What Is buy and hold?

Buy and hold is a passive investment strategy. It involves purchasing an investment and holding it over the long term, often years or decades, with minimal trading. 

The rationale is based on historical data showing that markets tend to rise over time despite short-term volatility.

Rather than reacting to daily market news or price swings, buy and hold investors focus on the long-term potential of their investments, allowing compounding returns and capital appreciation to work in their favour.

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Advantages of a buy and hold strategy

• Compounding Returns: Over time, reinvested dividends and interest can significantly increase the total value of an investment.
• Lower Costs: Because it involves less buying and selling, this strategy reduces trading fees and potentially lowers capital gains tax liabilities in taxable accounts.
• Less Emotional Investing: A long-term view helps investors avoid reactive decision making in response to market dips or economic news.
• Tax Efficiency: In the UK, assets held longer than a year may be subject to more favourable capital gains treatment, especially when held within tax-efficient wrappers such as ssISAs or pensions.

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Risks of a buy and hold strategy

While buy and hold is relatively simple and historically effective, it’s not without risk:

• Market Downturns: Bad market days can still negatively affect portfolio values, particularly if they occur near an investor's time of withdrawal.
• Company or Sector Risk: Holding individual stocks over long periods can expose you to company-specific risks such as poor management or disruptive competition.
• Inflation Risk: Over decades, inflation can erode real returns if your investments don’t grow faster than inflation.
• Behavioural Risk: The strategy requires patience and discipline, emotional decisions can undermine its effectiveness.

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How to build a buy and hold strategy

1. Set Clear Objectives

Determine your financial goals, risk tolerance, and time horizon. Buy and hold works best with long-term objectives such as retirement planning.

2. Choose a Diversified Portfolio

Instead of focusing on single shares, many investors use diversified instruments like index funds or ETFs to spread risk across different sectors or markets.

3. Use Tax-Efficient Accounts

In the UK, Stocks and Shares ISAs or Self-Invested Personal Pensions (SIPPs) allow your investments to grow free from Capital Gains Tax and dividend income won’t count towards your Personal Allowance.

4. Automate Where Possible

Regularly investing a fixed amount (pound-cost averaging) can smooth out market volatility over time and build a habit of disciplined investing.

5. Review, But Don’t Overreact

Check and manage your portfolio annually or after major life changes, but avoid frequent trading. Adjust only if your goals or circumstances change.

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Buy and hold strategy summary

The buy and hold strategy is a cornerstone of long-term investing. Its simplicity and historical success make it especially appealing for new investors looking to build wealth over time.

While not without risks, its disciplined, passive nature aligns well with long-term financial goals.

In the next guide, we’ll compare two distinct investing styles: defensive and aggressive strategies, helping you understand how different approaches to risk and return can shape your investment journey.

What is passive income?

Passive income refers to earnings generated with minimal ongoing effort. Unlike active income, such as wages from employment, passive income typically stems from investments, a side business, or assets that continue to generate returns without your daily involvement.

In investing, passive income can take various forms: interest from savings, dividends from stocks, rental income from property, or returns from bonds and funds. 

While setting up these income streams often requires upfront capital or effort, the long-term goal is a source of financial stability that works for you in the background.

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Advantages and disadvantages of passive income

Advantages of passive income could include:

• Financial freedom: Passive income can supplement or even replace earned income, offering more control over your time.
• Compounding benefits: Reinvesting passive earnings can accelerate long-term wealth accumulation.
• Diversification: Passive income streams can help balance risk across different asset classes and reduce reliance on employment income.

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Disadvantages of passive income could include:

• Capital requirements: Many passive income strategies require an initial investment, whether in time, money, or both.
• Market and interest rate risk: Investment returns may fluctuate, especially with stocks, bonds, and property.
• Maintenance considerations: Some “passive” strategies (like rental property) require ongoing management or decision-making.

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Passive income investing ideas

Passive income doesn’t come from a one-size-fits-all approach. Here are several tried-and-tested investing avenues for UK investors:

Dividend Stocks

Dividend-paying shares distribute a portion of a company’s profits to shareholders, typically on a quarterly or annual basis. These can provide a regular income stream in addition to any potential capital gains if the share price rises. Understand how stocks work.

• Tax note: UK investors benefit from a tax-free dividend allowance (subject to change), but income above this threshold may be taxable. Chip does not offer tax advice.
• Risk level: Moderate to high, dependent on market volatility and company performance.
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Mutual Funds & Index Trackers

Rather than picking individual shares, investing in mutual funds or index trackers offers exposure to a broad range of assets. Some funds are designed to focus on income-generating holdings, distributing returns to investors at regular intervals.

• Example instruments: UK-focused equity income funds, global dividend funds.
• Risk level: Varies, diversified funds tend to carry lower risk than individual stocks.
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Income Bonds

Income bonds (not to be confused with NS&I Income Bonds) are debt securities that pay investors regular interest over time. These are popular among risk-averse investors who prioritise predictable income.

• Considerations: Interest rates affect bond performance, when rates rise, existing bonds may become less attractive.
• Liquidity: Some income bonds can be difficult to sell before maturity.
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Property & Real Estate

Buy-to-let properties or investments in Real Estate Investment Trusts (REITs) can provide regular rental income and potential property value growth.

• Management effort: Rental properties involve ongoing responsibilities, finding tenants, property maintenance, and legal compliance.
• Upfront costs: Stamp duty, mortgage deposits, and ongoing fees can be significant.
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Savings Accounts

While not typically thought of as an "investment", high-interest savings accounts and cash ISAs can generate passive income in the form of interest.

• Best suited for: Conservative investors seeking capital preservation and low risk.
• Returns: Generally lower than other investment vehicles, especially during inflationary periods.

Learn more about investment types and asset classes.

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Passive and active investing summary

Passive income can be a powerful pillar in your overall investing strategy, especially for those seeking long-term wealth with less hands-on effort. 

While it's not entirely “effort-free,” with the right knowledge and setup, passive investing can complement, or even surpass, active income over time.

In the next part of our Investment Strategies series, we’ll explore the Buy and Hold strategy, a long-term option for those looking to build wealth through passive income channels.

What is growth investing?

Growth investing targets companies that investors believe have the potential to grow faster than the broader market. 

These are often newer companies or those operating in rapidly expanding industries like technology, renewable energy, or healthcare innovation.

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Key characteristics of growth investing

• Emphasis on capital appreciation over income (e.g. dividends).
• Companies often reinvest profits to fuel future growth.
• Share prices tend to be more volatile but can offer higher returns over time.
• Commonly priced higher relative to earnings (higher P/E ratios).

Growth investing is typically more suitable for investors with a longer time horizon and a higher risk tolerance, as the payoff often comes from future potential rather than current earnings.

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What is value investing?

Value investing involves identifying companies that appear to be undervalued by the market. 

These are stocks trading below their intrinsic value based on fundamental analysis (like cash flow, earnings, or book value).

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Key characteristics of value investing

• Focus on finding stocks perceived as mispriced.
• Often includes established companies with stable earnings.
• Generally provides dividend income as well as capital growth.
• Less volatility, but potentially slower returns.

This strategy may appeal to more conservative investors looking for steady returns and lower downside risk.

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Examples of Growth and Value Investing

To better understand how these strategies play out in practice, consider how growth and value investors might view the same market differently.

Growth

• A growth investor may be drawn to a fast-growing technology firm that has yet to post consistent profits but is expanding rapidly, reinvesting all earnings into product development and market share. 
• Despite a high valuation relative to current earnings, the investor believes the company’s future potential justifies the price. Sectors like software, green energy, or healthcare innovation often fall into this category.

Value

• In contrast, a value investor might look for a well-established consumer goods company with stable earnings, consistent dividend payouts, and a share price that appears low relative to its earnings or book value. 
• The belief is that the market has temporarily mispriced the company, possibly due to short-term concerns, and that the share price will eventually recover as fundamentals prevail.

Both strategies can be applied using individual stock selection or through diversified investment funds, which pool companies with similar characteristics. 

Many UK investors use index funds or ETFs tailored to either value or growth styles as a simple way to gain exposure while mitigating individual stock risk.

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The Key Differences Between Value and Growth Investing

While both growth and value investing aim to build long-term wealth, they differ in philosophy, risk profile, and timing.

Growth investing is forward-looking. It relies on the market eventually rewarding companies for their innovation and rapid expansion. This often means accepting higher volatility and short-term uncertainty in exchange for the potential of above-average returns.

Value investing, on the other hand, is based on the premise that markets can misjudge a company's worth. By purchasing undervalued companies with strong fundamentals, value investors aim to benefit as the market corrects itself. 

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How to Decide if Value or Growth Investing Is Right for You

Choosing between growth and value investing depends on several personal factors:

• Investment goals: Are you aiming for long-term capital appreciation, or are you seeking steady income and lower volatility?
• Time horizon: Growth investing usually requires a longer time frame to ride out market swings. Value investing may suit those with a medium to long-term horizon looking for more stable returns.
• Risk tolerance: If you're comfortable with market fluctuations and are focused on potential gains, growth may appeal to you. If you prefer less risk and more predictability, value could be a better fit.
• Behavioural tendencies: Some investors struggle with holding onto volatile growth stocks through downturns. Understanding your emotional response to risk is just as important as the numbers.

In reality, many investors find a blend of both strategies provides balance, with growth driving long-term returns and value offering stability.

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Growth and value investing summary

Understanding the core principles of growth and value investing helps lay the foundation for a more thought out and tailored investment strategy. 

While growth investing seeks to capitalise on future potential, value investing focuses on capitalising on perceived mispricings today. Each has its strengths and trade-offs.

By aligning your personal goals, risk tolerance, and time horizon with the appropriate strategy, or combination, you can build a more resilient investment portfolio.

In the next guide, we’ll explore how you can begin to put these strategies into practice through building passive income, a key step in creating financial freedom and long-term wealth.

What is passive investing?

Passive investing is a long-term investment strategy that aims to replicate the performance of a market index, rather than trying to beat it.

Investors typically buy into funds, such as index funds or exchange-traded funds (ETFs), that track a broad market benchmark like the FTSE 100 or S&P 500.

Key passive investing characteristics

• Low cost: Passive funds generally have lower fees because they require minimal management. 
• Buy-and-hold approach: Passive investors aim to ride out market ups and downs over time. 
• Diversification: Tracking an index provides exposure to a wide range of companies.

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What is active investing?

Active investing involves ongoing decision-making to buy, hold, or sell assets in an attempt to outperform the market. 

This strategy is often managed by fund managers or individual investors who analyse market trends, company performance, and economic indicators to make investment choices.

Key active investing characteristics

• Higher costs: Fund management, research, and transaction fees tend to be higher. Learn about investment fees and costs.‍
• Tactical decisions: Active managers may buy or sell holdings frequently to exploit market opportunities.
• Potential for higher returns: Success depends on skill, timing, and market conditions.

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The advantages and disadvantages of passive investing

Advantages of passive investing include:

• Lower fees: Less management means reduced ongoing costs.
• Simplicity: Ideal for beginners; less time and knowledge required.
• Market-matching performance: Often performs better than many actively managed funds over the long term.

Disadvantages of passive investing include:

• No chance to outperform the market: Returns will always closely mirror the index.
• Limited flexibility: Can’t adjust quickly to market shifts or exploit short-term opportunities.
• Market downturns: Passive funds track indexes even during declines, with no defensive measures in place.

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The advantages and disadvantages of active investing

Advantages of active investing include:

• Opportunity for higher returns: Skilled asset managers can outperform the market, especially in less efficient markets.
• Flexibility: Managers can pivot strategies in response to changing conditions.
• Tailored investment strategies: Portfolios can be aligned with specific goals or themes (e.g., ethical investing, emerging markets).

Disadvantages of active investing include:

• Higher costs: Active funds charge more, which can eat into returns.
• Greater risk of underperformance: Many active funds fail to beat their benchmarks after fees.
• Requires more research and monitoring: Not ideal for novice investors or those short on time.

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Is active or passive investing right for me?

Choosing between active and passive investing depends on your goals, how much time you want to dedicate to managing your investments, and how comfortable you are with risk. How to know your risk tolerance.

If you're just starting out, passive investing is often a practical and beginner-friendly option. It requires little ongoing effort, keeps costs low, and provides broad exposure to the market.

It’s especially suited to long-term investors who prefer a “set it and forget it” approach and are happy with market-average returns.

On the other hand, if you're someone who enjoys researching companies, keeping up with economic trends, and believes in your ability (or that of a professional) to spot investment opportunities, active investing might appeal to you. 

It offers the potential for higher returns but comes with more risk, higher fees, and a greater time commitment.

You should also consider your risk tolerance. Passive investing tends to be more stable and predictable, while active investing can be more volatile, especially over shorter periods.

Importantly, you don’t have to choose one or the other. Many investors find that a blend of both, using passive strategies for long-term stability and active ones for targeted opportunities, gives them the best of both worlds.

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How to combine active and passive investing

Many investors choose a blended approach, combining both active and passive strategies to balance cost, control, and opportunity.

Common combinations:

• Core and satellite: Use a passive fund for the core of your portfolio, with smaller “satellite” allocations to active funds targeting specific sectors or regions.
• Thematic investing: Stick with passive index funds for broad market exposure and add active investments in areas you believe have strong growth potential.
• Rebalancing over time: Start passive, then explore active strategies as your confidence and knowledge grow.

This approach allows flexibility while keeping fees manageable and risk diversified.

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Passive and active investing summary

Understanding the core differences between passive and active investing is essential for building a strategy that suits your financial goals and comfort level. 

While passive investing offers cost-efficiency and simplicity, active investing presents opportunities for higher returns, albeit with added risk and effort.

Ultimately, there's no one-size-fits-all answer. Many UK investors successfully use a mix of both approaches to suit their needs.

In the next guide in our Investment Strategies series, we’ll explore another foundational concept: Growth Investing vs Value Investing, two popular approaches to selecting individual stocks.

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What is Fintech?

Fintech, short for "financial technology", refers to the innovative use of technology to deliver financial services in faster, more efficient, and user-friendly ways. 

Whether it's making a payment through your smartphone, automating savings, or accessing investment platforms online, fintech is reshaping how people interact with money.

Its rapid growth has significantly influenced personal finance, banking, and investing, particularly for beginner investors.

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How fintech has changed the landscape

Technology has disrupted traditional finance models in a number of ways:

• Open Banking: This allows licensed fintech firms to securely access financial data (with user permission) from major banks. It encourages competition and enables tailored tools for budgeting, saving, and investing.
• Cryptocurrencies: Although high-risk and highly volatile, crypto assets have become part of the broader investing conversation, particularly among younger investors.
• Robo-Advisors: These algorithm-driven tools automate investment decisions based on a user’s goals, risk appetite, and time horizon, reducing the need for human financial advisors.
• AI and Data Analytics: Artificial intelligence is powering smarter tools for portfolio management, financial planning, and fraud detection. It's also enabling more personalised investment recommendations at scale.
• Fractional Shares: Enabled by tech platforms, fractional shares allow users to invest in portions of high-priced assets — making investing more affordable and inclusive.

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Are fintech companies making investing more accessible?

Fintech companies have had a huge impact on the world of investing. Previously, the entry into investing was a lot higher and more complicated. Fintechs have changed this, such as:

• Lower Barriers to Entry: Features like fractional shares allow users to start investing with just a few pounds, without needing to buy whole stocks.
• User-Friendly Interfaces: Many platforms are designed for beginners, offering clear explanations, educational content, and intuitive dashboards.
• Low/No Minimum Balances: Traditional investing sometimes requires large upfront deposits. Fintech platforms often remove or reduce these requirements.
• Mobile Access: The ability to manage investments from a smartphone increases access for users who may not live near a traditional financial institution.

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Fintech and the future of banking

Fintech isn't just a supplement to traditional banking, it's increasingly becoming an alternative. As digital-native generations demand faster, personalised services, banks are being challenged to innovate or collaborate with fintech providers.

Expect continued growth in features like:

• Seamless investing integrated within digital banking apps
• Predictive financial planning using AI
• More flexible, modular financial products

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How are fintechs funded?

Fintech companies often rely on a mix of:

• Venture Capital (VC): Private investors backing early-stage innovation
• Crowdfunding: Where everyday users can invest in the company itself
• Revenue-Based Models: Fees from premium features, subscriptions, or commissions
• Institutional Investment: From traditional financial players seeking digital exposure

The funding model can impact how a platform grows and the types of services it prioritises.

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Do people trust fintech over high street banks?

Consumer trust in fintech is growing, particularly among younger users. While traditional banks benefit from longstanding reputations, fintech platforms offer speed, innovation, and often better user experiences.

However, trust varies depending on:

• Security protocols
• Transparency in pricing
• Customer service quality
• Regulatory compliance

Surveys show that while many users are open to fintech solutions, trust often increases once users try the service and experience its benefits.

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How are fintech companies regulated?

In the UK, fintech companies must be authorised and regulated by the Financial Conduct Authority (FCA). This includes:

• Ensuring platforms act in the best interests of customers
• Meeting capital requirements to remain solvent
• Protecting user data and funds
• Operating with transparency and fairness

Users can check the FCA Register to verify if a company is properly authorised. Regulation is especially important in protecting users in cases of fraud, poor financial advice, or platform failure.

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Fintech summary

Fintech is reshaping the way people in the UK approach investing. From fractional shares to automated tools, it’s lowering barriers and offering more people a path toward building wealth. 

However, it's important to understand how these platforms are regulated, funded, and trusted before diving in.

At the start of your investing journey, you’ll need to decide if you want to take an active or passive approach to your investments.

In the next guide in this Investment Strategies series, we’ll cover the difference between these two strategies.

What are fractional shares?

A fractional share is exactly what it sounds like — a portion of a full share of stock or an ETF.

Instead of needing the full amount to purchase a whole share (which can sometimes cost hundreds or even thousands of pounds), fractional shares allow you to invest an amount that fits your budget, whether that’s £10, £100, or more.

• For example, if a single share of a company costs £200 and you invest £20, you would own 0.1 of a share.

Fractional investing is made possible by modern brokerage platforms, and it’s especially popular among new investors or those looking to spread small amounts across many companies or funds.

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Understanding types of fractional shares

Not all fractional shares are created equally. Here's a breakdown of the main types you might come across:

• Voluntary fractional shares: These are intentionally created when investors choose to buy a specific monetary value rather than a number of whole shares. Most common in retail investing today.
• Involuntary fractional shares: These occur due to events like stock splits, dividend reinvestment plans (DRIPs), or mergers and acquisitions.‍
• Fractional shares via ETFs and funds: Some exchange-traded funds (ETFs) and index funds inherently involve fractional share ownership behind the scenes, allowing for diversified exposure even with small investments.

Understanding the source of your fractional shares can influence how they’re treated in terms of ownership, voting rights, and dividend payouts.

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How does trading fractional shares work?

When you trade fractional shares, you're typically placing an order based on a cash amount, not the number of shares. 

Your investment platform calculates how much of a share that amount will buy based on the current market price.

A few important things to note for UK investors:

• Execution timing: Some providers batch fractional share orders and execute them at specific times during the day, rather than instantly.
• Ownership model: In most cases, you don’t directly own the share certificate. Instead, your platform holds it on your behalf, often via a nominee account.
• Fees and spreads: Be aware of how fees and bid-ask spreads may affect your investment, especially with smaller sums.

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Example of fractional shares

Let’s say you’re interested in investing in a company or ETF and shares are trading at £500 each. Rather than saving up to buy a whole share, you decide to invest £50. You now own 0.10 of a share.

If the share price increases by 10% to £550, your investment would be worth £55, a £5 gain, reflecting the same percentage growth.

This ability to invest smaller amounts can be particularly helpful when building a diversified portfolio across different sectors and asset types.

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Fractional shares and dividends

If the fractional shares you own pay a dividend, you’re typically entitled to a proportional dividend.

For example, if a company pays a £2 dividend per share and you own 0.5 of a share, you would receive £1 in dividends. However, how and when these dividends are distributed can vary by provider. 

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Pros & cons of fractional shares

Fractional shares advantages:

• Lower barrier to entry: Start investing with small amounts of money.
• Diversification: Spread your funds across more assets, reducing risk.‍
• Accessibility: Invest in high-priced shares that would otherwise be out of reach.

Fractional shares disadvantages:

• Limited voting rights: Some platforms do not extend shareholder voting rights to fractional holders.
• Trading limitations: Selling may be restricted or delayed depending on the provider, and you may not receive the price you expect.
• Platform dependency: You typically cannot transfer fractional shares between platforms or brokers.

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Are fractional shares safe and regulated?

Yes, when offered by FCA-regulated platforms, fractional shares are considered a safe and legitimate way to invest.

However, investors should understand that the underlying risks of market investing remain the same, your investment value can go up or down.

As with any investment, due diligence is key. Make sure to check whether your provider is covered under the Financial Services Compensation Scheme (FSCS) and understand how your assets are held.

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Fractional shares summary

Fractional shares have opened the door for more people to begin investing, regardless of how much capital they have to start with. 

By making it possible to own a piece of high-priced stocks or ETFs and diversify with less money, they represent a meaningful shift in how modern portfolios are built, especially for new or budget-conscious investors.

That said, it's important to understand the mechanics, limitations, and regulatory environment that surround fractional investing.

While they offer flexibility, they're not a guarantee of returns and carry the same risks as full-share investing.

In recent years, the rise of financial technology, or fintech, has dramatically reshaped how people manage, save, and invest their money.

From user-friendly mobile apps to AI-driven investment platforms, technology is removing many of the traditional barriers to entry in the world of finance.

In the next guide, we’ll explore how fintech is reshaping the future of investing, and what it means for everyday investors.

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Direct investment into individual bonds is not available via the Chip platform. Chip offers investment funds that invest in different assets as a collective investment.

What is ESG investing?

ESG investing is a strategy that considers environmental, social, and governance factors when selecting investments. 

Rather than focusing solely on financial returns, ESG investing also evaluates how companies manage risks and opportunities related to:

• Environmental impact (e.g. carbon emissions, waste management, energy efficiency)
• Social practices (e.g. employee treatment, community impact, supply chain ethics)
• Governance structures (e.g. executive pay, board diversity, shareholder rights)

While financial performance remains important, ESG investing applies an additional layer of scrutiny to assess whether a company acts responsibly and sustainably.

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How ESG investing works

At its core, ESG investing uses specific non-financial criteria to screen or select investments. This can be done in several ways:

• Positive screening: Choosing companies that score highly on ESG factors
• Negative screening: Excluding companies that operate in controversial industries (e.g. tobacco, fossil fuels)
• ESG integration: Incorporating ESG analysis alongside traditional financial metrics
• Thematic investing: Focusing on specific ESG-related themes like clean energy or gender diversity
• Engagement and stewardship: Actively engaging with companies to encourage better ESG practices

Many fund managers and platforms now offer ESG-labelled products, often relying on third-party ESG ratings to guide decisions.

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An example of ESG investing

Imagine an investor wants to support the transition to a low-carbon economy.

Instead of buying shares in a traditional energy company, they invest in a fund that holds companies developing renewable energy technologies, such as wind or solar power.

At the same time, they may avoid companies with poor track records on pollution or that are heavily reliant on coal production.

This kind of decision reflects an ESG mindset, considering not just potential returns, but the broader impact of each investment.

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Advantages and Disadvantages of ESG Investing

Advantages of ESG investing include:

• Alignment with values: Investors can support causes they care about without sacrificing financial goals.‍
• Risk management: Companies with strong ESG practices may be better positioned to handle long-term risks.‍
• Growing demand: Interest in ESG is increasing, which may drive innovation and market opportunities.

Disadvantages of ESG investing include:

• Inconsistent ratings: ESG scores can vary between providers, leading to confusion.‍
• Greenwashing: Some companies may overstate their ESG credentials without meaningful action.‍
• Limited track record: While ESG funds have grown, long-term performance data is still evolving.

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ESG metrics used

Measuring ESG performance involves analysing both qualitative and quantitative indicators. Common metrics include:

• Carbon emissions and energy usage (Environmental)
• Workforce diversity, employee turnover (Social)
• Board independence, executive compensation (Governance)

These metrics are typically aggregated into an ESG score by third-party rating agencies. However, scoring methods vary, making it important for investors to look under the surface rather than relying on a single number.

In the UK, regulatory bodies like the Financial Conduct Authority (FCA) are working to improve transparency and standardisation in ESG disclosures, but this remains a developing area.

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How ESG differs from sustainable investing

While ESG and sustainable investing often overlap, they’re not identical. ESG investing focuses on how environmental, social, and governance risks and opportunities affect a company’s performance and, in turn, an investor’s returns.

Sustainable investing prioritises broader long-term goals, such as promoting a more sustainable future, even if the financial returns take longer to materialise.

In simple terms, ESG is often about risk and responsibility, while sustainable investing is more explicitly mission-driven.

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Other considerations for UK investors

• Regulation and Disclosure. The UK has committed to making climate-related financial disclosures mandatory for many large companies and asset managers. This is intended to help investors make more informed decisions and reduce the risk of greenwashing.‍
• Tax and Investment Wrappers. As with any investment, ESG assets can be held in ISAs or SIPPs, offering potential tax advantages. However, ESG status doesn't inherently make an investment more or less tax-efficient.‍
• Due Diligence is Key. Regardless of ESG labels, it’s important for investors to review the fund’s holdings, strategy, and costs, and ensure it aligns with their personal goals and risk tolerance.

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The bigger picture of values-based investing

ESG investing offers a growing range of options for UK investors who want to align their financial decisions with their values.

It’s not about choosing between returns or responsibility, but about understanding how both can work together when guided by thoughtful analysis.

As ESG awareness matures, many investors are exploring even more focused strategies, like thematic investing, which allows you to back specific trends or ideas (such as clean tech, water security, or ageing populations).

Next in this series: Fractional Shares: Investing in Pieces, where we’ll explain how fractional investing works, and how it’s opening up access to markets for beginners.

How robo-advisors work

At their core, robo-advisors use algorithms to build and manage diversified investment portfolios based on your personal goals, risk tolerance, and time. The process usually involves:

• Initial Questionnaire: You answer questions about your financial goals, attitude to risk, and investment timeline.
• ‍Portfolio Recommendation: The platform allocates your funds across a range of assets, often using low-cost index funds or ETFs.
• ‍Automatic Rebalancing: Over time, the robo-advisor will adjust your portfolio to maintain your chosen level of risk and diversification.
• ‍Optional Features: Some services may include tax-loss harvesting, goal tracking, or ethical investing filters.

Robo-advisors typically operate under the regulation of the Financial Conduct Authority (FCA) in the UK, providing a layer of consumer protection.

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Pros and cons of using a robo-advisor

One of the key functions of a robo-advisor is that it uses an algorithm to take the emotion out of investing and aims to help an investor achieve better returns. 

This naturally comes with various advantages and disadvantages when it comes to using a robo-advisor. Some of the advantages of using a robo-advisor include:

• Low Fees: Robo-advisors tend to charge lower fees than traditional financial advisers.‍
• Simplicity: Great for beginners; the platforms do most of the work for you.‍
• Diversification: Portfolios are usually spread across multiple assets and geographies.‍
• Automatic Rebalancing: Your investments are maintained without requiring your input.‍
• Regulated: Most platforms in the UK are FCA-regulated, offering a level of trust and oversight.

However, there are some disadvantages of using a robo-advisor, such as:

• Limited Personalisation: Less tailored than advice from a human financial adviser.‍
• Less Control: You typically can’t pick individual investments or stocks.‍
• Not Always Suited for Complex Needs: If you have multiple financial goals or more intricate tax planning needs, robo-advisors might not be enough.‍
• Performance Can Vary: As with all investing, returns are not guaranteed.

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How to choose a robo-advisor

If you're considering using a robo-advisor, here are some key criteria to consider:

1. Fees and Costs: Look at both the platform fee and fund charges. Even small differences in fees can have a significant impact over time. Understand investment fees.‍
2. ‍Minimum Investment: Some platforms require only £1 to start, while others may have higher thresholds. Choose one that fits your current financial position.
3. ‍Portfolio Construction: Check what kind of assets are used, most robo-advisors use ETFs, but the exact approach to diversification can vary.
4. ‍User Experience: A clear, intuitive dashboard and helpful customer support can make a big difference, especially for newer investors.
5. ‍Regulation and Safety: Ensure the platform is FCA-authorised and that your money is held with a custodian covered by the Financial Services Compensation Scheme (FSCS).

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Who are robo-advisors best suited for?

Robo-advisors are particularly well-suited to:

• First-time investors seeking simplicity
• Those who prefer a passive investment approach
• Individuals who want to "set and forget" their portfolio

They may be less suitable if you:

• Want custom financial planning advice
• Are interested in actively managing your investments
• Have complex tax or estate planning needs

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Alternatives to robo-advisors

If a robo-advisor doesn’t seem like the right fit, consider these alternatives:

1. DIY Investing

Using platforms like investment apps or online brokers, you can choose your own funds or stocks. This requires more knowledge and time but gives you full control.

2. Financial Advisers

A qualified human advisor can offer personalised financial planning and investment recommendations and are often helpful if your finances are more complex.

3. Multi-Asset Funds

Some investment funds offer a ready-made diversified portfolio managed by professionals, similar in approach to robo-advisors but without the digital interface.

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Are robo-advisors right for you?

Robo-advisors have opened the door to investing for a new generation of UK savers. By providing a streamlined and automated way to access diversified portfolios, often at a lower cost than traditional financial advice.

For those just beginning their investment journey, robo-advisors can serve as a practical and approachable starting point. 

They handle portfolio management, reduce the need for constant decision-making, and help keep you aligned with your financial goals. However, they aren’t the right fit for everyone.

If your finances are more complex, or if you prefer greater control over your investments, you may want to explore other options such as DIY investing or working with a financial adviser.

Next in the series: ESG and Sustainable Investing Explained, where we explore how to invest with purpose, what ESG criteria actually mean, and what UK investors should consider when aiming to make a positive impact with their money.

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Robo-advisors are not available via the Chip platform. Chip offers self-invested funds that invest in different assets as a collective investment.

How does cryptocurrency work?

Cryptocurrencies use a technology called blockchain. Think of it like a digital record book (ledger) of every transaction

Instead of this information being stored in one place, like a bank, it’s shared across thousands of computers across the world. 

When you send or receive cryptocurrency, your transaction is added to a ‘block’ of data. Before it’s accepted, it has to be verified by the network in one of two ways:

• Miners (used in bitcoin) do this by using powerful computer hardware to solve complex puzzles. Solving these puzzles validates a ‘block’ of transactions, adding it to the blockchain, and generating a fixed amount of new cryptocurrency as a reward. Miners are constantly competing to solve these puzzles. 
• Validators (used in newer systems like Ethereum 2.0) ‘stake’ (lock away) some of their own cryptocurrency, and the network selects a validator at random to check and approve a block of transactions. If they do this honestly, the block is added to the blockchain, and the validator earns a reward – either in the form of transaction fees or newly issued cryptocurrency. 

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Why has cryptocurrency become popular?

Cryptocurrency has captured global attention for a number of reasons:

• Decentralisation and independence from banks and government means no single person or institution is in charge. This appeals to those who want more control over their money. 
• Volatility has fuelled speculation with prices swinging sharply both up and down, attracting those hoping to profit from big movements. 
• Blockchain innovation and technology has opened the door to powerful new ideas such as Web3 – giving users ownership of digital services, and NFTs (non-fungible tokens) – digital collectibles with unique ownership. 

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Is cryptocurrency a long-term asset?

There are arguments to support the idea that cryptocurrencies have value as a long-term asset, as well as scepticism around cryptocurrency’s short-term ‘hype’ potential:

Long-term value argument:

• Growing institutional adoption of cryptocurrencies in balanced portfolios by large traditional financial institutions such as BlackRock, Fidelity, and Morgan Stanley. Typical allocations range from 1-3%.¹
• The store-of-value narrative has gained traction during periods of economic uncertainty, as investors look for a hedge against inflation and ways to store value independently of banks or governments.
• Financial innovation has benefitted from the development of blockchain technology and its role in the evolution of smart contracts (automatic financial agreements removing the need for banks or lawyers), Web3 (the broader movement to a decentralised internet). 

Short-term ‘hype’ argument:

• Speculative bubbles and herding trends have been identified as a driving force behind some retail investors’ adoption of cryptocurrencies, often triggered by social media noise.²
• Regulatory concerns have arisen surrounding consumer protection, money laundering and financial stability as infrastructure and regulation remain underdeveloped. 

¹Sygnum

²Journal of Financial Innovation

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Common risks of cryptocurrency 

Like any investment, cryptocurrencies comes with its own risks, some of which are unique:

1. Extreme volatility – Price swings can be very turbulent and very reactive to the news cycle. For example, in May 2021, Bitcoin fell around 31% in a single day in response to regulatory concerns and influential social media activity.³ 
2. Regulatory uncertainty – Many countries are still figuring out how to regulate cryptocurrency. Some countries have embraced it and others have imposed strong restrictions or even bans. These regulations can have an impact on prices, purchasing, and the operating capabilities of platforms. 
3. Security threats – As cryptocurrency is a digital currency, it is open to issues around hacking, scams and theft. Unlike deposits with regulated UK financial institutions, cryptocurrency deposits are not protected by the UK’s Financial Services Compensation Scheme (protects your money up to £85,000 if an institution goes out of business). 
4. Emotional Investing – Cryptocurrency prices are strongly influenced by investors’ emotions, and those emotions, in turn, are closely tied to price movements.⁴ 

³The Guardian

⁴Journal of Behavioral and Experimental Finance

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What is staking, mining, wallets and crypto ETFs?

If you were investing directly into cryptocurrencies, there are a few technical terms worth getting familiar with, to understand how crypto networks operate and how coins are stored and earned:

• Staking – The process of locking away some cryptocurrency to support the crypto network. In exchange, it’s possible to earn rewards. This process is used by coins running on a Proof of Stake (PoS) System such as Ethereum, Solana and Cardano. 
• Mining – The process of solving complex mathematical puzzles using specialised hardware, to verify transactions. Miners can be rewarded with newly created coins and transaction fees. Whilst this process is crucial to the workings of Bitcoin (currently the largest crypto by market cap), the mining process isn’t practical for most investors due to the infrastructure required. 
• Wallets – After purchasing cryptocurrency, investors usually use a digital wallet as storage. Hot wallets connect to the internet and are more convenient for quicker transactions. However, they’re also more vulnerable to online hacks and scams. Cold wallets are offline storage options such as hardware, which offer more secure storage as they aren’t connected to the internet. These wallets can be more difficult to use and keep safe. 
• Crypto ETFs – A regulated investment fund traded on a stock exchange that gives investors exposure to the cryptocurrency market, without needing to buy, store, or manage digital assets directly. Some ETFs track the price of crypto assets, and others invest in companies that operate in the crypto and blockchain ecosystem. 

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The role of crypto in a diversified portfolio

Cryptocurrency is increasingly being considered by some investors as a way to bring added variety to a wider investment portfolio.

Because crypto assets often behave differently to traditional markets, they may offer:

• Diversification benefits – their performance may not always move in line with stocks, bonds, or other mainstream assets.
  
• Potential inflation hedging – certain cryptocurrencies, such as Bitcoin, are sometimes described as digital stores of value, though this remains debated and unproven over longer timeframes.
  

That said, it’s important to understand the nature of crypto as an asset class:

• It’s highly volatile, with prices that can rise or fall sharply in short periods.
  
• It’s generally considered a higher-risk investment, and may not be suitable for all investors.
  
• Crypto exposure through an ETF can provide a simplified route for accessing the sector, without needing to manage digital wallets or private keys.

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Investing in cryptocurrencies summary

Cryptocurrency is a speculative and fast-moving asset class that’s drawn interest for its technological innovation and potential to behave differently from traditional investments. While it is prone to sharp price swings, it may offer diversification benefits when used cautiously.

Whether crypto has a place in your portfolio depends entirely on your goals, risk tolerance, and time horizon.

For experienced investors, a small, controlled allocation may help introduce exposure without taking on the full risks of direct ownership.

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FAQs

What is a crypto ETF?

A crypto ETF (Exchange-Traded Fund) is a type of investment fund that provides exposure to the cryptocurrency market without requiring you to buy and store digital assets directly.

Instead, it tracks the price of one or more cryptocurrencies (like Bitcoin), or the performance of companies involved in the crypto ecosystem such as blockchain developers or mining firms.

Like other ETFs, crypto ETFs are traded on traditional stock exchanges and can be bought and sold through investment platforms.

Is it safe to invest in crypto via an ETF?

Crypto ETFs are considered a more regulated and accessible way to gain exposure to the crypto market.

They don’t require managing wallets, private keys, or navigating crypto exchanges which can introduce technical or security risks.

However, they still carry investment risk. The value of a crypto ETF will rise or fall based on the performance of the underlying assets, which can be highly volatile.

So while they simplify the process, the investment itself remains speculative.

Can I invest in Bitcoin through an ETF?

Yes. Some crypto ETFs are designed to track the price of Bitcoin specifically. These ETFs either hold Bitcoin directly (a ‘physical’ or ‘spot’ ETF) or track futures contracts based on Bitcoin prices.

This allows you to gain exposure to Bitcoin’s performance without needing to own or store the asset yourself.

What’s the difference between buying crypto and investing in a crypto ETF?

Buying crypto directly means purchasing digital coins (like Bitcoin or Ethereum) via a crypto exchange. You’ll need a digital wallet to store them securely, and you’re responsible for managing keys, transactions, and safety.

A crypto ETF, by contrast, is a stock market investment. You don’t own the crypto itself, you own shares in a fund that tracks crypto prices or related businesses.

This removes some of the complexity and security concerns, while still giving you access to crypto market movements.

Is crypto a good investment for beginners?

Crypto is a high-risk, speculative asset class. Prices can swing sharply in either direction, and the market is still evolving with regulatory, technological, and security risks to consider.

That said, some investors choose to include a small allocation to crypto as part of a diversified long-term portfolio. If you’re new to investing, it’s important to understand the risks and not invest more than you’re prepared to lose.

ETFs can offer a simpler way to access crypto exposure without needing to manage digital wallets or exchanges directly.