A guide to investing in stocks in the UK

investing in stocks

Investing in stocks is an excellent way to grow wealth, as, over the long-term, they stand the test of market volatility. As a guide to investing in stocks, one of the ways to get started in the stock market could be putting money in an online investment account, which can then be used to buy shares of stock or stock mutual funds. With many brokerage accounts, you can start investing for the price of a single share.

  1. How to invest in stocks?

There are several ways to approach stock investing, so it’s up to you to choose the option that best represents how you want to invest, and how hands-on you’d like to be in picking and choosing the stocks you invest in. However, it is important to know how to choose the right account for your needs and compare stock investments before making your choice.

You may opt for a robo-advisor, a service that offers low-cost investment management. Virtually all of the major brokerage firms offer these services, which invest your money for you based on your specific goals.

Once you have a preference in mind, you’re ready to shop around for an account.

  1. Choose an investing account

Generally speaking, to invest in stocks, you need an investment account. For the hands-on types, this usually means a brokerage account. As a guide to investing in stocks, opening an account through a robo-advisor could be an option for those who would like a little help.

Both brokers and robo-advisors allow you to open an account with very little money.

An online brokerage account likely offers the quickest and least expensive path to buying stocks, funds, and a variety of other investments. With a broker, you can open an individual retirement account, also known as an IRA, or you can open a taxable brokerage account if you’re already saving adequately for retirement elsewhere.

A robo-advisor offers the benefits of stock investing, but doesn’t require its owner to do the legwork required to pick individual investments. Robo-advisor services provide complete investment management, so these companies will ask you about your investing goals during the onboarding process and then build you a portfolio designed to achieve those aims.

This may sound expensive, but the management fees here are generally a fraction of the cost of what a human investment manager would charge. You can even get an IRA at a robo-advisor if that’s something that you’re set on.

  1. The difference between stocks and stock mutual funds

Investing in stocks in the UK doesn’t have to be complicated, you can do it on your own easily. For most people, stock market investing means choosing among these two investment types:

Stock mutual funds or exchange-traded fundsMutual funds let you purchase small pieces of many different stocks in a single transaction whereas index funds and ETFs are a kinds of mutual funds that tracks an index. When you invest in a fund, you also own small pieces of each of those companies. You can put several of these funds together to build a diversified portfolio. Note that stock mutual funds are also sometimes called equity mutual funds.

Individual stocks: If you’re after a specific company, you can buy a single share or a few shares as a way to dip your toe into the stock-trading waters. Building a diversified portfolio out of many individual stocks is possible, but it takes a significant investment.

The upside of stock mutual funds is that they are inherently diversified, which lessens your risk. For the vast majority of investors, particularly those who are investing their retirement savings, a portfolio comprised mostly of mutual funds could be a wise choice.

However, mutual funds are unlikely to rise in the same meteoric fashion that some individual stocks might. The upside of individual stocks is that a wise pick can pay off handsomely, but the odds that any individual stock will make you rich are exceedingly slim.

  1. Set a budget

New investors often have two questions in this step of the process:

How much money do you need to start investing in stocks? The amount of money you need to buy an individual stock depends on how expensive the shares are. Share prices can range from just a few pounds to a few thousand pounds. If you want to invest in mutual funds and have a small budget an exchange-traded fund (ETF) may be your best bet.

How much money should you invest in stocks? If you’re investing through funds, you can allocate a fairly large portion of your portfolio toward stock funds, especially if you have a long time horizon. A 30-year-old investing for retirement might have 80% of his or her portfolio in stock funds and the rest in bond funds. Individual stocks are another story, and a general rule of thumb is to keep these to a small portion of your investment portfolio.

  1. Focus on the long-term

Stock investing is filled with intricate strategies and approaches, yet some of the most successful investors have done little more than stick with the basics. That generally means using funds for the bulk of your portfolio and choosing individual stocks only if you believe in the company’s potential for long-term growth.

The best thing to do after you start investing in stocks or mutual funds may be the hardest: Don’t look at them. Unless you’re trying to beat the odds and succeed at day trading, it’s good to avoid the habit of compulsively checking how your stocks are doing several times a day, every day.

  1. Manage your stock portfolio

While fretting over daily fluctuations won’t do much for you, there will of course be times when you’ll need to check in on your stocks or other investments. If you follow the steps above to buy mutual funds and individual stocks over time, you’ll want to revisit your portfolio a few times a year to make sure it’s still in line with your investment goals.

A few things to consider: If you’re approaching retirement, you may want to move some of your stock investments over to more conservative fixed-income investments. If your portfolio is too heavily weighted in one sector or industry, consider buying stocks or funds in a different sector to build more diversification.

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