Finding out how to invest in stocks can equip you to grow your savings over the long term.
If you’re a beginner, investing can feel confusing or overwhelming. This simple guide shows you how to start buying stocks step-by-step
Investing is about trying to do more with your money.
Simply put, investing is putting money aside today with the aim that it will be worth more in the future.
Keeping cash in the bank is one way to save, but when it comes to growing your savings, it’s not always the best option.
Over time, the value of money and what you can buy with it changes.
More often than not, prices will rise (in economic talk, this is inflation). It’s not really a problem in the short term - £1,000 today will be close to £1,000 tomorrow or even next month.
This makes cash a good option for your emergency savings or money you’ll need to use soon. But over a longer time frame, your savings left as cash will start losing value.
Here’s an example of how rising prices can affect the value of your cash, the longer you leave it.
£2,000 in… | Inflation | |||
---|---|---|---|---|
0.50% | 1.50% | 3.00% | 4.50% | |
5 years | £1,951 | £1,857 | £1,725 | £1,605 |
10 years | £1,903 | £1,723 | £1,488 | £1,288 |
20 years | £1,810 | £1,485 | £1,107 | £829 |
30 years | £1,722 | £1,280 | £824 | £534 |
50 years | £1,559 | £950 | £456 | £221 |
Disclaimer: This table is just for illustrative purposes only and does not use real inflation rates.
This is where investing comes in.
Investing is about growing your wealth over the long term. The aim is to make a return higher than inflation so that your real wealth grows and your purchasing power is greater in the future.
Investing in the stock market has historically been a great way to do this. That’s the short answer to why investing can be a good idea.
Remember though, when you invest, you are taking on the risk that you may get back less than you started with. If you invest in a stock and it reports poor results, the value of your investment may go down.
But over a longer time frame, investing tends to generate returns greater than inflation. For example, the 2024 Barclays Equity Gilt Study found that equities have a 70% chance of outperforming cash over two years, with this rocketing to a 91% chance over a full decade.
A stock is a type of investment. A stock is a portion of ownership, or share, in a company. As a partial owner of the company, the value of your investment will rise and fall over time based on the business’s performance.
Stocks are bought and sold on marketplaces called stock exchanges, like the London Stock Exchange or the New York Stock Exchange. Fortunately for modern investors, you don’t have to be in the building to make trades these days, as online platforms allow you to buy and sell stocks quickly and easily.
Let’s go through the step-by-step process of buying a stock as a beginner.
Before you start investing, it's important to decide what you want out of it.
Some people invest to save for their retirement. Others may have a specific future purchase in mind or just want to beat inflation.
Understanding your goals is important because it should set investment foundations, like how much you invest and what you invest in. Remember to also consider how comfortable you are with the risks associated with investing.
Choosing the type of account you want to open is an important step. You can buy stocks through several different types of account. Think about how these different accounts tie in with your investment goals:
Once you’ve chosen your platform and you’re ready to open your account, they’ll need a bit of information from you:
Picking the shares you want to buy can be tricky. Remember that buying a stock is essentially a vote of confidence in a company, and a prediction that the share price will increase. Think about the following when you are searching for shares.
You don’t have to consider all, or even any, of these things if you don’t want to. But having a rhyme or reason to your stock picks is a good idea.
If you still feel lost, check out our guide to picking stocks and shares.
We all have different aims, financial circumstances and ultimately different lives. How one person invests may not work for someone else.
There are many different investment strategies out there, but one of the most basic things to choose is whether you want to be active or passive. In reality, many of us will do a bit of both, but here’s a quick breakdown:
Active | Passive | |
---|---|---|
What’s the goal? | Outperform the stock market return. | Track the performance of an index as closely as possible. |
How does it work? | Research and select individual companies to invest in. Build a portfolio of companies that could grow faster than the market. |
Invest in an instrument such as an index fund or an ETF that tracks an index. |
Who does it? | You can invest actively yourself or leave it to a fund manager. | You leave it up to the fund manager. |
What to consider? | Active strategies often carry higher costs, particularly when f...re doing it yourself, you’ll have to buy each individual stock. | Passive funds are usually less expensive than actively managed funds, as they are cheaper to run. - They should also cost less than buying all the individual shares. |
With your goals nailed down, your account open, your stocks selected and your strategy picked, it’s time to buy!
Most trading platforms make buying stocks pretty simple, letting you invest in just a few taps or clicks. Your final decision will likely be how to actually buy your chosen stocks. Depending on your chosen platform and the time of day, you will be presented with one or several of the following options:
Once you have selected your option and the purchase is complete, your new shares should soon appear in your portfolio. Well done for beginning your new life as an investor!
You can make money from your stocks by selling them for a profit, or by collecting dividend income.
The simplest way to make money from stocks is to sell them for a higher price than you bought them at. This is known as a capital gain, and it can be subject to tax if you don’t hold your investments in a tax-efficient account like a SIPP or an ISA.
Meanwhile, dividend income is a share of profits a company gives to its shareholders. It’s basically a reward for owning a unit of the stock. This can also be subject to tax if you are not using a tax-efficient account.
Compounding is one of the greatest benefits of being a long-term investor.
Compounding in its simplest form is growth on an already growing investment pot. And the longer you can give it, the more powerful it becomes.
The chart below shows compounding in action. Both £1,000 investment pots grow at 5% each year but the pot that was invested when you were 25 grows to a much bigger size. It’s time, not extra cash that’s created this difference.
When it comes to fees, there are three main charges you may face:
You may also need to pay stamp duty of 0.5% when you purchase UK-based shares electronically. You’ll see this disclosed on the trade confirmation.
💡 Commission-free share dealing is when you are not charged by a platform or broker to buy or sell shares. This is how Freetrade operates and we are one of only a handful of commission-free platforms in the UK. Other charges apply.
There is no right answer when it comes to which shares to invest in first. It's going to be different for each of us.
Spreading your money across different investments is a key first step, so your portfolio isn’t reliant on one thing to grow.
While online consensus often points to around 25-30, there is no magic number of stocks you should have in your portfolio. Having more can be a way to spread risk, but having fewer might allow you to enjoy greater impact if one or two of your picks outperform the market.
It’s worth noting that you can keep your portfolio diversified by choosing a few different companies to invest in OR by choosing investments that do it for you, like ETFs and investment trusts.
You can start investing with as little as £1. That’s all you need to open some investment accounts. With fractional shares you can invest small amounts into stocks right away. So if you want to get into the habit of investing and enjoying the benefits of compounding, you might be ready to get started today.
However, you should be comfortable about the amount of money you choose to invest, and avoid risking your financial wellbeing.
Forgetting about your shares for a few days, weeks or even months could be a good start. Watching the daily share price ups and downs is not going to make a good viewing or lead to good decisions.
While we’d suggest not monitoring the share price, keeping an ear to the ground on things that might affect the company over the long term is a wise idea. So is bearing in mind why you bought the shares in the first place and what your goals are.
Deciding when to sell is often just as hard as deciding what to buy. If your shares suddenly jump in price it might be tempting reflexively sell. You also might end up holding on and on in the hope of future returns.
Ultimately, it should be determined by your investment goals. To help with making a decision, we’ve written a comprehensive guide to help you think about when to sell your stocks.
Important information:
General investment account
Stocks and shares ISA
Commission-free investing in 6,500+ UK, US, and European stocks, ETFs, and more
FX fee of 0.59% on non-GBP trades
3% AER on up to £2k uninvested cash
General investment account
Stocks and shares ISA
Personal pension (SIPP)
Commission-free investing in 6,500+ UK, US, and European stocks, ETFs, and more
FX fee of 0.39% on non-GBP trades
5% AER on up to £3k uninvested cash
General investment account
Stocks and shares ISA
Commission-free investing in 6,500+ UK, US, and European stocks, ETFs, and more
FX fee of 0.59% on non-GBP trades
3% AER on up to £2k uninvested cash
General investment account
Stocks and shares ISA
Personal pension (SIPP)
Commission-free investing in 6,500+ UK, US, and European stocks, ETFs, and more
FX fee of 0.39% on non-GBP trades
5% AER on up to £3k uninvested cash
Freetrade does not provide investment advice and individual investors should make their own decisions or seek independent advice. The value of investments can go down as well as up and you may receive back less than your original investment. Freetrade is a trading name of Freetrade Limited, which is a member firm of the London Stock Exchange and is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales (no. 09797821).
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