There are many reasons why people start investing – to get better returns on their cash, to meet long-term investment goals, to save for a deposit on a house purchase or for retirement.

Whatever your investment goals you can generate wealth from investing in shares, investment trusts, ETFs and funds. 

In this article we will explain how to turn that aspiration into reality in this step-by-step guide.

WHAT INVESTMENT PLATFORM SHOULD YOU CHOOSE?

First you need to find an investment platform and open a dealing account, ISA or SIPP.

Everyone’s financial circumstances are different, so carry out thorough research into what investment platform you are going to trade through.

One of the most important things to consider are costs.

WHAT ARE THE COSTS?

Costs for buying and selling shares, funds, investment trusts and ETFs may vary depending on what investment platform you choose.

For example, AJ Bell has a platform charge of 0.25% per year.

When you buy or sell shares on the AJ Bell platform, it will cost you £3.50 per trade including investment trusts, ETFs, gilts, and bonds online (if you have 10 or more share deals in the previous month) otherwise the cost is £5. The cost for funds is £1.50.

If you deal over the telephone through AJ Bell, it will cost you £25. 

WHAT IS THE RIGHT ACCOUNT?

Many people open a Stocks & Shares ISA as any returns and income are free from tax within the £20,000 annual ISA allowance.

Other options available if you are saving for retirement is a SIPP (self-invested personal pension).

A dealing account can be useful if you’ve already used up your ISA or pension tax allowances.

HOW DO YOU OPEN AN ACCOUNT?

Assuming you go down the ISA route, the process is straightforward and can take as little as 10 minutes.

You will need to be over 18 and a resident in the UK in order to open an account.

You’ll need to open an ISA in your name, and you can’t have one in a joint name.

Typically, you will be asked to provide:

• Your address details for the past three years
• Your debit card details
• Your telephone number
• A valid email address
• Your national insurance number

Once you have completed the online form you need to have read the T&Cs.

Assuming your application is successful you will receive your account number at the end of the process.

HOW TO FUND YOUR ACCOUNT

Once you have chosen what account to open, you will need to put money into your account. You must always make sure there is enough cash in your account to cover charges when they are due for payment.

You have two main options.

You can either transfer a lump sum from your bank account using your debit card or set up a direct debit to fund your account on a regular basis.

You can invest as little as £25 a month through a regular investment service.

As soon as there is money your account, you are good to go.

WHY INVEST THROUGH FUNDS?

Investors starting out on their journey often decide to invest in funds for several reasons. The primary reason is diversification, as when you buy a fund or funds you can gain exposure to lots of different individual holdings and sectors. Far more than would be practical to invest in yourself.

The second reason for investing through a fund is that you can benefit from the expertise of a fund manager who is managing the fund or funds in which you are investing.

If you know what fund to buy, then you can put the name of the fund into the search field of the platform.

Platforms will typically allow you to invest in thousands of funds and multiple global markets.

If you don’t know what fund to buy, some platforms have ‘favourite funds’ lists you can choose from, which is a useful starting point.

It is also worth finding out which version of the fund you are buying – whether it is (income) ‘inc’ or (accumulation) ‘acc.’

If you invest in the income unit of the fund a dividend is paid out to you as cash.

If you invest in the accumulation version of the fund, then any income generated from the underlying investments will be automatically reinvested into the fund.

Tracker funds and exchange-traded funds simply match the returns from an index like the FTSE 100 and, because you are not paying out for the fund manager’s expertise, they tend to be cheaper.

Some active funds struggle to outperform their benchmarks and costs really eat into returns, particularly over the long term so these can be an attractive option.

Investment trusts are similar to other types of fund except they trade on the stock market in the same way as a share. 

This means that unlike buying a fund, where you may only discover the price you’ve paid once the trade has gone through, there is more transparency over the price. It also means there is a board of directors to hold the portfolio manager to account. 

However, it’s also the case that, unlike funds which trade in line with their net asset value, trusts can trade at a premium or discount to the value of their underlying assets. 

HOW TO START TRADING

The actual process of trading on an investment platform is quite straightforward.

First, you must have enough cash in your account before you begin any trading.

Before you trade any fund, it is worth reading all the necessary information about the fund including regular factsheets which detail performance and top holdings.

It takes a day or two to process the trade in the fund. For a transaction in shares, trusts or ETFs, you will be provided with a time-limited quote to buy and sell.

HOW TO KEEP TRACK OF YOUR INVESTMENTS

You can keep track of your investments through the platform’s website or mobile app on your phone, whether that is IOS or Android.

On the platform’s website you may be able to view live UK prices of shares, funds, investment trusts and ETFs.

It is important to monitor your portfolio on a regular basis to make the right investment decisions for your situation. For example, whether to buy more, sell or hold for the long term.

But don’t be tempted to over tinker. Chopping and changing your investments too often will trigger unnecessary dealing costs.

DISCLAIMER: Financial services company AJ Bell owns Shares magazine. The author (Sabuhi Gard) and editor (Tom Sieber) of this article own shares in AJ Bell.

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