A Beginner’s Guide to Financial Investments and Buying Stocks

guide to investments
guide to investments

For those looking to increase their personal wealth, investing in stocks and shares can be an exciting yet challenging opportunity. Nevertheless, it can also be incredibly daunting if you are dipping your toe into financial investments for the first time. The last thing you want is to make a mistake and see your hard-earned cash dwindle away. Fortunately, over the medium-to-long term, equities such as stocks regularly outperform bonds and cash and routes to entry in the stock market are no longer hard to find.

As savings accounts from high street banks and building societies continue to offer measly returns, investments in stocks are a great opportunity to hedge against increasing inflation and generate improved returns on bonds, cash and real estate.

How do investments in stocks and shares work?

For those living in the UK, the investment in stocks is carried out via the London Stock Exchange. This is the capital’s hub for buying and selling everything from shares in public limited companies and foreign exchange through to government bonds and derivatives.

London’s stock market features a range of different indices or collections of stocks and shares. The most popular of which is the FTSE 100, featuring the top 100 companies operational in the UK based on size. Additional indices include the FTSE 250, based on the leading British-owned companies, the FTSE Fledgling, featuring companies listed on the London Stock Exchange that are too small to be included in the FTSE All-Share Index.

If you decide to use a broker to purchase stocks and shares for the first time, you will need to choose a suitable platform and broker. The company you choose will employ several stockbrokers that are regulated individuals that buy and sell stocks and other securities on behalf of corporate and retail clients in exchange for a fee or commission.

How to get started with buying stocks and shares

If you are ready to make your first purchase of a stock, you will need an investment or trading account. If you are happy to be hands-on in the placement and selection of your trades, this usually means you will need a brokerage account. Alternatively, if you would prefer some hand-holding through the investment process, it is recommended that you open a robo-advisor account.

Opening a brokerage account

If you set up a brokerage account, you will secure immediate access to the stock markets, with the ability to place trades with your broker in any type of stock, fund or security. When you’re choosing the best brokerage account for your financial investments, it’s important to consider the following:

  • Trading commissions
  • Account fees
  • Possible commission-free ETFs
  • Investor research and available trading tools

Opening a robo-advisor account

By setting up a robo-advisor account, you are not required to do the legwork in hand-picking individual investments. Instead, robo-advisors will build a portfolio on your behalf based on your short and long-term investment goals. This may sound extravagant, but actually robo-advisor accounts are much more efficient and cheaper than a human investment manager. Robo-advisors generally charge no more than 0.50% of your assets under management.

The best brokers for beginner investors

eToro

etoro
eToro is a FCA and CySEC-regulated CFD broker

The eToro brokerage was founded back in 2014 as the world’s inaugural social trading community. With an active trading community of over six million investors located in over 170 countries, eToro is a great place for beginners to learn how to invest in stocks, forex and emerging commodities such as cryptocurrencies e.g. Bitcoin (BTC). Every single stock or share available to trade features a social feed that eToro members can participate in to discuss potential trading angles and factors that could influence a stock’s price to rise or fall.

eToro is a contracts for difference (CFD) broker, which means that investors don’t need to physically own the stock they purchase. Instead, they simply trade the price action on their chosen stock and make a profit – or loss – based on the price movement between the opening and closing trade.

24option

24 option
24Option: One of eToro’s closest CFD competitors

24option is another CFD broker that has become another go-to platform. They are particularly popular when it comes to investing in foreign currencies, known as the forex markets. With over 150 assets to choose from, including the price of Bitcoin and other leading cryptocurrencies, there are plenty of financial investment options, as seen in this review of 24option.

Its web-based trading platform is intuitive, and its homepage pinpoints the most popular assets each week, including stocks and commodities – a useful tool for beginner investors that lack the knowledge to pinpoint good assets to trade. However, it is wholly unregulated, unlike eToro which is regulated by the UK’s Financial Conduct Authority (FCA) and the Cyprus Securities and Exchange Commission (CySEC).

FxPro

FxPro is one of the longest-standing online CFD brokers
FxPro is one of the longest-standing online CFD brokers

FxPro is an online broker that’s been operating far longer than either eToro or 24Option. Founded in 2007, it is now a very popular platform for professional investors in forex and stocks. It offers a host of assets at five pips margins and the platform is well-suited to day traders that prefer to ‘scalp’ markets with short-term trades that can last a matter of minutes. FxPro has also begun to allow its clients to buy Bitcoin and the price of other digital assets

The issue with FxPro is that it is geared towards more experienced investors. Subsequently the interface is more confusing and requires significant time to learn how things work before you get started.

Why eToro is our recommended broker for investments in stocks, shares and commodities

eToro 24Option FxPro
FCA regulated X
CySEC regulated X
Multiple payment methods
Wallet? X X X
Social community? X X
Trading tools?
Stocks & commodities available?

How to start making investments in your country

If this article has prepared you well to invest in your first stock with eToro, it’s important to make sure you are aware of your responsibilities in terms of tax liabilities on any financial investments.

You may be required to pay capital gains tax if you make a profit when you sell shares or other investments. You will need to calculate how much your profit is to determine whether you must pay tax. Ultimately if your total gains are above your capital gains tax allowance for the current tax year, you will be required to pay 20% tax on any income above the basic tax rate in the UK.

Of course, if you live outside the UK, it’s recommended that you seek advice from a qualified financial advisor before investing.

Investing in stocks and shares can provide you with an attractive secondary income source, generating a much-needed buffer in life that we all crave. Of course, as with all types of investments, there is always an element of risk. You should only ever invest in stocks and shares with money that you can afford to lose if the price goes against you. Nevertheless, with hundreds, if not thousands of investment opportunities out there, bide your time and pick the right opportunities and you shouldn’t go far wrong.

How to Buy Stocks FAQs

How much money do I need to start investing in stocks?

Ultimately, the amount of money you need to buy an individual stock depends on how much a share is valued at the time of purchase. It’s worth noting that share prices on companies can range from as low as a few pounds to thousands of pounds per share. Of course, it’s always a good idea to trade stocks and shares that don’t drain your entire investment fund. This will allow you to build a long-term portfolio of investments.

Are investments in stocks considered low-risk?

Of course, it’s important to keep in mind as with all financial investments, things can go wrong with stocks and shares. There is always an element of risk when investing in a single company that it will fail and go bust, rendering your shares worthless. On the flip side, investing in dividend-paying stocks of FTSE 100 companies is generally considered a low-risk investment strategy, capable of generating high single-digit annual returns.

Do I need an exit strategy before making investments in stocks?

As with any other form of financial investing, it’s important to know where your ‘take profit’ and ‘stop loss’ points are when investing in stocks. A cardinal sin is for an investor to hold on to a stock for too long in the hope of eking out more profit, only to see the share price tumble unexpectedly, wiping out their profit and pushing them into a red-book situation. Set an exit strategy before placing any trade with your stock broker and don’t deviate from it!

Are stock investments a get-rich-quick scheme?

Although there are times when share prices can move fast, often based on company developments such as a merger or acquisition or new product line, the reality is that most stocks don’t move that fast – if they did, we’d all be investing, right? It takes a skilled investor to know when to invest and when to sit tight and let an investment mature.

What is the difference between stocks and mutual funds?

When you buy a stock, you are purchasing a share (or multiple shares) in a company’s profits. With a mutual fund, you are investing in a portfolio of stocks that are actively managed by professionals. Stocks are recommended if you wish to be hands-on with your financial investments and be selective with your portfolio. Mutual funds are better-suited to those wanting simple, fast diversification of investments through a single transaction.

Featured image source: Flickr

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Risk Warning: Investing in digital currencies, stocks, shares and other securities, commodities, currencies and other derivative investment products (e.g. contracts for difference (“CFDs”) is speculative and carries a high level of risk. Each investment is unique and involves unique risks.

CFDs and other derivatives are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how an investment works and whether you can afford to take the high risk of losing your money.

Cryptocurrencies can fluctuate widely in prices and are, therefore, not appropriate for all investors. Trading cryptocurrencies is not supervised by any EU regulatory framework. Past performance does not guarantee future results. Any trading history presented is less than 5 years old unless otherwise stated and may not suffice as a basis for investment decisions. Your capital is at risk.

When trading in stocks your capital is at risk.

Past performance is not an indication of future results. Trading history presented is less than 5 years old unless otherwise stated and may not suffice as a basis for investment decisions. Prices may go down as well as up, prices can fluctuate widely, you may be exposed to currency exchange rate fluctuations and you may lose all of or more than the amount you invest. Investing is not suitable for everyone; ensure that you have fully understood the risks and legalities involved. If you are unsure, seek independent financial, legal, tax and/or accounting advice. This website does not provide investment, financial, legal, tax or accounting advice. Some links are affiliate links. For more information please read our full risk warning and disclaimer.