Investing is a great way to grow your wealth and earn a passive income. One of the ways to grow your wealth is to invest in stocks. As a rule of thumb, the best practice is to invest in stocks for the long term. Give your portfolio at least 5 years to sail through the market fluctuations and get a chance to earn high returns. However, just like any other investment, investing in the stock market has its own risks. You can either make a profit or a loss.
In this article, we will guide you through on how to invest in stocks UK for beginners.
What is to Invest in Stocks?
Investing in stocks means buying shares or buying a unit of ownership in public companies. Those small shares of a company are known as stocks. You buy shares of a company or invest in stocks with the hope that the company will grow and earn you dividends. Besides, when a company grows, the value of its shares increases and you can sell its shares or stocks at a profit.
What is Stock Market?
A stock market is a marketplace where shares and other assets of a company are bought or sold. In the UK, the main stock market is London Stock Exchange (LSE). Here, you can buy or sell shares of different companies. Anyone can trade in the stock market but through a stockbroker.
Instruments to Trade in Stock Market UK
There are several instruments you can invest in in the stock market UK. These instruments include:
- Stocks and shares. When you invest in stocks and shares, you are basically buying a unit of ownership in that company.
- Corporate bonds. This involves lending money to a company to earn interest in return.
- Government bonds or gilt. This involves lending money to the government to earn an interest in return.
- Fund. Also known as a mutual fund. This involves pulling funds together from a group of investors. A specialist fund manager then invests that money in assets such as shares and bonds on their behalf.
- Properties. Just as the name suggests, this involves investing in real estate properties.
- Commodities. It involves investing in precious metals such as gold, silver, and oil.
How to Invest in Stocks for Beginners UK
To invest in the stock market for beginners UK, follow these simple steps:
1. Decide the instruments you want to invest in. These instruments can either be shares and stocks, bonds, funds, properties, or commodities. If you are a beginner, it would be best if you start with funds since they are cheaper and safer compared to other instruments.
3. Choose a tax saving account. A tax saving account reduces your capital gains tax liability on your investment gains. Some of the Individual Savings Accounts (ISAs) you can use include:
- Stocks and shares ISA. They let you invest in tax-free ISAs, while you can also get a tax allowance. For instance, this year, the ISA allowance is £20,000. It means when you invest up to £20,000, your investment gains will not be taxed.
- Lifetime ISA. It is open to people between 18 and 40 years old. It saves you £4,000 every year that goes towards your home or retirement. The government then gives you an additional 25% bonus to your savings every year. The maximum bonus is £1,000 every year.
- Pensions. If you have a pension you are contributing towards, you get tax relief from the government. You can access the money after you are 55.
- SIPPS. Self-Invested Personal Pensions (SIPPS) give you tax advantages, but you get a chance to choose the underlying assets.
Best stocks to invest in the UK
Shares and stocks’ performance keep on fluctuating from time to time. Some of the best stocks to invest in in the UK include:
- Shell PLC (SHEL)
- Barclays Bank PLC (BARC)
- Rio Tinto (RIO)
- Vodafone Group PLC (VOD)
- Ferguson (WOS)
- J Sainsbury PLC (SBRY)
Tips to Invest in Stocks Market UK
The following are tips that can help you avoid making losses while investing in the stock market UK.
1. Be willing to take risks. If you want higher returns, then you need to take greater risks by investing more. The higher the investment, the higher the return or loss.
2. Diversify your investments. Don’t put all your money in one investment. You need to invest in different instruments like shares and bonds and also in different sectors of the economy like oil & gas.
3. Invest in stocks for the long term. Strive to invest in stocks in the long term, for at least 5 years. This way, your investments are able to sail through market fluctuations.
4. Avoid making investment decisions from emotions. Avoid making rash decisions about whether to buy or sell shares due to market fluctuations. Be willing to hold your portfolio even when the market is not performing well.
5. Make use of tax-free accounts. Individual Savings Accounts (ISAs) and pensions can lower your tax liability on your capital gains from investments.
6. Review your portfolio. It is good you keep checking how your portfolios are performing from time to time. Otherwise, you may end up with poorly performing investments that will never earn you profits.
Typical Stocks Market Fees
You can expect the following fees when investing in the stock market in the UK.
- Trading fee. This is a fee associated with the buying and selling of investment instruments like shares and bonds.
- Market spread. It is the difference between buying and selling price, also known as transaction cost.
- Annual management fees. This fee is paid to the fund manager for managing your portfolio.
- Annual platform fee. This is the fee you pay the investment provider for using their platform.
- Advise fee. This is a fee you pay when you seek personalized advice. It's optional.
- Transfer out fee. This is a fee payable when you are exiting a provider or are moving your investment from one provider to another.
Summary of How to Invest in Stocks UK for Beginners
To start investing in stocks in the UK, you need to first decide on investment instruments to invest like shares and bonds. Then select an investment platform like trading apps, robo advisors, or stockbrokers. If you are a beginner and you want to invest in stocks UK, it would be best if you start with funds. It is because they are cheaper and carry lower risk.