If a company is looking to increase its revenue it can become a Public Limited Company (PLC) and sell shares to investors. This allows you to make money trading stocks online. Each share has a certain value when you buy it, but the value can go up or down in the time that you own it.
As an individual, you can buy shares yourself or pool your money with a group of investors. This is known as a fund. Funds take money from the investors and put it into various assets, which include money, shares, bonds or property.
An investment service will manage your money. Your pool will have a dedicated fund manager who will pick out the investments and buy and sell on your behalf.
This is less risky than putting all your money into one company as a pooled investment is spread around. If one investment doesn’t do well you haven’t lost everything, as you could if you invest in just one company. You also reduce the costs involved in trading because they are shared between the investors in the pool.
Finally, if you don’t have the time or you don’t want to do the work yourself, you have the management company to do the work for you. It is a shrewd, less risky method of investing if you’re doing it for the first time.
There are two types of managed fund you can choose from:
Tracker funds use a market index tracker to see how your shares are doing. The market index in the UK is the FTSE 100, which contains 100 of the largest companies based on their share value. Your investments will go up and down with the FTSE index. Tracker funds normally make less than active funds, but the management costs are cheaper.
An active management pool will have a fund manager who constantly researches the market to buy the shares they believe will be a good investment. The fund manager’s job is to get you better returns than you would with tracker funds or better than average growth so that you ‘beat the market.
There are a variety of investments you can make through pool investing and they include:
Owning your own shares is riskier than a pooled investment. It is recommended, when starting out, that you ‘drip feed’ your investment funds into a company. You can do this by splitting the amount of money you have to invest into two.
For example, if you have £15,000 in total you can buy £7,500 worth of shares one month and wait until the next month to invest the other £7,500. You might find that the price has fallen, which means in the second month you get more shares for your money.
You can spread the money throughout the year or invest in different years, but be aware that drip feeding will make management funds higher.
You can buy shares for any company that is listed on an exchange, like the London Stock Exchange or the Alternative Investment Market.
These are the steps you must follow:
There will be charges to pay for the running and maintenance of your portfolio and these are:
See below for three examples of platforms that suit varying investment needs for newcomers. Dependent on your budget and how often you’re looking to trade, these options should provide you with a good starting point.
This platform doesn’t have the cheapest buying and selling charges, however, there’s no platform fee for shares, it has a great on-site knowledge base and the website is easy to use for first-time investors.
Think carefully before signing up if you aren’t in it for the long term as if you leave there’s a £25 transfer out fee per holding.
With no platform fee and the cheapest dealing charges if you make 10+ trades a month, AJ Bell is worth looking at as a start point. Their service offers a range of information that will help those that are new to investing. It also allows a lot of flexibility, with an intuitive mobile app.
With Interactive Investor you’ll receive cheaper trades as you make more each month. There’s also the incentive of two free trades per quarter.
For example, if you make 20 trades in your first year it will cost a total of £200 (factoring in 8 free trades, 12 trades at £10 each and the platform fee). While it’s more expensive than the likes of AJ Bell (see above) there are more options to allow you to grow your investments as you gain confidence.