5. How can I buy shares?
How can I buy shares?
While shares are most frequently traded on the stock exchange, the first opportunity investors get to buy shares is when they are first created.
How to invest in the stock market
Initial Public Offerings (IPOs)
When shares in a company are issued for the first time, the ownership of the company, which may have been family owned or in private hands, is split into shares. These shares are then offered for sale to the public.
If this is happening for the first time, it is called an ‘Initial Public Offering’ (IPO), which is also known as ‘floating’ or ‘listing’ on the stock market. Once the shares have been issued, anyone can buy and sell them.
There are many reasons why companies do this. It could be to raise money to fund future investments or so that an early investor can withdraw some of their money. Shares are issued at the start of a PLC’s life, though further shares might be issued later to raise more money.
The secondary market
Once a company has created shares, they can be bought and sold via the stock exchange. Because buying and selling shares in this way comes after the IPO stage, it is known as the secondary market.
When you buy shares on the secondary market, you do so by using the services of a stockbroker. The vast majority of accounts are held online offering a range of ways to deal shares.
Stockbrokers usually offer three levels of service:
Execution-only is DIY investing. Investors make their own investment decisions and place instructions with a broker, often online, who will then ‘execute’ those instructions. This way of investing usually has the lowest costs.
You can find out more about Hargreaves Lansdown’s execution-only dealing services here.
An advisory service involves taking advice from a financial expert based upon your personal circumstances, attitude to investment risk and financial goals. Your adviser will suggest investments based on your investment goals and financial position.
The cost of financial advice will vary based on how much advice you need and the amount of money you have available to invest.
3. Discretionary management
Discretionary management means leaving the management of your investments to the experts, with all investment decisions being made on your behalf. Discretionary management is suitable for those with larger portfolios and limited time or expertise.
The cost of discretionary management services will depend on how much money you have to invest and the types of investments made.
Different ways to invest in shares
A common misconception is that you have to have a large sum to start investing. While investing a lump sum is certainly possible, you can also regularly invest smaller sums, known as regular savings.
You can open a Hargreaves Lansdown account with as little as £25 each month through a regular savings plan. Not only is this an affordable route into building an investment portfolio, but it can help to reduce risk.
By investing little and often, you have the potential to smooth out market fluctuations, as investing monthly can ‘average-out’ the price paid for shares. This means the share price going up and down can actually benefit you as you could end up purchasing more shares, but conversely it should be remembered that if the share price rises and never looks back, fewer shares are purchased via regular savings and investors could have been better served by investing a lump sum.
Lump sum investment
Many people find themselves with a lump sum at some point in their lives. This could be through inheritance, a bonus or cash from the sale of a home.
Lump sum investing doesn’t have to involve a six-figure amount. When investing in funds, Hargreaves Lansdown accounts have a minimum starting lump sum of just £100, and there is no set minimum for investing in shares.
Now you’re clear on what shares are, how markets change, your options and how to get going, you’ll need to set up an account if you want to start investing. You can find out which Hargreaves Lansdown account is best for you below.