How to buy shares

11 min Read Published: 20 Apr 2020

What is a share?

How to buy sharesShares, also known as equities, are an investment vehicle that provides the owner with a share of a company. So, if you buy a share of a company you are actually buying part of that business. Shares are issued by companies to raise money and investors buy shares in companies that they think are going to do well and as a result the share price rises in value.

Shares can be owned individually or you can invest in a fund that pools your investment with other investments to purchase a range of shares in a number of different companies in a sector. A fund is run by a fund manager who analyses shares in the fund sector and buys shares that they believe will provide the best return on investment. A sector is an area of the economy where businesses share the same or a related product or service. So, if you wanted to invest in UK smaller companies you would look for a fund that invested in that sector.

Shares are issued by a company and bought and sold on the stock exchange. If the shares of a particular company are seen as a good investment they will go up in price and if they are seen as a poor investment they will go down in price as people buy and sell them. Owning shares can also provide an income by way of a dividend. A dividend is a payment made by a company (normally every six months) to its shareholders as a reward for holding their shares. A company does not have to pay a dividend and may decide to withhold a dividend if the company has made a loss or is investing their profits back into the business.

Buying shares in a single company can be a risky investment as the shares could go down in value or even become worthless if the company fails and goes into receivership.

How much does it cost to buy shares?

Buying shares is cheap and easy with many online share dealing platforms to choose from with a range of different charging structures.

The following table provides details of the charges for the main share platforms.

Platform fee Charge per trade
Frequent trader rate
Hargreaves Lansdown Transfer out fee only £11.95
£5.95 for 20+ deals per month
IG Share Dealing £0 - £24 depending on trading activity £8.00 From £3.00
Interactive Investor From £9.99 per month (includes at least one free trade) £7.99 £7.99
Fidelity £45 p.a for less than £7,500, 0.35% from £7,500 up £25 £10.00 £10.00

As well as the charges above there is also a Stamp Duty Reserve Tax (SDRT) payable at 1.5% of the transaction value.

How do I buy shares online?

Buying shares online is very simple, just follow these simple steps:

  • Decide on the investment platform you are going to use (more about this in the next section)
  • Open an investment account
  • Upload money to your account
  • Do some research and find the shares you want to buy
  • Buy the shares
  • Review your share positions regularly

Which investing platform is the best online platform for me?

To find out the best online platform for your needs you will need to ask yourself the following questions:

Will you want to invest on a regular monthly basis?

The great thing about investing is that you can start from scratch and invest on a monthly basis. Even if you do have a sizeable sum waiting to invest you might want to do so gradually over time using a regular monthly savings plan. This can help smooth out the ups and downs of the stock market. Some investment platforms are better suited to regular monthly investing than others, particularly from the perspective of cost.

What investment tools do you think you will need?

The best investment platforms offer a range of useful investment tools that can help you create portfolios in line with your investment risk as well as tools such as smartphone apps to monitor your investments on the go.

Will you want to buy and sell shares regularly?

If you are going to actively manage your investments (i.e. make regular changes) then it makes sense to choose an investment platform with low dealing charges. There is a variety of charging structures used by investment platforms so make sure you read the small print and choose the one that suits your investment strategy.

How much are you going to invest?

Some investment platforms, mainly due to their charging structure, are better suited to small investors (with under £50,000) while others favour investors with much larger sums. So if you are investing a smaller sum of money then choose the investment platform that fits with your investment amount. Equally, if you have a significant sum of money, you would be better opting for an investment platform that charges fixed fees rather than a charge based on a percentage of your portfolio size.

We have written a comprehensive guide - The best investment platform - which will provide you with all the information you will need.

Things you should know before buying shares

Attitude to risk

Although buying shares online is a simple process you should remember that you are just investing in one company which is limiting your chances of picking a winning share. If you invest in a number of shares you will be spreading your risk and providing more protection for your investment. So before investing directly in shares (rather than through a fund) you should be sure that you are comfortable with the level of risk you are taking.

Understand the investment environment

Understanding the investment environment is vital before investing in shares. Read as much as you can about the investment world and how different economic conditions can impact different types of investments. Get used to the various investment tools provided by most platforms to narrow down your selection of shares to invest in.

Start investing in areas you already know

First research areas you understand, for example, the retail sector where you see names that are familiar to you and where you understand how they make money. Most platforms will allow you to create model portfolios and watchlist so you can play around and test your knowledge before investing with real money.

Analysis

The more you read about investing the more you will understand about the subject and this will influence your investment decisions and hopefully, you will see your investments grow. Analyse companies and markets and get a feel for how different sectors influence others and be thirsty for knowledge.

How to hold shares

If you invest in shares you are liable for payment of Capital Gains Tax on any growth above the current annual allowance of £12,300 (2020/21) as well as Income Tax on any dividends paid.

To reduce the amount of tax you pay on your investments then you should make sure you always use your full annual ISA allowance of £20,000 (2020/21) where any growth and all dividends will be free of tax.

You can also hold your shares in your SIPP and get tax relief on your contributions at your marginal rate of tax up to a maximum of £40,000 per year. When you eventually withdraw an income from your SIPP you will be able to withdraw 25% of your fund tax-free but will be taxed at your marginal rate on withdrawals above this amount.

Is it safe to buy shares?

If, for example, you own shares in one company then you are putting all your trust in that company hoping that it grows and pays dividends over time which is a risky strategy. However, if you build an investment portfolio in shares then you will be spreading any risk amongst a range of companies which is a wiser strategy.

Investing in shares is really no different from investing in any other asset. If you do your research, build a portfolio and invest over the long term, investing in shares could provide you with a good return.

 

Looking for a financial adviser near you?

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Alternatively, Hargreaves Lansdown, one of the UK’s largest firms providing restricted financial advice, is offering a £200 John Lewis voucher* to new clients.