How to invest in the stock market

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stocks and shares

stocks and sharesYou may not know this, but chances are you are already investing in the stock market.

Pensions, ISAs, Child Trust Funds (stakeholder or shares version), and Junior ISAs all invest in shares.

Investing directly, where you choose what shares to buy, allows you to choose individual companies you think will make a profit. Best of all, because you are not paying a charge for someone else to do it, you have the potential to make more money.

So if you’re up for the challenge, you may want to review how you put away some of your savings.

So how do I do it?

You can invest directly in shares yourself, although once you’ve chosen them you will need to buy them through a stockbroker. The cheapest way to do this is online.

Before you decide where to invest you need to make sure that: a) you are prepared to lose the money you invest; and b) you are prepared to tie that money up for at least five years.

Do your research

Not all companies are listed on the stock market but the majority of large companies are – the companies you can buy shares in are what are known as publicly listed ones, PLCs. When you buy a share in a company you own a small percentage of that company and your money is used to help the company invest and grow and hopefully make more money.

The main companies in the UK are listed on an index called the FTSE100. The FTSE All Share index includes all the largest publicly listed companies in the UK. There is a specialist index called the AIM, or Alternative Investment Market. Small companies looking to raise money by selling shares in themselves normally start out here.

If you want to look beyond the UK there are other indexes such as the USA’s Dow Jones, which is similar to the UK’s FTSE but includes some of the large American companies like Apple.

Now you need to do lots and lots of reading. Deciding what shares to invest in requires lots of research.  You may decide that you like shopping in Marks and Spencer and think that you want to buy their shares.

Even so, you will need to research the company and familiarise with yourself with its latest results.

Reading specialist business publications like the Financial Times website or the money pages of national newspapers will give you a feel for some of the more successful, and unsuccessful companies.

Before investing in a company you may want to look at its most recent annual report. These are made available often on the corporate sections of the company’s website.

Is it still worth investing in the stock market?

Even during a recession there will be some companies doing well and their shares will be increasing in price.

At the moment some fund managers – those who buy lots of shares on behalf of pension funds and other companies – believe FTSE 100 companies are undervalued.

There’s lots of terminology you may want to familiarise yourself with.  A good site to check out is Stockopedia.

Buying your shares

You need to set up an account with your stockbrokers. Remember that if you are buying shares and are a UK taxpayer you can invest up to £10,100 worth of shares a year into an ISA. This means you don’t pay any tax on the money you make.

You can include any shares you invest in your ISA allowance. When you set up a share-dealing account you can set it up as an ISA, which means you will not be taxed on the money you make.

Remember that when you buy shares you will pay a small fee, known as a bid offer spread, this is the money the stockbroker effectively takes as their fee.