How to invest in stocks: A beginner’s guide

When you purchase stocks, you’re buying a small share in a company, which means your investment could rise or fall as the company’s value changes. This can create opportunity, but it’s important to understand what you’re investing in, and to understand markets can go down as well as up. This guide outlines the main types of stock investments available in the UK and how people typically invest in them, from choosing an investment option to getting started through a platform.

Investing in stocks (also known as shares) means buying a small part of a company. Companies usually sell shares if they want to raise money to grow or develop their business.

When a company sells shares for the first time, it’s called an initial public offering. Its shares can then be bought and sold on the stock market and will be listed on an exchange, such as the London Stock Exchange in the UK. A company initially sets the price of their shares, but that price may change within as little as a day and is usually determined by a company’s financial results as well as overall supply and demand. You can own shares yourself, or put money into a collective investment known as a fund.

There are two main ways investors aim to make money from stocks:

1. Capital appreciation, where you sell your shares for more than you paid if the company grows
2. Dividends, which are regular payments from a company’s profits distributed to shareholders

An investor might purchase stocks with the aim of growing their wealth and potentially beating inflation. However, it’s important to remember that there are risks. The value of an investment can go up or down, and investors must accept the possibility that they could lose what they put in.

There are two main types of stocks: common and preferred. Common stocks are the standard type traded on the stock exchange. They typically give investors voting rights in the company and the chance to receive dividends (depending on how the company performs). Preferred stocks usually pay out fixed dividends and generally don’t grant you voting rights, but they are less common for everyday investors.

Common stocks can be split into two categories depending on investment goals:

• Growth stocks, which aim for price increases rather than dividends
• Income stocks that pay out regular dividends

Stocks can also be categorised in terms of company size. Large-cap companies are well-established and may be more stable. In contrast, a small-cap company might have higher growth potential, but could also be more unpredictable. Keep in mind that dividends are not guaranteed and can be reduced or cancelled.

The stock market can be unpredictable. It’s important to understand that you can lose some or all of the money you invest. There may be times when your investment is worth less than what you originally paid for it. Stocks tend to be viewed as long-term investments, but it’s impossible to predict exactly how they will perform (even over a longer timeframe).

With a savings account, investors have cash within easy reach. Plus, eligible deposits with UK-regulated banks – including those at Raisin UK – are protected up to £120,000 per person, per bank, by the Financial Services Compensation Scheme (FSCS).

Investing in stocks carries risk and prices can fall as well as rise. Make sure you only put in money you could afford to lose.

To start investing in stocks, you’ll need an investment account. UK-based investors have the option of a Stocks and Shares ISA, where any gains made are free from income tax and capital gains tax. You can invest up to £20,000 per year in a Stocks and Shares ISA, and the money can be held in individual stocks or funds.

You can also open a standard brokerage account if you prefer more flexibility. If you’d like guidance on picking investments, a managed service or robo-adviser can handle the legwork for you.

Buying individual stocks from a single company is one option, but investors can also put their money in a fund. This is where money from many investors is pooled together and also often spread across different businesses or sectors.

A common example is an exchange-traded fund (ETF), which lets you invest in stocks without buying individual shares one by one. Some ETFs track major indexes, such as the FTSE 100, meaning your investment mirrors the performance of the index by holding the equivalent amount of shares in the same companies. ETFs trade like individual shares, so they can be relatively easy to buy and sell.

Decide how much you want to invest, and what you can afford to leave untouched for the long term. Some investors put aside a financial cushion of cash in an emergency fund first, so they don’t have to sell investments to cover unexpected costs.

With individual stocks and ETFs, you can often start with the price of a single share. Some platforms in the UK allow even smaller amounts in the form of fractional shares. Investment funds may require a minimum initial investment, for example, around £500 with certain fund providers or platforms.

You might think about why you’re investing in stocks and what you want to achieve. Maybe you’re hoping to grow some funds for retirement or you want to build wealth for the next generation. 

Some investors think about the gains they’re targeting. They might be seeking regular income, like dividends from shares. Or they might want to increase the value of their investments (known as capital gains).

Looking at your portfolio from time to time, for example once or twice a year, can help you see whether your investments and the account you use still meet your needs. Shares are generally considered liquid investments, so they can usually be sold through the same platform used to buy them. The proceeds are typically returned to your investment account. Portfolios will naturally change as an investor’s personal goals, comfort with risk, or financial circumstances evolve.

Brokers or investment platforms usually charge commissions for handling trades, and the rates can vary depending on whether you’re buying individual stocks or investing in funds.

There may also be additional fees based on a percentage of your managed assets. These fees may be slightly lower if you’re using a robo-adviser. It’s important to review any charges associated with your account before you start investing. 

If you’re new to investing, there are a few things to keep in mind:

• Investment providers may be authorised by the Financial Conduct Authority (FCA), which ensures that they follow UK regulations, but it doesn’t protect against losses
• Low-cost ETFs may appeal to some beginners, since they remove the need to choose stocks individually
• Platform fees, trade commissions, and fund management charges can all reduce any potential returns
• Stocks can go up and down. Decide how much volatility you’re comfortable with before investing
• Investing is typically a long-term commitment (often for five years or longer)
• While looking at how a company has performed in the past can provide some context, it’s important to remember that past performance is never a guarantee of future results 

If you are saving for shorter-term goals, savings accounts are another way to put some money aside and earn interest. At Raisin UK, the savings accounts offered through our partner banks are protected by the FSCS (subject to eligibility). With a single, free registration, you can access and apply to open a variety of fixed rate bonds, notice accounts, or easy access savings accounts.