How to invest £20,000… and grow your own ‘Super Isa’: Follow these six golden rules – and watch your nest egg grow

‘Invest, invest, invest!’ bellowed Chancellor Rachel Reeves in her first Budget statement on Wednesday. But, although she was laying out her ambition for the country, such a mantra applies as urgently to individuals.

That’s because investing is the secret to building the funds needed to achieve what you want out of life and fulfilling your retirement dreams.

Prime Minister Sir Keir Starmer indicated before the Budget that investors do not fit his definition of working people.

So, for the record, let’s get this straight: investing is for working people – in fact it’s essential to make the most of your hard-earned cash. Don’t let anyone – not even a Prime Minister – tell you otherwise.

And while we’re debunking investing myths, here are three more.

Investing is not difficult, it is not just for rich people, and it does not take a lot of time.

The hardest bit is getting started – after that it can be as easy as pie, if you follow these six golden rules.

In this guide we’ll show you how to invest £20,000 – the maximum amount that you can save into a tax-free Isa every tax year – to build yourself a Super Isa. But you can get started with as little as £25 a month and watch your nest egg grow.

What’s more, every single penny of your wealth will be protected from whatever the Chancellor throws at savers in future Budgets.

Rule 1: bank first for emergencies

You are likely to build a larger nest egg over the long term by investing your money than by putting it into a savings account.

But with investing you will experience far more ups and downs along the way. That’s why you should only invest money that you will not need to spend for a while – five or ten years at a minimum. The last thing you want is to be forced to cash in your investments when they’ve hit a rough patch and before they’ve had time to recover.

If you have any unsecured debts – for example on credit cards or overdrafts – pay these off before you start investing. Then set aside some cash in a savings account for emergencies – three to six months of outgoings is a good rule of thumb. That way you’re covered if you need to replace the washing machine, for example, or if you’re out of work for a while.

Isas are a great home for your savings because all interest, dividends and capital gains are earned tax-free.

You can pay into both cash Isas and a Stocks and Shares Isa within the same tax year, so long as you don’t exceed your £20,000 allowance.

So, if you have £20,000 of savings, you could put a reassuring chunk of this into

a cash Isa in case you need it at short notice, and the remainder into a Stocks and Shares Isa to grow.

Rule 2: Start off simple

You don’t need to have a view on the outlook of the UK economy to start investing. You don’t need to know which companies are showing potential or even understand the ins and outs of bonds and gilts.

Of course, investing can be a rewarding hobby or project – but you can still enjoy the bumper returns it affords without committing hundreds of hours to it.

The key to success when starting out is keeping it simple.

There are a growing number of cheap, so-called index funds available to ordinary investors that allow you to buy a sliver of hundreds, thousands or even tens of thousands of companies in one fund. They do this by buying shares in every company within a stock market index. That way you don’t have to choose what companies to invest in – instead you can just buy the lot.

For example, a FTSE 100 tracker fund would contain shares of each of the 100 biggest companies listed on the London Stock Exchange. An MSCI World Index fund would hold shares in all the biggest companies around the world.

The disadvantage of these funds is that, by their nature, they cannot beat the market. They allow you to buy the whole market, which means you will do no better or worse than the average. However, the advantage is that you save yourself the bother of trying to work out which investments are likely to make you more money than the rest.

Plus, over the long term, a simple, well-diversified portfolio of shares from around the world tends to rise in value and offer better returns than interest earned in a cash savings account.

The second advantage is that they are often very cheap. For example, Fidelity’s Index UK fund gives you an investment in the companies listed on the London Stock Exchange — with an ongoing charge of 0.06 pc.

To put that into perspective, actively managed funds, where

a portfolio of companies is hand-picked by an expert fund manager, can easily levy annual charges of more than 1 pc.

Most High Street banks and investing platforms offer a range of five or six default funds that require little or no expertise from investors to hold them.

They will help you pick which one is right for you depending on how much risk you are happy to take on. The more risk you take, the greater the chance that you could lose money – but also the higher the returns you’re likely to achieve over the long term.

A number of investment firms also offer single funds that are designed to contain everything you need for a balanced portfolio. You can buy these within your

Isa to grow your wealth with minimal effort.

For example, if you are saving for retirement, asset manager Vanguard offers a range of Target Retirement funds that simply require you to state when you hope to stop working to determine which one is right for you.

The funds contain shares and bonds in a combination appropriate for someone of your life stage. As you age, Vanguard shifts the mix of shares and bonds so that the fund changes with you – rather than you having to switch funds as you grow older.

The idea is that the investments become less risky – and more stable – the closer you get to retirement. They cost just 0.24 pc in ongoing charges.

Its LifeStrategy range offers a similar level of simplicity. These are five funds, containing a mix of shares and bonds, and you answer questions to determine how much risk you are happy to take. In general, the greater the risk, the better the likely returns. Vanguard then suggests the appropriate fund. These cost 0.22 pc per year.

Asset manager BlackRock has a similar range called MyMap, which offers eight funds of varying levels of risk. These have respective ongoing charges of 0.17 pc — or 0.28 pc for the income version.

Unlike the Vanguard funds, these have more built-in flexibility to change the composition of the portfolio according to market conditions. But you don’t need to worry as it is all done for you.

BMO’s Sustainable Universal MAP range is a set of five funds – each with a different risk profile. These are designed with sustainability in mind and are overseen by a team of managers. They have an ongoing charge of 0.35 pc.

If you’re looking for somewhere to grow your £20,000 Isa, one of the all-in-one funds above could make a great starting point.

Rule 3: Make sure you can sleep

The results of investing should be exciting: the life ambitions it helps you to achieve, and the security that it provides. But

the journey itself should not be.

If you find yourself nervously checking your investments throughout the day, or if the fluctuating balance of your portfolio is keeping you awake at night, you are taking on too much risk.

Investing should be for the long term. That means you should have a portfolio of stocks and shares that you are comfortable investing in for months or years – through the ups and the downs.

Rule 4: Jazz up your portfolio at the perfect moment 

A portfolio of shares, bonds and index funds from all different sectors and of companies all around the world is a great starting point. That way, you’re not too dependent on any single company or type of investment should it go awry.

But once you have that solid foundation in place, you can start to add shares, funds or investment trusts that you believe have the potential to perform above average.

This is where investing can take more time, expertise and consideration. The Wealth & Personal Finance section of the Mail on Sunday is always packed with great ideas to consider for your portfolio.

In tomorrow’s section, a Midas Special investigates the companies and sectors that are poised to benefit following this week’s Budget. Your investment platform may also have interesting ideas and information that you can learn from, such as model portfolios or recommended fund lists. However, remember that balance is always key.

One popular investing strategy is called ‘core and satellite’. You buy a core of low-cost funds containing a huge range of investments from all around the world. Then you buy small amounts of more focused funds or companies that you think will do especially well in the future. Funds that are actively managed by an expert fund manager can play a role here.

Also, bear in mind that keeping to a core is often just as effective as adding satellites, so don’t feel you have to add racy investments if you don’t feel confident (or simply haven’t the time).

Rule 5: Do not overpay

To build a Super Isa, you will need to keep as much of your money as you can safely growing away.

Make sure that you don’t hand over a penny more than you need to in fees.

When you start investing, you will typically have to pay a fee to the company that provides your Isa and another one to buy the funds or companies that you put in it.

Spending more doesn’t mean you’ll get a better result.

To find an investment platform with all the tools that you need – but at a fair price – check our round-up at thisismoney.co.uk/platform.

Rule 6: Don’t put it off

You may look at the news – the fallout from the Budget, the looming election in the US, seemingly endless global instability and more – and wonder: is now really a good time to invest? And understandably so.

However, if you’re investing for the long term you should be able to ride out the ups and downs of whatever lies ahead of us.

One option to alleviate any fears you may have about investing at the wrong moment is to drip-feed your cash into the market.

That means you won’t be putting all of your money in right before markets leap up – but you won’t be putting the lot in just before they tumble, either.

You could put £1,666.66 into an Isa every month and by the end of the year your Super Isa will be filled with your full £20,000 allowance.