What platforms do I use to start investing?
A list of trusted platforms can be found in the resources section
here. Generally, I prefer to stick to larger, more well-known platforms that often charge higher trading fees than the smaller less well-known upstart platforms. This is for two reasons: firstly, I generally aim to hold my investments for a long period of time and therefore the trading costs are marginal to the total gain of an investment. Secondly, I would rather my money not be held in a platform that has little track record, so the marginally higher fees are worth the extra security.
Is there a fee to use investment platforms?
Platforms can charge fees on transactions, annual management fees, fees for holding assets in funds and hidden fees such as spread variance.
Billed for any purchase or sale of investments on the platform. Usually around the £10 mark for a trade execution. There can also be stamp duty on UK stocks (Government tax levy of 0.5%) and foreign exchange charges if you are dealing in overseas stocks in different currencies.
Annual Management Fees
Some Platforms charge a flat annual fee for using their platform — around £20-£50 as an administration fee.
Some Platforms charge a levy for holding you cash in funds — typically 0.25-0.5%.
A form of hidden fee that platforms can use, especially platforms billed as 'free trading platforms'. The spread is the difference in price between the Buy and Sell price on the market. Some platforms will have larger spreads and pocket a greater difference between the buy and sell. As a way of getting around this, if you are intent on dealing on a ‘free trading’ platform, make sure you get a quote from a larger, well-known platform on the Buy and Sell price of a given equity before you make the trade.
In summary there are various fees associated with dealing — it is very important to read the platforms fee structure before opening an account to make sure you are comfortable with it.
How much money do I need to start investing?
This depends on many factors such as:
- the time horizon for your investment
- is it a fixed lump sum or do you intend to drip feed money into your investment account
With the cost of getting started dramatically reduced as of recent times, alongside the benefit that time in the market gives, I am a firm believer you can start with a small sum. For many people, their first investment should be of small scale, and definitely for me it was a motivator to build on my portfolio by increasing my monthly savings.
All in all, you want to factor in how much it costs you to make a trade vs what you have to gain. If you have £500 to invest, which may cost you £10 to buy, £10 to sell and £5 for stamp duty / other fees, a 10% return would net you around £25. So it is unlikely to be a lifechanging investment.
However if that £500 is just the start and it builds your confidence as an investor —and more importantly motivates you to start saving more to build a portfolio — I think that the size of the investment is irrelevant.
Where do you go to find information on what stocks to buy?
I hope my website is useful for investors as a source of information and my monthly newsletter can be subscribed to here. My resources section is also a good place to look for some great investing knowledge. I frequently read the monthly updates of my favourite funds to see what they are adding to their portfolios.
I would caution the reading of tipster style newspapers; they can produce some good winners but they have to constantly come up with new ideas and much of what they tip the author does not own, and therefore the insights can be rather limited.
I can't decide whether to buy a fund or individual stocks?
Funds come in many different forms, but can usually be categorised as an entity with a portfolio manager that you give your money to for a fee, who will buy a predetermined set of Stocks, Shares or Bonds. Buying a fund should not be deemed ‘less risky’ than buying individual shares and there is no guarantee of performance from a fund, no matter its track record.
Funds can be split into Active or Passive. Actively managed funds are those that the manager allocates capital to individual holdings, at their discretion, usually in the attempt of the highest gain from its allocation. Passive funds are funds that track an index (an indexed group of equities on an exchange, usually grouped by size and geography) for example the S&P500. Passive funds just mimic the holdings of that index and produce a return in line with the index. Passive funds usually charge a much lower fee, as they are only providing index tracking. It is a fact that over recent history, the majority of active fund managers fail to beat the index.
So, to make your decision on whether funds or shares are right for you, the positives and negatives are listed below:
- You can leave the dealing and stock picking to someone else.
- Strong diversification — funds usually have >30 holdings.
- Less research required.
- Performance fees drag on total return.
- Reliance on the merits of your fund manager.
- Lower flexibility to own companies you want.
- Majority of active managers fail to beat the index
- Your choice over investments.
- No management or performance fees.
- Potential for market-beating returns.
- Great satisfaction.
- Lower diversification (with 1 share vs 1 fund).
- Research is required.
Is my money safe in stocks?
In a word, no. But neither would your money be technically safe in any asset class other than cash (which devalues over time due to inflation). So, if you are looking to protect your wealth by generating a financial return, you will have to take on a level of risk to achieve it.
You can reduce your risk by:
Diversification - Holding more than 10 stocks, with different geographic and industry exposure.
Research - Know what you are buying! Understand the drivers behind your company, and the stock.
Time - The longer the time horizon you are prepared to remain invested in the market as a whole, the lower the risk of loss.
Quality Focus - Specific sectors and companies perform better in down markets than others, focusing on quality can reduce the risk of loss.