How Should a UK Graduate Start Investing in Their 20s?
For UK graduates in their twenties · Based on PensionCraft UK Investing From Scratch Framework
// TL;DR
If you're a UK graduate in your twenties, this framework tells you exactly what to do first: audit your savings rate and fees, build an emergency fund, capture any employer pension match, and open a Lifetime ISA before the age-40 window closes. Because the first decade does the heavy lifting, starting now — even with small amounts — is worth roughly the same as doubling your contributions later. Use it to build a cheap, automated Core portfolio and avoid the silent mistakes that cost decades of compounding.
Why does starting in your 20s matter so much?
Because the first decade does the heavy lifting. In the PensionCraft framework, starting ten years later forces you to nearly double your annual contribution for the rest of your working life just to reach the same final pot. As a graduate, time is the single biggest advantage you'll ever have — ten years of compounding is worth roughly the same as permanently doubling your contribution rate. Even modest amounts invested in your twenties outrun much larger amounts started in your thirties.
What should you do before picking any fund?
Audit the two compounding forces first. Calculate your savings rate as a percentage of gross income and your total TER (platform + fund + any advisor fees). Run the TER through the GULP tool to convert it into a pound figure — the number is always bigger than you expect. Getting these two variables right matters far more than which fund you buy. Aim for a core TER of 0.15–0.25% and the highest sustainable savings rate you can maintain without quitting.
What order should you fill your accounts in?
Follow the six-step account order and don't skip ahead:
1. Emergency fund — 3–6 months of essential spending in cash. Without this, a market drop could force you to sell investments at a loss.
2. Employer pension match — an immediate 50–100% return before tax relief. Never leave this on the table; it's the highest-returning step in the entire sequence.
3. Lifetime ISA — if you're 18–39 and a first-time buyer, open one now to start the 12-month clock. You get a 25% government top-up on up to £4,000/year, and the window to open closes permanently at 40. (Note the planned replacement with a first-time-buyer-only ISA around April 2028.)
4. Stocks and Shares ISA — up to £20,000/year, tax-free forever and accessible anytime.
5. Pension or SIPP — a powerful tax shelter, but locked until your late 50s.
6. General Investment Account — only once every tax-sheltered wrapper is full.
Think of it as building a house: don't build the roof before the ground floor.
How should you build the actual portfolio?
Keep it simple. Your Core — 90% of your investments — needs only a cheap global equity tracker (not UK-tilted) and a safe bond fund, or a single multi-asset fund that does both. At your age, the '100 minus age' heuristic suggests a high equity weighting, but choose your glide path based on whether you'd panic-sell in a crash. If you can hold through a 40% drop, lean into equities.
The remaining 10% maximum is your Fun Pot — crypto, individual stocks, themes — held in a separate account and passing the zero test: if it went to zero tomorrow, would you still be on track? As a graduate this is a great place to learn without risking your retirement.
Which mistakes should you avoid early?
Watch for home bias — the UK is only ~4% of global markets, so a global tracker beats loading up on UK shares. Avoid individual stock picking as your Core (57% of US stocks underperformed cash from 1926–2016). Don't leave long-term money in cash, where inflation erodes it. And keep crypto and leverage in the Fun Pot, not the foundation.
Next step: Work out your current savings rate and TER, run the fee through GULP, then open your emergency fund and — if you're a first-time buyer under 40 — a Lifetime ISA this month to start the clock ticking.
// FREQUENTLY ASKED QUESTIONS
I only have £100 a month to invest — is it worth starting?
Yes. Because the first decade does the heavy lifting, small amounts invested in your twenties compound enormously. Starting ten years later would force you to nearly double contributions to catch up. Build a small emergency fund first, capture any employer match, then automate £100/month into a cheap global tracker. Consistency and time matter far more than the starting amount.
Should I open a LISA even if I'm not sure I'll buy a house?
Consider opening one before 40 to start the clock, since the window closes permanently and the 25% top-up is unrecoverable. A LISA can also be used for retirement from age 60, so it's not wasted if you never buy. Just note the early-withdrawal penalty for other uses, and factor in the planned April 2028 changes to the account.
Is it OK to invest before I've cleared my student loan?
Often yes, because UK student loans work more like a graduate tax and don't behave like conventional high-interest debt. The framework still puts the emergency fund and employer match first. If you have expensive commercial debt, clear that before investing — but a low-cost, income-contingent student loan usually shouldn't stop you starting your Core.