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www.InvestmentGuide.co.uk How Best to Invest in Stocks and
Shares
Investment trusts
Unit trusts
Offshore funds
SHARES
Lump sum invested directly in the shares of a company which are quoted, that is bought and sold in the Stock Exchange. You usually receive an income (which you hope will rise but can fall) and hope to make a capital gain by selling for more than you paid (but you may end up with a loss by selling for less). If the company you invest in goes bust, you will lose all your money which is why it is best to diversify and spread your money in a portfolio of 7 to 16 or more different shares. For more on investing in shares, see How Best to Invest in Stocks and Shares and Shares A Beginners' Guide to Making Money. Click for the latest value of share indices in the UK and abroad .
Who can invest Anyone.
How worthwhile Potentially good value as a long-term investment for taxpayers if you choose the right shares and buy and sell at the right time; poor value if you don't. Alternatively you can invest indirectly through an Investment Trust or a Unit Trust.
Minimum £14,000-£30,000 for a portfolio of shares bought for say £2,000 each in 7-15 companies. Lower amounts not worthwhile because of minimum commission and lack of a diversified portfolio.
Maximum None.
Suitable Lump sums.
Money back 5 working days. You get the market price at the time you sell.
Interest Variable. Called dividend. The before tax interest is called the yield which varies between different companies and different types of companies. Some companies do not pay a dividend.
Interest paid Usually half-yearly by cheque to you or direct to a bank account. About 5 weeks before the dividend date the shares go ex-dividend, this means the seller gets the next dividend, not the buyer.
Tax 10% tax is deducted from the dividend (called a tax credit). Non- taxpayers cannot reclaim the tax credit from the Inland Revenue. Higher rate taxpayers have to pay extra; basic taxpayers don't. Gains on shares may be liable to capital gains tax.
Fees to pay When you buy, stockbrokers commission varies. On-line brokers charge least. No commission or stamp duty on new issue. When you sell, commission only. Minimum commission of £10 to £30 per transaction.
Passbook Share certificate from the company you invest in or statement of ownership from your stockbroker if your shares are held by your stockbroker as nominee. It is best to become an individual member of Crest but not all stockbrokers allow this.
Children Under 18 shares must be held in an adult's name but can be designated with a child's name or initials.
Risk High. The value of shares goes down as well as up. If your shares are held by a nominee your protection under the Financial Securities Act Investors Compensation Scheme is limited to a maximum of £48,000 per person; this protection does not include a loss caused by a fall in share prices.
How to invest You can choose shares by doing your own research or get advice from a stockbroker or the press. Stockbrokers or professional managers will make the choice for you. Buy and sell by phone to a stockbroker.
Where from An on-line stockbroker or stockbroker, or a bank's stockbroker with a cheap execution only service like Skipton, Midland Bank or Hargreaves Lansdowne. Your bank will introduce you to its own stockbrokers but if you want to use another bank as a broker you will also need to open a bank account with them. Commission rates vary: choose one with the lowest commission rate at the value of shares you are likely to buy and sell at.
Other types of direct investment
in shares
Shares - A Beginners Guide to Making
Money
How Best to Invest in Stocks and
Shares
Investment trusts
Unit trusts
Offshore funds
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Last updated 17 December 2002