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How do you invest in shares?

Calculate how risky you want to be before buying shares

There are two main ways to invest in shares. You can:

Buy shares in individual companies, or

Invest in funds that include shares from various different companies.

Buying individual shares

Investing in individual shares can bring you big money or it can lose you big money. The best way to do it is really to study it properly beforehand, maybe including running a ‘virtual portfolio’ first where you pretend to put money into shares then watch how they do over a year or even two years. It’s a good, cheap, painless way to learn and stop yourself making expensive mistakes later.

You should learn:

How to read company reports.
What a price/earnings (P/E) ratio is.
How your chosen sector (pharmaceuticals, retail, tech stocks for example) is doing, and
How to tell if a company is a good long-term bet.

There are loads of books on investing, some much better than others.

To invest in individual shares you need to use a stockbroker of some sort – either a person in a company that you call on the phone or one of the newer online services that tend to do it more cheaply for you.

Investing in an equities (shares) fund

Investing in a fund that has done the choosing for you already is easier and much better for beginners.

This is a less risky way of doing it as the more shares you invest in, the more the risk is spread.
It tends to be less lucrative than stock picking, though.

There are two basic types of funds that you can invest in: managed funds and index-tracking funds.