Investing in shares – often called share dealing – is the process of buying shares directly (rather than through an investment fund) in a company or companies with the aim of making a profit by later selling shares at a higher price than they were purchased for.
Share dealing is just one way of investing, and isn't suitable for everyone. Read our guide to investing for beginners for more information on what’s available and how to get started investing.
How does share dealing work?
Shares become available to investors when companies decide to sell them in order to raise capital. In return for the purchase of shares, the investor may be offered certain benefits such as a share in net profits, paid in the form of dividends.
The value of your shares will depend on whether or not the company you’re invested in is successful and to what extent. This means that your capital is not guaranteed and you may not get back everything that you put in. Because your capital is at risk you should only invest money that you can afford to lose, and make sure that you have income from other sources to cover your essential costs. You should also make sure that you have an easily accessible emergency fund in cash.
The risk involved will vary widely depending on the companies you invest in, so you should always conduct thorough research to ensure that the investment is well matched to your attitude to risk. For more information about investment risk, read our guide.
Spreading your share purchases across several different companies can help reduce overall risk, because if one company should go bust you will not necessarily lose all of your capital. If you are unsure about the suitability of an investment, you may want to seek professional investment advice.
Investment funds can be a good way to achieve a balanced portfolio without having to pick each individual share yourself, or if you have a limited amount of capital to invest.
Investing in shares should be seen as a medium to long term investment strategy.
The stock market can be volatile, and the value of your investment is likely to fluctuate over time. Leaving your capital invested for longer gives it more time to recover from short-term falls.
How to invest in shares
You can invest in shares through a stockbroker, or you can take the DIY approach.
A stockbroker can carry out share purchases and sales directly on the stock market on your behalf, and this can be done in one of three main ways:
- On an execution only basis: the broker will carry out your instructions without offering any advice
- On an advisory basis: the broker can offer advice on choosing, buying and selling shares, with the final decision left to you
- On a discretionary basis: the broker will manage the entire process on your behalf
The more comprehensive the service of the broker, the higher their fees are likely to be.
If you would like investment advice tailored to your circumstances and needs, speak to a financial adviser, who can guide you through the different options available to you.
Last updated: 18 May 2015