informational purposes only and should be used at your own risk. It’s your responsibility to evaluate the accuracy, timeliness and completeness of any information provided.

Plum does not provide investment or other advice and individual investors should make their own decisions or seek independent advice. If you invest, please remember that your capital is at risk and you could lose money. The value of your investments can go down as well as up.

You should not invest in, or deal in any financial product unless you understand its nature and the extent of your exposure to risk. When you automate and invest you should be satisfied that it suits you in light of your circumstances and financial position.

To learn more about Plum you can check out our website.