Money Goals

How to invest in stocks and shares for beginners in the UK

Aug 29, 2023

Investing can be risky. But, when things go well, it’s possible to make greater returns than you can get on your savings accounts. If you want to invest in stocks but you’re not sure where to start, don’t worry — Loqbox has you covered with our ‘stocks and shares for beginners’ guide. Discover some great hints and tips on how to invest in stocks in the UK. 

What is investing?

Maybe you've heard people talking about making money with successful stock investments in the UK. But what does it actually mean? Investing is like planting seeds for your financial future. Instead of saving your money, you put it into opportunities with the potential for it to grow and actually earn more money for you.

Sounds exciting, right? Well, it’s important to remember that a large part of what makes stock market investments in the UK more exhilarating than steady old savings accounts is the unpredictability. The rewards can be high, but you could equally end up with nothing. Investing in stocks in the UK (and anywhere else in the world) can be unpredictable and is inherently risky.

Because of the risk factors involved in investments, it’s sensible to have an emergency fund in place before you get involved. An emergency fund is a savings pot that can cover anywhere between three to six months’ worth of your income (at least). This is something that you can use as a safety net for any unpleasant financial surprises, like sudden redundancy, or a period of serious ill health.

On top of that, you should be debt-free before getting started with investing in stocks and shares. Despite what the people posing with Lamborghinis on social media tell you, investing is not a shortcut to getting rich fast. Think of this as spare money that you shouldn’t need to touch for at least 10 years and beyond, that you’re free to invest with. 

Stocks and shares for beginners

The words stocks and shares are often used interchangeably. A share is essentially a small stake in a company. So when you buy a share you’re investing in that company and hoping for them to be successful. That way you can ‘share’ in their growth. This works for companies as well as they can raise money by selling off these shares.

If the company does well your share can grow. If it does badly, your share value can drop. As shareholders, you decide when to buy and sell your shares on the stock market.

‘Stock’ is a generic term that basically means the same as a share, with a stock market being the place where shares are bought and sold. You may be interested in a specific branch of industry that you want to invest in, say green energy. So you could buy shares in a number of sustainable energy companies. Or you could specifically buy shares at one company (but more on the benefits of spreading it out later).

Logically, you want to buy low and sell at the highest price. But it’s hard to know when share prices may change, and that’s why investing is risky.

So, why invest in UK stocks at all?

Investing in stocks and shares can be a game-changer for your financial journey. You can bank on companies that you really believe in and benefit from their wins. As companies that you invest in grow and become more successful, the value of your shares can increase alongside.

If you have long-term financial goals, it could be possible to reach your target quicker than by just saving up money. But because there is a risk involved, it makes sense to only invest with money that you can afford to lose, and also money that you can leave untouched for at least ten years. That’s how long it can take to grow a decent return.

Because of the unpredictability of investing, the only person who can really decide whether it is right for you, is you. While there are human experts and computer algorithms that can predict stocks and shares, nobody can ever know exactly what’s coming round the corner.

How much does it cost to start trading stocks?

The good news is you don't need to be a millionaire to get started investing. Stocks and shares for beginners can cost no more than a takeaway. Using online platforms, it’s possible to invest small amounts of money regularly, which then adds up over time. Just remember not to invest more than you could afford to potentially lose.

Before investing, separate the money that you intend to invest from the money that you use for everyday spending and savings. It’s crucial that your daily expenditure isn’t impacted by your investing otherwise you could get into trouble further down the road. You also want to avoid dipping into your investment funds to cover your daily spending.

How to invest in stocks in the UK

Open an investment account

Choose an investment platform that suits your needs and create an account. Investment platforms could be banks, building societies, financial advisors, robo-advisors, or trading apps. Deciding which platform is best for you will really come down to your money goals, how much you already know about investing, and how involved you want to be.

Stocks and Shares ISAs are an easy step into the market. With the bonus being that you can avoid paying tax on any of the earnings you make from your investment up to £20,000 per tax year. You can only open up and pay into one Stocks and Shares ISA a year though. You need to be over 18 and a UK tax resident.

Shop around for the best Stocks and Shares ISA for you, and make note of any fees or charges that apply. Your own bank or building society may well offer this type of ISA to get you started, but there are independent companies on offer too. 

If you’re saving for your first home using Moneybox*, for example, they also offer a separate Stocks and Shares ISA. In this ISA, you can choose your level of investment risk and investing in it won’t affect your pot of Lifetime ISA money. If you're contributing the maximum amount that a Lifetime ISA can accept (£4,000), you can invest up to £16,000 into your Moneybox Stocks and Shares ISA, throughout the tax year.

*We’re not affiliated with Moneybox, we just know many of our members are saving for their first home!

Set your investment budget

Once you have a platform that you’re happy with you should set out a realistic investment budget. You shouldn’t invest more than you can afford to lose, and you should never use money that covers your day-to-day living. 

Remember, you don’t have to start with a lot of money so if you’re not sure, start small to test the water and build from there.

Diversify your portfolio

Don't put all your eggs in one basket! Diversifying your portfolio means spreading your money across different stocks and shares, which in turn reduces the risk of losing it all in one go. It also spreads the chances of one of your investments being successful.

Choose your stocks and shares

So, you might be wondering how to decide which companies to invest in? Do you want to look for well-established firms with a history of growth, or go for exciting new ventures that you believe have potential? Most people will look for the highest possible returns, but you could also consider how sustainable a company is.

The other thing you might want to think about is whether you want to receive an income from your investments, or a capital growth? Income from your shares, known as dividends, can be paid every six months or annually, or they can be one-off payments after a sale of part of the company.

Capital growth is more of a long-term objective. If you have the time (and patience) to focus on capital growth, you should consider investing in industries, like technology, pharmaceuticals, and environmental, with the potential for growth over a number of years (normally around three to five years).

Keep an eye on your investments

Remember, the stock market can be unpredictable, so you need to keep an eye on your investments. Don’t be alarmed by short-term price drops or fluctuations. There are lots of apps and websites which let you watch your share prices going up and down. 

But you don’t need to make knee-jerk reactions. Take the time to understand how markets work. A drop in price doesn’t always mean failure. It could be a blip. But sometimes it’s better to cash out then hold onto a failing stock. There’s no hard and fast rules for how to start trading stocks. You need to do your own research or seek out professional advice.

Keep a long-term mindset

Investing is not a get-rich-quick scheme. It's a marathon, not a sprint. Be patient, and let your investments grow over time. As a standard you should expect to leave your investments untouched for at least ten years for them to show better returns — and even then you could see a loss. Patience is a very useful tool when investing in stocks in the UK.

Investing in stocks and shares for beginners

So, let’s have a quick recap of some of the main tips for investing in stocks and shares for beginners in the UK. 

  • Don’t invest more than you can afford to lose.

  • Have your debts cleared before you get started.

  • Build an emergency fund before you invest. This should be at least three to six month’s worth of your income to cover your essential outgoings.

  • Diversify your portfolio to protect your total investment.

  • Play the long-game and expect not to touch your money for ten or more years.

  • Start small and keep an eye on your investments.

Good luck, and happy investing!

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