Investing

When you invest in shares you are basically taking a gamble. For most ordinary people you are hoping that the value of your shares will increase, although there are more sophisticated types who bet on share prices falling (which is called ‘going short’). These tend to be City of London professionals or practised investors who do not need investment advice on the best investment here.

Buying shares means you become the part-owner of the company whose shares you have bought. The value of the shares will fall and rise in line with investors’ expectations about the company and its financial performance.

The stock market

The stock market is a generic name for all the various stock exchanges around the world, on which shares and other financial instruments are traded. Like any other market it brings together people who want to buy and sell, with the key difference that you don’t go there yourself (as you would a fruit and veg market), but use a broker to trade on your behalf.

Direct and indirect

There are two basic ways of investing – directly or indirectly.

Direct investment is exactly as it sounds: you buy shares via your stock broker and get your stake in a company.

Indirect investment means you buy into a fund run by a fund manager. This could be a unit trust, an open-ended investment company (OEIC) or an investment trust. Ask your financial adviser about how these funds work.

If you want to look at the relative performance of various funds, providers like Standard & Poor’s list this information. 

Stocks and shares ISAs

These are basically savings accounts in which you can hold stock market investments like shares, up to the value of £7,000 in a maxi ISA or £4,000 in a mini shares ISA. Your money grows protected from capital gains tax and income tax, and higher rate taxpayers avoid paying extra tax on dividend payments from shares.