Are you ready to start investing, wanting to take advantage of putting money into the stock market over the long term, but don’t know where to begin? You’ve come to the right place.

1. Check your finances

First up, take a quick review of your finances. Make sure that any high interest debt is paid off, otherwise you will likely cancel out the magic of compound interest that your investment portfolio accumulates over time.

If you haven’t already, start budgeting and reducing your costs. Cancel those pesky unused subscriptions and find areas to cut down on your monthly spending.

Next, build an emergency savings pot of at least 3-6 months salary. This is an important buffer to build, as the last thing you’ll want to do is close investments early and miss out on future gains.

2. Plan your time

Time is your greatest friend when it comes to investing. It smooths out volatility and allows your earnings to grow exponentially. Decide on your investing time horizon and commit to it. The minimum should be 3-5 years, but saving for later life will reap the greatest rewards.

Money you need to use in the next year should be kept in cash – keep it in an easy access savings account.

If you have plans for money to be used in the next 1 to 5 years, choose funds with short to intermediate-term bonds.

Any money not needed within 5 years can be put to work in the stock market.

3. Decide on your investing approach

The biggest decision to make when embarking on your investment journey is how involved you want to be. We touched upon this in the previous Top Tips post, Passive vs. active investing and will explore further in a few scenarios.

Investing in individual stocks can be exciting and rewarding, but requires a good amount of time to be spent on research and ongoing monitoring. This approach invites more risk, but can pay off if set about with intelligence and patience in the form of greater future returns.

If you want the freedom to choose, but want to reduce your overall risk, you could build a portfolio of primarily ETFs or index funds (such as the S&P 500 or FTSE 100). Then, if there are any investment opportunities in companies that interest you, you can start small positions in individual stocks or shares. Just define the maximum percentage of your overall portfolio you are comfortable risking per single holding – whether that’s 1% or 5%.

4. Open an investment account

The only way to start earning returns on your investments is to start investing. If you’ve decided to take a DIY approach, opening an account with an online brokerage will allow you to select individual stocks, ETFs, bonds and funds. Luckily, for the small-time retail investor, there are now plenty of commission-free options, such as Trading 212 and Freetrade.

The well established, classic brokerages typically still charge dealing fees (think Hargreaves Lansdown or AJ Bell). This shouldn’t be a problem over the long term, especially if you keep your trades to a minimum (i.e. not buying and selling often). You may find that more stocks and funds are available to buy with the traditional, well known brokerages but it can be useful to have more than one account to get the best of both worlds.

For those wanting to embark on a more passive approach to investing, low-fee ‘robo-advisers’ such as Wealthsimple and Nutmeg onboard you with a questionnaire to find out your financial goals and risk tolerance before selecting the best asset mix for you. Then, all you need to do is fund your account on a monthly basis and clever technology builds and maintains your portfolio over time.

You can also make use of an ISA wrapper (recommended) on stocks and shares accounts, allowing you to invest up to £20,000 a year and earn tax-free gains.

5. Choose your investments

A useful guide for deciding on asset allocation is the ‘Rule of 110’. This simply states that the percentage of your portfolio invested in stocks should be equal to 110 minus your age.

For example, if you are 20 years old the rule states that you should have 90% of your money invested in stocks and 10% in bonds. This is because the longer your investment time horizon, the more time the stocks part of your portfolio has to recover from any downturns. As you approach retirement, you should look to reduce your risk by rebalancing your portfolio in favour of bonds (a 60 year old would move to at least a 50:50 split between stocks and bonds).

Remember, the ‘stocks’ part of your portfolio does not have to be individual companies. It can simply be index trackers (ETFs) that match the market return of countries, regions, industries or commodities. This way, you can take advantage of stock market gains in a more passive, less time-consuming way.

Here are some key pointers for when you select your investments:

• Invest in businesses you understand. This helps with being able to keep track of whether a business or its products are doing well.
• Keep a well diversified portfolio. You can do this by spreading your money between different companies, industries and regions.
• Always do your own research. Don’t invest in something simply because of hype or recommendation.
• Stay away from CFD trading, leverage, options and futures. Incredibly risky, these instruments are closer to gambling than investing.
• Avoid high volatility investments until you have gained more experience.

Learning how to value stocks and doing your own due diligence will save you from making avoidable mistakes, will teach you what to look out for and will help you build confidence in your investment decision-making. This guide is a great place to start.

80% of your returns will likely come from 20% of your investments (also known as the 80-20 rule). This means that, in a well diversified portfolio, you only need to strike gold a few times and let those winners run to make up for any average returns or losses.

Simply put: buy shares of fantastic businesses at reasonable prices, hold on to those investments for as long as those companies remain great and over time you will enjoy some outstanding returns.