The best stocks and shares to invest your money in for 2022

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With inflation running high: the value of your cash is falling fast if it is sitting in a savings account. Savers should start investing in the stock market so money stays ahead of rising prices.

But knowing where to start can be tricky – especially when markets are falling. US share prices have lost 6pc so far this year while the UK market has flatlined with volatile swings.

Markets have been choppy, but beginning your investment now is one of the best ways to protect yourself against the cost of living crisis

How to build a stock market portfolio in 2022

Best stocks and shares Isas to open

The first step is to open a stocks and shares Isa, which is a type of account that allows you to buy funds, which are ready-made portfolios of shares, as well as individual stocks. You can put £20,000 into an Isa each tax year, and you do not pay tax on the gains (return on your investments).

You can find a full guide on how to pick the best Isa for you here. For new investors, Vanguard, AJ Bell and Hargreaves Lansdown are good places to start. 

The next step is to choose a starter amount to put into your new Isa. While investing in the long-term is very likely to grow your money, markets are risky and you should only invest money that you are comfortable losing. Bear in mind that you should invest with at least a five-year timeframe. 

Choosing your building blocks 

This year the stock market has been somewhat volatile, as it adjusts to the prospect of rising interest rates, high inflation and geopolitical tensions in Ukraine. But Rob Morgan, of the wealth manager Charles Stanley, said that new investors should not be put off by the noise. 

“If you’re starting now it means you have one great thing on your side – time. Your portfolio can absorb the ups and downs over several years.” 

It’s risky to invest in individual stocks, so start with funds instead. Mr Morgan recommended putting most of a new portfolio into a tracker fund. These charge low fees and automatically track and replicate the performance of a wider market. “Go for something simple like a global index tracker, which buys the whole international market and is a good building block,” he said. “Then you can add specialist funds around it.” 

Specialist funds are actively handled by professional investors, who charge a higher management fee in exchange for a shot at higher returns. 

Rory Maguire, of the research firm Fundhouse, put together this model, largely active, portfolio for a new investor who wants to grow their money steadily. Over the past five years, it would have generated a return of 33pc. 

Around 80pc of the portfolio is in funds that invest in shares. That includes two passive trackers – Fidelity Index World and Fidelity Index UK – that mimic the performance of the global and British market respectively. 

“The UK market is also likely to gain from inflation and incoming interest rate rises,” he said. “This is because there are a lot of commodity, energy and bank stocks.” 

Banks’ profit margins typically improve when interest rates rise, because they can charge more on their loan products. 

Mr Maguire added that investing some money in bonds and cash – such as through the Fidelity Strategic Bond fund and the L&G Cash Trust – could help cushion blows to your portfolio during volatile periods in the stock market. 

Picking high-growth investments

Once you have built a solid foundation using tracker funds, there is a huge range of other exciting, fast-growing investments to add on top. These are usually riskier, so they should make up a smaller proportion of your portfolio.

James Barton, of the wealth manager Featherstone Partners, highlighted Chrysalis Investments for investors comfortable taking on more risk. 

“This trust invests in private companies and takes them to their flotation on stock markets. Some of their most successful early-stage investments include Klarna and Starling Bank,” he said. 

Mr Barton also pointed to the property company Urban Logistics, which rents out distribution centres to online retailers. “Their tenancy agreements are inflation-linked,” he added. “So they offer investors the potential for capital growth and inflation-proofing, as well as a good yield.”

Mr Morgan said that the Baillie Gifford Positive Change fund, which holds the likes of Tesla and Moderna, offered a way into exciting themes such as the green energy transition and technology. “Some of their stocks have done poorly in recent weeks but long term they look great. Now would be a good time to start considering their strategy.”

Set up a drip feed 

Once you have your portfolio up and running, don’t stop there. Try to budget an amount each month that you can drip feed money into the Isa.

This will help your portfolio grow steadily through “pound cost averaging”, which means that when markets fall you can buy more with the same amount of money. It also reduces the risk of investing a big lump sum right before the market falls.

This article is kept updated with the latest advice.

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