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Oct 22

How to buy shares

Reading Time: 8 mins

Investing in shares isn’t for the elite or mega-rich, nor is it restricted to Those In The Know.

Anyone can buy shares and make money. That means you!

You don’t have to be on the floor of the London Stock Exchange, either. Thanks to the advent of online brokers over the last few decades, you can buy and sell shares more cheaply and easily than ever before.

You do, however, need to get a bit of knowledge, be willing to take a bit of a risk and create a plan.

Here’s our step-by-step beginner’s guide to buying shares.

 

Step 1: Which Shares do you want to buy?

How to buy shares

First you need to decide which company you are going to buy shares from.

  • The bad news is that there are THOUSANDS of companies to choose from around the world.
  • The good news, though, is that there are THOUSANDS of companies to choose from around the world!

Yes, it depends how you look at it whether it’s a good thing or a bad thing that there are loads of companies (including collections of companies in funds called ‘investment companies’) that you could invest in, and that you can potentially invest in shares around the world, not just in the UK

get an investment plan together

I know – you’d just like to invest in Tesla and Apple now and then move on to GameStop or any other company that’s sounding cool right now, But investing involves so much risk and there are so many possibilities that it’s a good idea to take a big, deep breath, first, and do a bit of a plan.

There are some key questions you should ask yourself when choosing your shares:

  1. What sector is the company in – in other words, is it media, technology, mining, retail, pharmaceuticals or one of the others? And why do you think that sector will do well? Many people right now might consider that retail generally is a weak economic sector, while technology and pharmaceuticals could be seen as strong sectors. Or maybe not. What do you think?
  2. Is the company growing? Look at their previous performance and read their company reports. Does it look like the sort of company that could be run by an idiot and still do well? As Warren Buffett says :“I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.”
  3. Does the company show high dividend payouts? Generally, there are two types of listed company – those that have potential for growth and those that give good dividends. Ideally you would go for both but that doesn’t happen often.
    1. A growth company will usually have a low dividend as their main aim to to reinvest profits and increase share price through growth.
    2. A dividend company will generally be a fully established company with a strong reputation which has the ability to return its profits to shareholders each year. Some people invest purely for dividends, other for growth. Decide which you are aiming for.
  4. Is the company seen as high risk or is it stable and slowly growing? If it’s high-risk then you should have an idea that the growth is going to be really impressive in order to justify your investment. If you’d like a quiet life, though, go for companies that you consider to be relatively stable.
  5. Is the company affected by seasonal ups and downs? This can really affect its growth. If, every summer, a company struggles to sell then they need to have a really good winter to make up for it. Companies that have these issues may be best avoided unless you are really sure their underlying figures are really strong.

do some pretend investments first

Before you put some actual money into

You can spend time online using a virtual portfolio to better understand the process.

It’s useful to try these virtual portfolios for a long period of time, maybe even a year to really engage with the process and understand how the markets work.

Remember that the virtual portfolio will show you how easy it is to make money and also how easy it is to lose money by trading shares. Happily, though, because it’s virtual you won’t actually lose anything.

 

Step 2: How much do you want to invest?

Once you have decided which company you are going to buy shares in, the next decision is how many shares you want to buy. Here are a few suggestions to help you make up your mind:

  1. Never invest more than you can afford to lose because investing in shares is risky. Ultimately the number of shares you buy is based on your income and how much you can afford to set aside in investnments.
  2. You might want to buy a few shares in some different companies in order to spread the risk. Initially aim for around three or four. You can then grow this over time to around seven or so.
  3. Remember you don’t want to invest in so many companies that you lose track of them. If you want to invest in a lot of companies you might as well put your money in a fund that does it for you.
  4. Think carefully about the timeframe:, do you want to invest for a short or long period? We prefer long-term investments in companies that you think are fundamentally good and profitable.

 

Step 3: Get the ‘EPIC code’ of the company you are interested in

You will need to find the EPIC code (known in the States as the Ticker Symbol) for the company you want to invest in.

You can find this number by just putting the company name into your search engine + EPIC. It should come up at the top of your search list and on  websites such as Reuters, Marketwatch, or the Telegraph shares section.

For example, if you want to buy shares in Tesco, you can search for them on one of the above websites. The symbol is TSCO.L (the L tells you that the shares are from a UK company on the London Stock Exchange).

The EPIC code for HSBC is HSBA. The one for Glaxo SmithKlein is GSK, and so on.

When you have this code, it’s time to sign up to an online broker so you can buy the shares you want.

 

Step 4: Sign up to an Online Broker

It used to be that in order to invest in shares you had to be on the books of a posh broking house in the City that charged you lots to buy shares for you.

Today, you can do it for less than a tenner a time (sometimes for free) through one of the many, cheap online brokers that now exist.

Also, share ownership doesn’t require buying share certificates anymore. It is all recorded electronically and you will have a nominee account with your trades recorded there.

A nominee account is where you own shares without becoming involved in any of the associated administration or paperwork. Thanks to the internet, information on shares is freely available and you can check how your shares are performing at the click of a mouse.

  • An online broker arranges the purchase of the shares for you, for a commission. This service means you can check prices, buy and sell online with speed and ease.
  • Costs are low in comparison to previous years and you can find brokers who charge very little even if you are buying thousands of pounds-worth of shares.
  • There are several online brokers available; prices range from £0.99 to £12.50 per trade.
  • Sometimes the prices are based on how much trading you actually do over a period of time.
  • Most companies offer mobile trading and a virtual portfolio.
  • Fees are usually charged to transfer out of the account and a discount is offered for those who trade often (frequent trader rate).

Here are some possibilities for you to consider:

Company Mobile Trading Cost per trade Frequent Trader  Annual Platform Fee
Degiro Yes £1.75 £0.99 x
Halifax Yes £12.50 x £12.50
Hargreaves Lansdown Yes £11.95 £5.95 £45
AJ Bell Dealing Account Yes £9.95 £4.95 x
Interactive Investor Yes £7.99 £0.99 £119.88
eToro Yes £0 £0 £0

eToro doesn’t charge fees in the usual way, which is why it looks so cheap compared to the rest! It’s a great platform, but there will be fees involved in some trade types. You can read more on their website.

Once you have chosen an online broker you will need to register on the website. You’ll need to confirm identity information, such as your address and passport, to help prevent fraud.

Each website has a slightly different setup process, but you should expect these steps:

1. Enter your personal details
2. Register your debit card
3. Transfer cash (some will simply take payments from your bank account when you buy)
4. Buy shares
5. Profit! (or, we have to tell you, loss – but let’s hope not).

You can buy and sell shares as you wish once your account is set up.

If you find a different platform at a later date, you can transfer your shares across to the new account. Your shares aren’t linked to the broker you’ve bought them through – they’re entirely yours.

Keep an eye out for the added fees you may come across. For example, Degiro is a cheap online broker – but adds small fees such as €4 for the purchase of European stocks. Over time, these fees can add up.

Once you have shares, use your online account or the mobile app to keep an eye on their performance.

How to buy shares

 

Step 5: Keep Going

It’s a good idea to check your shares regularly to keep track of their rise and fall in value. Most websites will send you tips and information from the sector you have invested in.

Remember to do your own research too: look at the bigger picture, consider other shares in similar companies to compare the trends in your share price.

Shares react to real life events so keep an eye on the news and the general state of the economy.

Take your time to make decisions and remember that even though it is tempting to trade regularly, charges apply each time you buy or sell. If you find that you’re trading more frequently as time continues, you may choose to switch to a frequent trader rate to benefit from cheaper rates.

If you want to use your shares as a long-term investment, a ‘buy and hold’ basis, you won’t need to track them so often. However, it’s a good idea to still check them every now and then so that you can make sure the stock is still the best place for your money.

 

Step 6: How to sell your shares

Selling shares is a risk in itself. The timing needs to be good: too early and you miss out on a better price, too late and you could lose future profit.

Look at the difference between the price you paid for the share and what it would sell for now. Have you made a profit? Or have you made a loss? If a loss, do you expect the share price to keep falling so that you should cut your losses now?

Finally, consider if you can afford to keep your money tucked away in shares. If you need money quickly, they may not be the best investment for you. You can always sell your shares at any time – but if you’re making a pressured sale to get out of a tight financial spot, you could lose on your initial investment. It’s always best to sell when you don’t need to but you think the price is right.

are you happy with the risk?

Investing in shares can be a profitable and exciting way to make money over a long period of time. However, the risk factor can put some people off.

If you’re unsure about whether shares are the right path for you, consider using them as part of a more diverse investment portfolio. A mix of high- and low-risk investment products can make sure you don’t put all of your eggs in one basket. Check out our investment guides to find out more about your investing options.

Also, join my investing webinars to get more knowledge and confidence in investing. They’re cheap (sometimes free) and fun to do, so see what’s on offer in the next couple of months and come along to one or two of them!

 

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