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Shares

The cheapest way to buy, sell and hold

sharesTrading in shares can be a good way to make a return on your money, but it can be less rewarding if dealing costs are through the roof – these alone can snack a sizeable chunk off your investment returns.

This guide tells you everything you need to know about buying, holding and selling shares. Plus the cheapest way to buy them and some tips for those who are new to investing.

This guide tells you everything you need to know about buying, holding and selling shares. Plus the cheapest way to buy them and some tips for those that who new to investing.

Shares in a nutshell

sharesA share is simply a divided-up unit of the value of a company. For example, if a company is worth £100 million, and there are 50 million shares, then each share is worth £2 (usually listed as 200p). Those shares can and do go up and down in value for various reasons.

Companies issue shares to raise money and investors (that’s you) buy shares in businesses because they believe the company will do well and they want to ‘share’ in its success.

There are two options when buying shares, you can either:

1. Own shares yourself; or

2. Pool your money with other people in a collective investment known as a fund

For first-time investors pooling your money is a slightly safer option as you're not putting all your eggs in one basket (as you're not just investing in one company) and it means you can ride out any bumps in the market. For more information see the Money Advice Service website.

Holding shares in just one company is high risk

sharesThink about it. If that company gets into difficulty then you could lose some or all of your money. Instead, spread your risk by buying shares in a variety of companies.

It's also tempting to try to time the market, but it's almost impossible and even the most experienced investors get it wrong. By pulling out of the market as soon as a share dips or trying to second-guess when a share will reach its peak, you could lose out on sharp recoveries or see the price go down again.

Instead, you should invest on a regular basis – in investment lingo this is called 'drip-feeding' – to smooth out any ups and downs. This will give you an added benefit of something called 'pound cost averaging'.

This is how it works:

If you invested a £10,000 lump sum and bought shares valued at £10 each, you'd have 1,000 shares. If you bought £5,000 worth of the same shares per month over two months (amounting to £10,000 overall), you'd buy 500 shares in the first month. But if the share price went down to £9.50 in the second month, you'd be able to buy 526 shares, as the shares are at a lower price. So, rather than just getting 1,000 shares for your £10,000, two payments of £5,000 buys you 1,026 shares.

Beware scams

If you're contacted out of the blue by someone inviting you to invest in shares, say 'no'. It is almost certainly a share scam, often referred to as a 'boiler room' scam. Here fraudsters will cold-call investors offering them worthless, overpriced or even non-existent shares.

While they promise high returns, those who invest usually end up losing their money. And remember, if it sounds too good to be true, it probably is.

Quick questions:

What's the difference between stocks and shares?

What's the difference between investing and saving?

How to buy shares

sharesIf you had your eye on Royal Mail shares when they came out, or have always fancied investing in Marks & Spencer but you're not sure where to start, the good news is that buying shares is not complicated.

The easiest and cheapest way to buy shares is online from what's called a 'share dealing platform'. These platforms allow you buy shares from any company listed on the stock exchange and various overseas exchanges. There's the main stock exchange – the London Stock Exchange, where you get a whole host of companies including the really big players such as Marks & Spencer. Then there's the Alternative Investment Market (AIM), which lists smaller developing companies that you may not have heard of.

Companies get listed on the stock exchange after they have completed an Initial Public Offering, a process which basically takes the company from being private to public – allowing others to eventually buy shares in it.

So the basic principle is, if the company is listed on an exchange, you can buy a share in it.

You'll always be able to buy and sell shares trading on the stock market. However, the price is determined by the supply and demand from prospective buyers and sellers at any particular time – high demand will drive up the cost (while low demand will do the opposite).

Even if you know the exact share you want to buy, you'll still have to set up a trading account and make sure there is enough money in it before you can buy the share.

Once you've done this, you can log into your account and search for the share you want to buy. You can either choose to buy a quantity of shares, or a value – whichever you choose, you need to have enough money in your dealing account to cover both this and any dealing charges.

Once you've selected how you want to trade a price will be quoted, once you've accepted the price the shares will then show in your portfolio.

Paper share certificates are old news

Before things moved online, all shares were traded through paper certificates. Trading in paper shares is a more expensive and cumbersome option. Online trading is quicker and easier for not only you but also the stockbroker. As time is money, if you still want to trade in paper share certificates you'll be penalised for this by the broker who'll have to spend more of his time and therefore your money on the trade. So if you still have paper shares, your best option is to convert these to online shares.

Most platforms will allow you to do this at no cost, you'll just have to fill in a form and it will take a few days to convert them to online shares.

Charges can eat away profit

sharesOne of the biggest things to take into consideration when buying (and selling) shares is how much it'll cost you in charges. The main ones to look out for are:

Account fee: Platforms may charge a monthly, quarterly or annual account fee, but in some cases this is waived if you make a minimum number of trades, or your account is of a certain size.

Inactivity fee: An inactivity fee may be charged unless you make a certain number of trades within a set period. However, these days most platforms don't charge this as a bonus to lure you in.

Buying/selling shares: The fee you pay each time you buy or sell shares. You'll often find discounts for frequent traders.

Stamp duty: When purchasing UK shares expect to pay 0.5% stamp duty and an extra £1 on transactions above £10,000.

Dummy portfolios

If you're worried about diving straight in at the deep end with investing, but you're serious about doing it, then dummy portfolios let you build up your confidence first.

A lot of the platforms these days have 'dummy' or 'virtual' portfolios you can practise with. You trade exactly as you would if it were real, except you're not actually exchanging any money or buying any real shares, so if you do make a mistake, there's no harm done.

You have to be an existing investing customer with some companies first before they allow you to set up virtual portfolios alongside your real ones.

shares

Shareholder perks

While investments should be chosen for their potential to hopefully make you some money, shareholder perks can be a welcome bonus. These are no longer automatically given as they were when people held paper certificates, but some platforms still pass them on through the accounts.

For example, a simple search will show that if you buy Marks & Spencer shares through a platform such as Hargreaves Lansdown, you'll be sent vouchers offering discounts across the Marks & Spencer product ranges. In order to get these you'd need to get in contact with the broker – the same applies if you want to attend shareholder meetings.

Quick questions

How do I pick a good platform?

I inherited shares, what do I do with them?

How to hold shares

sharesIf you decide to trade your shares online, then the easiest thing to do is open what's called a 'nominee account'. This allows you to own shares without becoming involved in any of the paperwork.

How to sell shares

sharesSelling shares is just as easy as buying them. Each platform's website will work slightly differently, but the principle is the same for each.

Shares best buys

When it comes to investing in shares, which platform you choose for your share dealing will depend on a number of different factors, such as how experienced you are and how often you want to trade. This means it's not just as simple as providing a best buy table.

Below we've given a number of different options to suit different people's investments needs.

New to investing? Some tips for beginners

sharesWe don’t cover what to invest in because we never want to have told you to put your money in something, only for you to lose money on it.