How To Invest In Stocks & Shares

Investing in stocks and shares allows individuals to purchase part of a publicly listed company, with the goal of making a profit if the company performs well, and its share price rises over time.

Unlike cash savings, which allow individuals to earn interest on money held with a bank or building society, investing in stocks and shares comes with no guaranteed returns.

Share prices can rise as well as fall, and investors may get back less than they initially invested. That said, over the long term, investing in the stock market has typically produced higher returns than cash savings.

Here’s a closer look at how to get started with investing in stocks and shares, how it works, and some important points to be aware of.

How to invest in stocks and shares

Step 1: Open a trading account

Accounts can usually be opened online and in as little as 10 minutes. Applicants will need to provide some basic information, such as their bank account and National Insurance details.

Electronic checks may be carried out during the initial application process, although applicants may have to supply further documents to support the verification of their identity.

Step 2: Research investments

The next step is to select investments, and build a portfolio.

Most platforms provide a curated list of recommended funds, and allow customers to filter investments by factors such as industry, size and geographical location.

This can help new investors get an idea of what’s available, and which investments might make sense for them.

While working out an investment strategy, individuals should typically be guided by their financial goals, timeframe and risk tolerance.

For instance, an investor with a timeframe of 20 years or more and a high tolerance for risk might invest primarily in growth stocks. Conversely, someone with a timeframe of just five years and a lower appetite for risk might choose a more defensive portfolio, weighted towards low-risk bonds.

Before committing to an investment of any kind, investors may want to carry out some research. For example, while looking into a potential investment, investors may want to consider the following:

• past performance
• level of risk
• potential benefits 
• fund or company management.

Many investment platforms offer their own research tools and expert insights that can guide investors.

If in doubt, a professional financial advisor can help investors build a portfolio that makes sense for their profile. 

Step 3: Add funds to the account

Once the account is open, the next step is to fund the account via a debit card or electronic bank transfer (see below). 

Step 4: Set a budget

Before setting a budget for investing, most financial advisors recommend that individuals pay off any debt, such as credit cards or personal loans at higher interest rates. It’s also important to put aside enough money in savings accounts to cover at least three to six months of expenses, in case of unexpected costs.

In terms of investing in the stock market, it’s generally recommended that the minimum time frame is at least five years, which gives time for stock markets to recover from any downturns.

The next step is to consider individual investment objectives and attitude to risk. Risk-averse investors may prefer to put more money in lower-risk options (such as savings accounts) and a lower amount in higher-risk stock market investments.

With any stock market investment, there is the risk of losing some (or all) of the money invested so individuals should only invest money that they are willing to lose if the worst happens.

Step 5: Place the trade

Shares on the London Stock Exchange can be traded from 8 am to 4.30 pm on weekdays. After logging into the account, the next step is to search for the name (or ticker) of the fund or company. 

At this point, the investor will be given a live quote which they can choose to accept (or let lapse). There is typically the option to either choose the number of shares to buy, or the value of the investment to be made.

Most companies have a ‘buy-sell’ spread, which is effectively the profit that the provider will make on the transaction, and varies across different shares. 

For example, the price may be listed as 98-100 pence for a company. This means that investors will pay 100 pence to buy a share and receive 98 pence to sell a share.

At the point of purchase, the investor will pay any share trading fees (please see the FAQs for further details) and Stamp Duty Reserve Tax (SDRT) of 0.5% on UK shares. 

The process for buying investment funds is slightly different as they are forward, not live, priced. This means that investors submit their dealing instructions but don’t know the price until after the trade has been executed.

Step 6: Monitor the portfolio

Once the purchase has been executed, the shares or funds will be lodged in the account. Most trading platforms provide apps to allow investors to review the performance of their portfolios in real-time.

If the company or fund pays dividends, these are typically held as cash within the portfolio, or may be automatically reinvested to buy additional shares.

Step 7: Selling shares

The process for selling shares is identical to buying, with investors given a live quote that they can choose to accept or let lapse. 

It is usually possible to sell a portion of a holding, for example, 40% of the shares held. The proceeds, net of any trading fees, will be credited to the account after the sale has been executed.

What are stocks and shares?

Shares are units of ownership in a company and are issued by a company to raise funds. 

Although the terms ‘stocks’ and ‘shares’ are often used interchangeably, a share is an individual unit of ownership, whereas a stock denotes more general ownership. Or, put another way, an investor might ‘own stock’ in BP with a holding of 100 shares.

Only shares in publicly-traded companies are available to buy or sell on a stock exchange. In the UK, these companies have ‘plc’ or ‘public limited company’ at the end of their name, and there are nearly 2,000 companies listed on the London Stock Exchange.

Alternatively, many platforms also offer trading in shares listed on overseas stock exchanges. 

What are the different ways to invest in shares?

It’s possible to invest in shares directly or indirectly, as follows:

• Invest directly in individual shares: buying shares in individual companies might be an option for investors who are confident in carrying out their own research and keeping abreast of market developments. Even for people who know what they are doing, direct investing is potentially a relatively risky option especially if you keep the number of investments to one, or just a handful, of stocks
  
• Invest indirectly via funds: professionally-managed investment funds pool money from investors in a basket of shares and other assets such as bonds and property. The aim of such funds is often to meet or outperform the returns achieved by a specific stock market index, such as the UK’s FTSE 100, or US S&P 500. Funds offer a wide range of options covering different assets, industrial sectors (such as energy and healthcare), and regions around the world.

There are three main types of funds to choose from:

• Investment funds: investors buy units in these investments, more formally referred to as ‘open-ended investment companies or OEICs, which rise and fall in value in line with the underlying assets. These are generally actively-managed investments where a fund manager makes a deliberate choice of the holdings held within his or her portfolio
  
• Exchange-traded funds (ETFs): investors can buy shares in an ETF, the value of which will change with the underlying stock index they have been designed to track. These investments, along with ‘index’ or ‘tracker’ funds, are usually passively-managed with computer algorithms dictating the buying and selling decisions
  
• Investment trusts: also known ‘close-ended investments’. These are effectively companies in which investors buy shares whose aim is to invest a portfolio of assets. They are mostly actively-managed but, unlike OEICs, the share price may differ from the underlying value of the investments.

Depending on its investment mandate, a fund can either be ‘actively’ or ‘passively’ managed:

• Actively-managed funds: include investments where the manager tries to outperform a benchmark or index through deliberate stock-picking, and typically charges a higher annual management charge as a result, anything between 0.5% and 1.5% of the value of the investment being made
  
• Passively-managed funds: these span ETFs, ‘tracker’ and ‘index’ funds. They aim to copy the performance of a stock index such as the FTSE 100, and generally charge a lower annual management charge, typically between 0.1% and 0.4% of the value of the investment being made.

What are the options for share dealing?

Using a trading platform

A popular way of investing in shares is via an online broker or trading platform. There are a range of services from those provided by banks to specialist platforms such as AJ Bell and interactive investor. 

The UK’s financial regulator, the Financial Conduct Authority, estimates that almost 10% of UK adults hold their investments via a trading service, also known as a direct-to-consumer, or ‘DIY’, platform.

It’s worth comparing the fees applied by different providers as these can vary considerably and erode the value of a portfolio over time. We’ve compared charges, along with other features, in our pick of the best trading platforms.

Using a professional financial advisor 

Another option is to buy and sell shares via a financial advisor or wealth manager. Several of the online platforms mentioned above also offer discretionary wealth management services for clients with higher-value portfolios (typically over £100,000). 

A suitably-qualified financial advisor should be able to recommend shares based on individual investment objectives, and execute the trades on their behalf. However, this will be a higher cost option than using an online platform. 

Using a robo-advisor

Robo-advisors have grown in popularity as a hybrid option between DIY investing and a financial advisor. They use computer algorithms to construct an automated portfolio tailored to an investor’s appetite for risk.

Robo-advisors are a relatively simple, low-cost way of investing in shares, generally via ETFs and index funds rather than individual shares.

What type of accounts can you hold shares in?

Shares and funds can be held in a general trading or investment account, or in a tax-efficient wrapper such as an Individual Savings Account (ISA) or Self-Invested Personal Pension (SIPP).

Investments held in these accounts are free from income and capital gains tax. 

The capital gains allowance has halved to £3,000 in the current (2024-2025) tax year, while rates at which CGT is payable were increased in the 2024 Budget – making a tax-efficient wrapper particularly beneficial.

Tax treatment depends on one’s individual circumstances and may be subject to future change. The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of tax advice.

How to choose which shares to invest in

Before making investment decisions, investors should conduct their own research and consult a financial advisor if they are unsure of what they are doing. 

The composition of an investment portfolio will depend on an individual’s personal investment objectives, including their tolerance for risk and the investing time horizon concerned.

According to 2024 research by BlackRock, stocks and shares are the most popular investment option, with 66% of UK investors holding them. Investment funds are also popular, held by 19% of UK investors.

ASSET TYPE	PERCENTAGE OF UK INVESTORS
Stocks and shares	66%
Bonds	26%
Investment funds	19%
Cryptocurrency	17%
Exchange Traded Funds	8%
Managed Investment portfolio	7%
Crowd funding/venture capital	4%

Source: BlackRock People & Money Survey, 2024

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Elsewhere, research from Charles Schwab UK found there is a growing generational divide among the UK’s retail investors.

Charles Schwab found that ‘Generation Z’ and ‘millennials’ are adopting trader-like open and active investment strategies, substantially more the ‘baby boomers’ and the ‘Generation X’ cohort of individuals.

The research found that far more younger investors (58%) make changes to their holdings at least monthly, compared with less than 31% of older investors.

Choosing between income and capital growth

The choice of shares will also depend on whether investors are primarily looking for returns from capital growth or income, but what’s the difference?

One of the main aims of investing is to make a profit by selling shares for a higher price than the purchase price, also known as a capital gain (or growth). Alternatively, investors may want a regular income, usually in the form of dividends paid to shareholders.

On the whole, there’s a trade-off between capital growth and income. Typically, the higher-dividend paying shares (often found in the commodity and financial sectors) deliver less in the way of capital growth than the lower-dividend paying shares (such as the large US technology companies).

For income-seeking investors, we’ve produced a guide to our pick of the best dividend-paying shares and exchange-traded funds (ETFs). For more growth-oriented investors, we’ve also taken a look at our pick of the best growth stocks and technology stocks.

Best stocks for beginners

Which stocks are best for a beginner investor depends on their financial circumstances, timeframe and tolerance for volatility.

Building a diverse portfolio is generally a good place to start, however. This means investing in a wide array of industries and markets, with the goal of reducing overall risk.

If a particular company or sector loses value, the overall impact will be smaller if a portfolio has been properly diversified.

For a few investment ideas, check out these stock suggestions picked by a panel of investing experts.

The content provided does not consider your particular circumstances and does not constitute personal advice.

How are share purchases funded?

Before an investor can start to buy shares, they’ll need to fund their trading account. 

This can usually be done by electronic bank transfer free of charge, or via debit card, which may incur a fee.

Some providers stipulate a minimum investment amount, usually around £100 for lump sums or £50 for regular investing.

Account holders also have the option to regularly fund their account with a direct debit or standing order.

Once their funds have landed in the trading account, investors can use them to purchase stocks and shares.

Any profits made by selling off investments are returned to this funding account, where they can either be reinvested or withdrawn.

Affordable ways to invest in stocks 

Certain companies have very high share prices, which can be a barrier for investors who are just getting started, or simply don’t want to invest such a large amount in a single company.

Fortunately, these investors have a couple of options when it comes to getting exposure to these shares:

• Fractional shares: a portion, such as half, a full share. This is a particularly useful option for some of the US companies with high share prices
• Investment funds: investment funds (see above) can be a cost-effective way to access multiple company shares in one fell swoop. Bear in mind that some funds have a minimum investment, however.

How to set a budget for your stock market investments

Before setting a budget for investing, most financial advisors recommend that individuals pay off any debt, such as credit cards or personal loans at higher interest rates. It’s also important to put aside enough money in savings accounts to cover at least three to six months of expenses, in case of unexpected costs.

In terms of investing in the stock market, it’s generally recommended that the minimum time frame is at least five years, which gives time for stock markets to recover from any downturns.

The next step is to consider individual investment objectives and attitude to risk. Risk-averse investors may prefer to put more money in lower-risk options (such as savings accounts) and a lower amount in higher-risk stock market investments.

With any stock market investment, there is the risk of losing some (or all) of the money invested so individuals should only invest money that they are willing to lose if the worst happens.

What fees are charged on buying shares?

Fees vary by investing platform, but they typically break down as follows.

Share trading fee

This is a flat fee charged by the provider each time an investor buys or sells shares. Some providers charge no share trading fee, while others charge between £5 and £10 per trade.

Providers may also charge lower trading fees for regular traders, based on trading a minimum number of shares per month or quarter. 

Trading fees for funds vary, and some platforms allow investors to buy and sell them free of charge.

Platform fee

This is an annual fee charged for holding the shares and funds in an account. Some providers charge no fee, others charge a flat fee and some charge a percentage, typically 0.25% to 0.45% of the value of the portfolio.

These fees will usually be taken out of any cash held on the account or fees can be paid directly by debit card. However, the provider is likely to sell a proportion of investments held in the account as a last resort if fees remain unpaid.

It’s also worth looking at the types of investments that incur a platform fee as some providers charge for holding funds, but not for shares. When a platform fee is charged for holding shares, this may be subject to a maximum cap per year.

There are two types of percentage-based platform fees:

• Tiered fee: this is the most usual type of platform fee whereby different rates are charged on different ‘slices’ of the portfolio. For example, for a portfolio worth £300,000, a 0.45% fee might be charged on the first £250,000, then 0.25% on the next £50,000
  
• Non-tiered fee: a few providers charge a non-tiered fee, whereby the same fee is charged across the whole portfolio. For example, for a portfolio worth £300,000, a 0.2% fee might be charged on the whole £300,000.

Foreign exchange fee

If shares are denominated in a currency other than pounds sterling, the majority of providers charge a foreign exchange fee. This is also referred to as a foreign currency conversion fee and typically varies from 0.5% to 1.5%. Some providers also charge a higher trading fee for non-UK shares and funds.

A small number of providers allow investors to hold their funds in a foreign currency, which enables them to convert it once and use this ‘pot’ for buying and selling shares in the same currency.

Other fees

Providers may charge other fees, such as inactivity fees and withdrawal fees (for accounts held in a currency other than sterling) and fees for trading by telephone rather than online.

Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.