Stock investing can seem daunting, but it doesn’t have to be. Some of the most successful investors keep it simple, sticking with the basics. Whether you’re a first-time investor or looking to refine your strategy, How to Buy Stocks: A 5-Step Guide will walk you through the key steps.
1. Decide: Go It Alone or Get Help
The first step in buying stocks is deciding how hands-on you want to be with your investments. Do you want to take full control, or would you prefer guidance from an expert or technology? This decision will shape your entire investment journey.
Investing On Your Own
If you choose to invest on your own, you’ll have complete control over where your money goes. You can research and select stocks or funds that align with your goals. This approach works well if you’re willing to dedicate time to learning about the stock market, tracking your investments, and making adjustments as needed. However, it requires effort, discipline, and confidence in your decisions.
Professional Guidance
Alternatively, you can opt for professional guidance. A financial adviser can provide tailored advice, helping you create a strategy that suits your goals, risk tolerance, and time horizon. While this is a more expensive option, it can be worth it for those who feel uncertain or overwhelmed the complexities of investing.
Robo-Advisers: A Middle-Ground Approach
For a middle-ground approach, consider using a robo-adviser. These platforms use algorithms to build and manage a portfolio for you, based on the information you provide about your financial goals and risk appetite. Robo-advisers are cost-effective and ideal if you want a hands-off approach without paying for a human adviser.
Pros and Cons of Each Option
Both options come with pros and cons. Going solo is often cheaper, giving you full control, but it requires time and effort to stay informed. Getting help can save time and reduce the risk of costly mistakes, but you’ll pay for that convenience. The best choice depends on your confidence, experience, and how much time you’re willing to invest in managing your portfolio.
2. Choose a Broker or Platform
Once you’ve decided how you want to approach investing, the next step is choosing a broker or investment platform. This is the foundation of your investing experience, as it’s where you’ll buy and sell stocks, monitor your portfolio, and potentially access educational resources.
Consider Your Needs
Start considering what you need. If you’re a beginner, look for a platform that offers a simple, user-friendly interface. Many beginner-friendly platforms provide tutorials, investment guides, and customer support to help you navigate the process. These features can be invaluable when you’re just starting out.
Advanced Tools for Experienced Investors
For more experienced investors, advanced tools and features may be a priority. Some platforms offer in-depth research reports, technical analysis tools, and customisable trading dashboards. If you plan to trade frequently or invest in a wide range of securities, these features could save you time and enhance your decision-making.
Compare Fees
Fees are another critical factor. Brokers typically charge fees for trades, account maintenance, or other services. Low-cost brokers are ideal for most investors, as high fees can eat into your returns over time. Be sure to compare transaction fees, annual account charges, and any hidden costs, as these can vary significantly between providers.
Access to the Right Investments
Also, ensure the broker offers access to the investments you want. Some platforms focus solely on stocks, while others include funds, bonds, and other asset classes. If you’re planning to diversify your portfolio, a broader range of investment options is essential.
Do Your Research
Finally, read reviews and do your research. Look for platforms with a strong reputation for reliability, security, and good customer service. If you’re unsure, many brokers offer demo accounts, allowing you to test their services before committing your money.
Choosing the right broker or platform is a personal decision. Take your time, compare your options, and select one that aligns with your needs and investing goals.
3. Open the Right Type of Investment Account
Before you can start investing, you’ll need to open an investment account. This account acts as the gateway to buying and holding stocks, funds, or other assets. The type of account you choose should align with your financial goals and how long you plan to invest.
Stocks and Shares ISA
If you’re investing for the long term and live in the UK, a Stocks and Shares ISA is an excellent option. This account allows you to invest up to £20,000 per tax year (as of 2025) without paying tax on any gains, dividends, or interest earned. It’s a tax-efficient choice that’s ideal for building wealth over time, especially if you’re saving for milestones like a house deposit, your children’s education, or general financial security.
Pension Scheme or SIPP
For those focused on retirement, a pension scheme or a Self-Invested Personal Pension (SIPP) might be the better choice. SIPPs offer flexibility in choosing and managing your investments, and they come with significant tax advantages. For example, the government tops up your contributions with tax relief, boosting your savings. However, keep in mind that pension funds are locked until you reach retirement age, so they’re not suitable if you need access to your money sooner.
General Investment Account (GIA)
If your goals are shorter-term or don’t involve retirement, a general investment account (GIA) could be the simplest solution. These accounts don’t have contribution limits, and they allow you to invest freely in a wide range of assets. However, gains and dividends may be subject to tax once you exceed your personal allowance, so they’re less tax-efficient than ISAs or pensions.
Choose Based on Your Goals
When deciding, think about how long you plan to invest and the level of tax efficiency you need. Stocks and Shares ISAs work well for most investors, offering flexibility and tax benefits. SIPPs are tailored for retirement planning, while general investment accounts are best for more flexible, shorter-term goals.
Take the time to understand your options and choose an account that supports your strategy. The right investment account can help maximise your returns and minimise your tax bill.
4. Decide: Stocks or Funds?
When building your investment portfolio, one of the most important decisions is whether to invest in individual stocks or funds. Each option has unique advantages and risks, and your choice should depend on your goals, experience, and risk tolerance.
Investing in Individual Stocks
Investing in individual stocks means you’re buying shares of a specific company. If you believe in the long-term potential of a particular business—perhaps you’re impressed their growth strategy or leadership team—stocks can offer significant rewards. For instance, if the company performs well, its stock value may rise, and you could see strong returns.
However, individual stocks come with higher risks. The success of your investment depends on that one company’s performance. If the business faces challenges, such as declining sales or economic pressures, the stock’s value could drop significantly, resulting in a loss for you. Additionally, researching and tracking individual companies requires time and effort, making this option better suited to those with some market knowledge and a willingness to stay informed.
Investing in Funds
On the other hand, funds provide a more diversified approach to investing. When you invest in a fund, your money is pooled with other investors and spread across a variety of companies. Funds can include index funds, which track the performance of a specific market index (like the FTSE 100 or S&P 500), or exchange-traded funds (ETFs), which trade on stock exchanges like individual stocks but contain a collection of assets.
Funds are typically low-cost and less risky than investing in individual stocks, as the diversification helps reduce the impact of any single company’s poor performance. This makes them an excellent option for beginners or those who want a hands-off approach. Many experts recommend using funds for the bulk of your portfolio, as they offer a balanced way to achieve steady, long-term growth without requiring extensive research.
A Balanced Approach: Stocks and Funds
For most investors, a combination works well. Use funds as the foundation of your portfolio to ensure diversification and stability. Then, if you feel confident about a specific company’s growth potential, you can allocate a smaller portion of your money to individual stocks. This allows you to balance risk while taking advantage of opportunities for higher returns.
Making the Right Choice for You
Ultimately, the choice between stocks and funds depends on how much risk you’re willing to take, how much time you can dedicate to research, and your overall investing strategy. If in doubt, starting with funds is often the safest way to grow your wealth.
5. Set a Budget and Invest for the Long Term
Before diving into the stock market, it’s crucial to set a clear budget. Investing without a plan can lead to unnecessary stress, especially if you’re using money you can’t afford to lose. Start evaluating your current financial situation. Take a look at your income, expenses, and savings, and decide how much you can comfortably allocate to investing.
Never Invest Money You Need in the Short Term
It’s important to never invest money you’ll need in the short term. The stock market can be unpredictable, with prices fluctuating daily due to market conditions, economic events, and company performance. If you’re forced to sell your investments during a market dip, you could lock in losses. Always prioritise having an emergency fund that covers at least three to six months of essential expenses before putting money into the market.
Consider Your Time Horizon
Once you’ve determined how much you can afford to invest, think about your time horizon. This refers to how long you plan to keep your money invested. A longer time horizon allows you to ride out the inevitable ups and downs of the market, as history shows that markets generally trend upwards over time. For example, if you’re investing for retirement decades away, you can afford to take on more risk for potentially higher returns. On the other hand, if you’ll need the money within a few years, consider lower-risk options or keeping it in cash savings.
Understand Your Risk Tolerance
Your risk tolerance is another key factor. If you’re comfortable with short-term losses in exchange for the chance of higher long-term gains, you might allocate more of your budget to stocks. If you prefer stability, a larger portion of your portfolio could be in funds, bonds, or other low-risk investments.
The Power of Long-Term Investing
Investing for the long term is one of the most effective ways to grow your wealth. Over time, compound interest—the ability of your investments to generate earnings on both your original contribution and the gains it produces—can significantly boost your portfolio. For instance, investing £200 a month for 20 years at a 7% average annual return would result in over £104,000, even though you only contributed £48,000.
Stay Disciplined and Avoid Trying to Time the Market
To maximise the benefits of long-term investing, remain disciplined and avoid trying to time the market. Focus on consistent contributions, even during market downturns. While it’s tempting to pull out when prices fall, staying the course often leads to better results.
Patience and Persistence
By setting a budget you can stick to and keeping a long-term perspective, you can navigate market volatility with confidence. Remember, investing is a marathon, not a sprint—patience and persistence are key.
Managing Your Portfolio
After you’ve made your initial investments, the next step is managing your portfolio. This involves regularly reviewing your investments to ensure they continue to align with your financial goals. Monitoring your portfolio doesn’t mean checking it every day, especially in the face of short-term market fluctuations. In fact, overreacting to market changes can lead to impulsive decisions that might not be in your best interest.
Regularly Review Your Investments
Instead, take a step back and assess your portfolio on a regular basis—every few months, for example. Look at how your investments are performing and see if they still match your risk tolerance and goals. For instance, if you’re investing for retirement, your time horizon may have changed, or your risk tolerance might shift as you get older. Rebalancing your portfolio involves adjusting the allocation of your investments to ensure that it stays on track with your objectives.
Rebalance Your Portfolio
Rebalancing typically means buying more of some assets and selling off others to maintain the desired balance. For example, if one part of your portfolio has grown significantly, you might sell some of those assets and reinvest in others that are underrepresented. This keeps your portfolio diversified and aligned with your long-term goals. Rebalancing is usually done annually, but the frequency can depend on your specific investment strategy and market conditions.
Understand the Risks Involved
It’s important to remember that investing always involves risk. No matter how carefully you plan, there’s always the possibility of losing money, particularly when investing in individual stocks. Companies can perform poorly, markets can drop, and global events can affect your returns. While the stock market has historically shown growth over the long term, that doesn’t guarantee success.
Diversify Your Portfolio
However, focusing on the long term and diversifying your investments, you reduce the impact of any single company’s poor performance. A diversified portfolio spreads your risk across different sectors and asset classes, making it less likely that a downturn in one area will derail your entire investment strategy. For example, including a mix of stocks, funds, bonds, and other assets can help cushion your portfolio against market volatility.
Stay Consistent and Patient
Managing your portfolio doesn’t have to be overly complicated. Stick to the basics: make informed decisions, keep learning, and stay patient. The key to successful investing is consistency and a long-term mindset. Instead of trying to time the market or chase short-term trends, focus on building a strong, diversified portfolio and let it grow over time.
The Importance of Long-Term Goals
Ultimately, the rewards of investing, whether it’s achieving your retirement goals, buying a home, or securing your financial future, can be well worth the effort. Stay disciplined, stay informed, and remember that the journey is just as important as the destination.
