Updated January 2018
Trading 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.
Our best buys
What is a share? The 8 need-to-knows
A 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 on funds see our Fund need-to-knows.
You should invest for at least 5 years
As a rule of thumb, you should invest for at least five years. This allows enough time to ride out any bumps in the market that might see you make a loss on your money. If you know you're going to need access to your money in this time, then perhaps investing isn't the right route for you.
Holding shares in just one company is high risk
Think 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.
Investing in an ISA should ALWAYS be your first port of call
If you're new to investing an ISA should be your preferred route for the first £20,000 (the current ISA limit). Most platforms will let you do this and it's a great way to reap tax benefits at the same time as investing your money.
However, how much you'll benefit from moving your shares to a stocks & shares ISA will also depend on things such as whether you'll max your capital gains tax (CGT) allowance. See more on this below.
If you have more than £20,000 to invest, you can put the first £20,000 into an ISA and then use a standalone dealing account for the rest. For full details on investing in stocks & shares read the Stocks & Shares ISA guide.
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.
The golden rules to investing
Follow the five golden rules below to ensure you have a good investment journey:
The greater return you want, the more risk you'll usually have to accept. It's normally wise to take on more risk the younger you are where you have more time to make up any dips in the market.
Don't put all your eggs in one basket. Try to diversify as much as you can to lower your risk exposure, ie, invest in different companies, industries and regions.
If you're saving over the short-term, it's wise not to take too much of a risk. It's recommended you invest for at least five years. If you can't, it's often best to steer clear of investing and leave your money in a savings account.
Review your portfolio. A fund might be a dud or you might not be willing to take as many risks as you did before. If you don't review your portfolio regularly, you could end up with a fund account which loses money.
Don't panic. Investments can go down as well as up. Don't be tempted to sell or buy funds just because everyone else is.For more on investing see our brand new Investing for beginners guide.
How to buy shares
If you've had your eye on Royal Mail shares, 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.
How to sell shares
Selling 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.
Where to get more info for research
If this is the first time you've considered any type of investing, it'll be worth reading our beginners' guide to investing to get a broader idea of what's involved.
We 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.