If you’re self-employed, you work hard to build your business – but what about building your wealth? Investing is one way to grow your money over the long term, yet the options can feel overwhelming.

This guide is designed to give you a simple overview of stock investing – what it is, the different ways you can invest, and the types of accounts you can use. You don’t need to be an expert to get started. By understanding the basics, you can make confident decisions about how to put your money to work.

Why invest in stocks and shares?

At its most basic, investing means putting your money into something with the aim of growing its value over time.

When you put money in a savings account, it stays safe and earns a little interest. But savings alone may struggle to keep up with inflation – the rising cost of living – which can gradually reduce your money’s real value.

Investing, on the other hand, carries more risk – the value of investments can go down as well as up. But historically, the stock market has delivered higher returns than cash over the long term. The trade-off is that higher potential rewards come with that higher risk. The key is to choose an approach that fits your goals, time frame and comfort with the ups and downs.

Ways of investing in the stock market

There’s no single way to invest in the stock market. Some people like to pick individual companies and buy their shares directly. This can be rewarding if the company performs well, and dividends – a share of profits paid out to investors – can provide an additional source of income. The downside is that shares can be volatile, and performance can move sharply in either direction.

For those who prefer a more hands-off approach, funds offer an easy route in. A fund pools money from lots of investors and a professional manager invests that total value across a wide range of shares and other assets, like bonds. This means you don’t have to choose companies yourself, and your risk is reduced because your money isn’t tied to a single investment.

Exchange-Traded Funds (ETFs) or “tracker funds” provide another option. Like funds, they spread money across lots of different shares, but they are designed to track the performance of a particular index, such as the FTSE 100. They tend to be a cheaper alternative to actively managed funds, and, because they’re listed on the stock exchange, you can buy and sell them throughout the day just like individual shares.

Investment trusts are a sort of halfway house between standard funds and shares. Like shares, trusts are listed on the London Stock Exchange, but just like funds, they invest in a portfolio of assets. Investment trusts are a popular choice with many investors due to their typically long track records and potential to provide a steady dividend income.

How to invest in the stock market

Gone are the days of paper share certificates and scanning newspaper finance pages. Today, most people invest through an account such as a Stocks and Shares ISA, a Self-Invested Personal Pension, or general Trading Account, usually via an online investment platform like interactive investor (ii).

Online access to your investments means you can track their performance whenever you like and buy or sell at a moment’s notice. Most investment platforms, including ii, also have a mobile app, so your investments are always within arm’s reach.

Different investment platforms offer different ranges of investments. The key is finding one that gives you the options you need for the way you want to invest. Here at ii, we offer one of the widest ranges of investment options on the market – from our beginner-friendly Quick-Start Funds to direct access to international stocks.

Understanding your investment account options

The type of account you choose to invest through determines how your investments are taxed and when you can access your money.

A Stocks and Shares ISA is a tax-efficient way to invest, as you don’t pay Capital Gains Tax (CGT) or Income Tax on anything held within the ISA. Because of these tax advantages, the government sets a limit on how much you can pay into ISAs: currently £20,000 per year. Stocks and Shares ISAs tend to be a popular way to invest towards medium-to-long-term goals as you can usually withdraw your money whenever you want.

For those looking to build a long-term retirement pot, a Self-Invested Personal Pension (SIPP) is one of the most tax-efficient choices available. You’ll benefit from tax relief on anything you pay into a SIPP and, like an ISA, your investments are protected from CGT and Income Tax.

There are a few important considerations to note for SIPPs: normally, you can’t access your money until at least age 55 (rising to 57 in 2028) and there’s a maximum amount you can contribute per year (currently the lower of your taxable earnings or £60,000).

Finally, a Trading Account offers complete flexibility, with no limits on how much you can contribute or when you can withdraw your cash. Unlike an ISA or pension, there are no tax advantages, but they are a useful option if and when you’ve used up your tax-efficient allowances.

Diversification: why mixing investments matters

You’ve probably heard the saying “don’t put all your eggs in one basket”. The same applies to investing. By spreading your money across different types of investments, industries or regions, you reduce the risk of one poor performer dragging down your overall returns.

Ensuring you have a diversified portfolio can be one of the trickiest parts of starting to invest. But there’s an easy way around it: leaving it to the experts. Many funds offer in-built diversification – these are called multi-asset funds and invest across a range of assets, industries and regions. Multi-asset funds can be accessed via most investment platforms, for example our Quick-start funds are just a small selection of multi-asset funds available with ii.

Things to consider before you invest

As mentioned earlier, investments aren’t a sure thing: their value can rise and fall and you’re not guaranteed to make money on them. But there are a few rules of thumb to follow to give you the best chance of returns.

1. Emergency fund – before investing, make sure you have easy access to enough cash savings for any unexpected life events.
2. Invest for a minimum of 5 years – typically the longer you invest the greater your returns are likely to be.
3. Diversify – it’s worth mentioning again, spreading where you put your money, spreads out your risk.
4. Choose a trusted investment platform – it’s important to choose the right platform as well as the right investments. Comparing platform features, costs and benefits can help you make the best choice for you.

Most importantly, if you’re unsure about investing, it may help to seek professional advice. You can also find impartial financial guidance on the Government’s Money Helper website.

Why choose ii for your investments?

We’re the UK’s leading flat-fee investment platform, with over 450,000 customers and more than £80 billion of assets under administration.

With ii, you’ll benefit from one of the widest ranges of UK and international investments on the market, with options for all types of investors. You can access these options through any of our award-winning investment accounts, including our Stocks & Shares ISA, Trading Account and SIPP.

Additionally, you can find some brilliant impartial content from our experts who create an engaging collection of insights and research. It’s everything you’ll need to help you make the most of your money – and your future.

Ready to explore your investment options a little more? Get started today.

Risk warning:

This article is provided for information purposes only. The content is not intended to be a personal recommendation. As investment values can go down as well as up, you may not get back all of the money you invest. If you’re unsure if an investment account is right for you, please speak to an authorised financial adviser. Tax treatment depends on your individual circumstances and may be subject to change in the future.