We talk a lot about investing money on this site, since it’s a great way to passively increase your money if you already have an emergency savings cushion in place and can afford to risk potential losses.
Usually, though, we look at simple types of investment that anybody can do with a little bit of advice: buying in to a managed fund, whether from a traditional bank or challenger investment company, and letting their experts do the hard work.
This is fine, and definitely the recommended approach for beginners, those who want to be quite risk-adverse, or anyone who simply doesn’t have the time to spare for choosing out their own investments. However, we know that a lot of people want to take a more hands-on approach, so today we’re looking at tips for getting started as an active investor.
Before you start
We don’t recommend that anybody starts investing if they haven’t paid off debts such as credit cards and overdrafts (long-term, manageable debt such as a car loan or mortgage is different). You should also make sure that you have emergency savings, and that you’re not investing using savings that are earmarked for something important, like buying your first home. Finally, make sure you’re ready to commit to something long-term: investing typically performs best if you can commit to a five-year minimum – preferably longer.
Step one – opening a nominee account
In order to buy shares on the stock market, you need to go through the services of a stockbroker – somebody who will actually handle the shares. You do this through what’s known as a ‘nominee account’, offered by major banks like Halifax as well as dedicated investment companies.
Choosing your account might not be as important as choosing your shares, but it still needs too be considered carefully. You’ll be charged a fee for investing, including a potential platform fee as well as a fee per trade. Don’t compromise good service for the sake of a small fee cut but do compare costs when making your decision.
Step two – do plenty of research
Once you’ve set up your account it will be tempting to dive straight in, but you need to research the companies that you plan to invest in thoroughly before making your decision. This is the key reason that experts will advise investors to steer away from making their own decisions about which investments to make unless they have the time and dedication.
If you are willing to make that commitment, then the key is to make sure you understand a company’s finances before you buy their shares. Are they profitable? What is there industry outlook over the next few years, or even decades? You also want to be thinking about how well the company has performed over a long-term period – look at their profits and successes over the past ten years, not the past year.
Step three – buying and selling your shares
The actual act of purchasing the shares can be a little daunting if you don’t know what to expect. The share prices that you see online are usually around fifteen minutes out of date, so when you’re ready to make your purchase you’ll let the broker know and get a live quote, valid for a very short period of time. You’ll need to confirm your purchase before the time runs out to get the price you’ve been quoted. The process for selling is very similar, and in most cases you’ll be able to immediately reinvest the money.
Overall, it’s a simple enough process but one that’s packed full of risk. Speak to an expert if there’s anything you’re unsure about, and only invest what you’re willing to lose.