How to buy shares for beginners

1. Earn returns over time
2. Earn returns to beat inflation
3. Earn returns through pound cost averaging

Earn returns over time

Share prices constantly fluctuate based on a company’s performance, as well as other factors like market volatility. If you own company shares, you’ll make a profit or loss based on the stock’s performance over time.

Investing in shares is a long-term strategy, and you’ll need patience when the market fluctuates. The risk-reward trade-off (the idea that the higher the risk appetite you have, the greater the potential reward) may encourage some investors to buy into companies that show potential for growth. However, this is never guaranteed, and your returns can be less than your initial investment.

One of the best indicators of how equity stocks are performing around the globe is the MSCI World Index. The chart below shows the growth of an initial $10,000 capital invested in global stock markets as measured by the MSCI World Index over a period of 10 years.

We discuss stock price volatility and investment risk in more detail further below.

MSCI stands for Morgan Stanley Capital International, a firm that researches the performance of stocks, investor behaviour, government instruments and how they affect the market. Although the returns have been positive, note that past performance doesn’t guarantee future returns.

In understanding the cumulative returns, you have to consider if the investment vehicle will gain or lose value over time. The average rate of inflation can serve as a benchmark of how much your investment will be affected, and assist in calculating your risk.

How to buy shares in the UK – your beginner’s guide

Open a share dealing account

With us, you can create a share dealing account to buy a stake in a company. You can open an account online or paper, with 12,000+ shares, funds and investment trusts to choose from.

We offer low dealing costs, including zero commission on US shares when you trade three or more times in the previous month, and just £3 on UK shares.¹ Start your journey by creating a demo account to practise your strategy. There’s no sign-up or exit fees, with no obligation to fund until you’re ready.

We also offer Individual Savings Accounts (ISAs) and Smart Portfolios. One of the benefits of ISAs is that you’ll get certain tax breaks from the government. Smart Portfolios give you access to expertly managed portfolios across a diversified range of assets.

Deposit funds

Once you’ve opened your share dealing account, you can deposit funds into it using any card or bank account that’s registered in your name. With us, there’s no minimum deposit for a bank transfer, however, you’d need at least £500 using credit or debit card.

Pick your stock or ETF

Browse our award-winning platform to find our full range of shares, ETFs and investment trusts you can buy.² There are 12,000+ shares to choose from in a variety of sectors.

You can access the platform and our support line 24 hours a day, but you can only deal shares during market hours. We offer extended sessions on US stocks.

Place your order

With us, you can choose to deal shares either ‘at quote’ or ‘on exchange’.

1. When dealing at quote, we’ll show you the best available price from our selection of market makers, and you’ll be asked to confirm your order.
2. If you’d prefer to deal shares on exchange, you’d select an order type and price. Orders enable you to set the price at which you want to buy and sell shares with a willing counterparty. The price and number of shares are entered into the exchange’s order book, for other market participants to see and accept.

On our platform, you’ll find 12,000+ shares, ETFs and investment trusts. With a competitive fee structure, you’ll pay from zero commission on US shares, and just £3 on UK shares¹, with a foreign exchange fee of just 0.5%.

What is stock price volatility and investment risk?

Stock price volatility and investment risk are two closely related concepts. Volatility refers to the fact that the price of a stock varies – sometimes considerably – over time. This means that you can’t truly predict what its future price will be, so you have no certainty about potential returns on any given day.

Investment risk is the chance that you may get out less than you put in – ie a negative return. There are two ways to lessen your exposure to this type of risk: a long investment horizon and diversification.

What is an investment horizon?

This is your investment timeframe. When you invest over a long period of time, you could see the stock price to grow on average. While the investment may experience fluctuations, you could wait to sell when the stock price has risen to regain the losses it has incurred along the way. Your investment horizon is a critical feature of any strategy, and you need to be clear about it from the outset in your investment plan.

If you only intend to invest for a shorter period, you might consider assets that are more volatile so that you can take advantage of the price fluctuations. If you plan for the long term, however, you may decide to buy and hold less volatile securities like stocks to sell at a later stage to make profit. You should always monitor your investment, because the longer you hold it, the higher your risk.

What is stock portfolio diversification?

Stock portfolio diversification is buying shares from many different and unrelated companies. The more you diversify your stock holdings, the less exposed you are to the price fluctuations of a single stock or industry. One of the best ways to diversify your holdings is to buy a share in an investment fund, like an ETF.

For example, you could decide to invest in a fund that has exposure in the tech industry and diversify your portfolio by also investing in bonds. While bonds are notorious for reducing the overall returns that a fund can make, it’s a sector that has low volatility and risk profile.

Exchange traded funds (ETFs) vs stocks – what’s the difference?

Exchange traded funds (ETFs) measure the performance of an index like the FTSE 100. They can also track different sectors such as energy stocks, healthcare or agriculture and so much more.

An ETF will hold assets that enable it to track its benchmark market as accurately as possible. You can buy and sell ETF shares as you would company shares. The main difference is that ETFs typically give you exposure to a wide selection of stocks, thereby offering you a high degree of diversification.

Investment funds like ETFs pool shareholders’ money and invest in an array of securities. Many ETFs simply attempt to mirror the performance of a stock index, using the pooled capital to buy and sell stocks in the index.

Although many indices exist, well-known ones include the FTSE 100, S&P 500 and the Dow Jones. With an index tracking fund, you’re getting exposure to the entire market in a single share.

FAQs