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Interest rates on savings are very low – you’re not going to get more than 1 or 2% on a savings account. For a better return you should turn to the stock market.
You can buy shares which pay you a dividend (which is a small piece of the company’s profit) which give a much better return than your bank.
Here’s how you get started buying shares?
Sign up with a Broker
You can’t go to a company directly and buy some of its shares – you have to buy the shares through a broker.
Read about how to choose a broker here and look at the list of brokers on our Broker Listing page.
Setting up an account with a broker online is quick and easy. Then you put some money into your brokerage account, and you’re ready to buy some shares.
Use an ISA
If you’re in the UK then you can buy up to £20,000 worth of shares each year tax free by using an ISA. That means you won’t get charged capital gains tax on your profits when you withdraw money from your account. When you sign up with a broker make sure you select a Stocks and Shares ISA to hold your shares.
Deciding which shares to buy
There are thousands of companies listed on the London Stock Exchange, from the massive blue chip companies down to the tiny, risky companies on the alternative investments market.
There are many different investment strategies you can use but as a new investor it pays to start out by being conservative, at least until you know what you are doing. That means selecting reliable companies that pay a decent dividend. Then you can just hang onto the shares knowing that every year you will be sent some money, which you can put back into buying more shares, or take out to spend on whatever you like.
Do your research
Before buying shares in a company you need to do some research, to make sure the company is a sound one that isn’t going to go bust, taking all your money with it. That means looking at the company’s financials, which you can do on ADVFN. Here’s the financials for Vodafone.
There are many books that teach you what all the figures mean.
In additional, ADVFN has tools that let you filter lots of companies on different criteria. This is explained in the book A Beginner’s Guide to Value Investing which you can buy from Amazon as an e-book for just 99p.
Diversify your portfolio
You know the phrase, “Don’t put all your eggs in one basket?” Well that applies to buying shares. Don’t put all your money into one company – spread it around. It is sensible to buy around £1,000 worth of shares in a single company, then carry on buying different companies until you have around 30 in your portfolio. That way, if something unexpected happens and a company suddenly goes bust, you don’t lose all your savings.
Getting Advice
You can sign up with a broker that will advice you on what shares you should buy. However, this kind of broker will charge you more in fees than a broker that will leave the decision-making up to you.
You can compare respected brokers on our Broker Listing page.
