Stock markets have been well and truly walloped by the coronavirus pandemic in 2020. Since things will recover in time, however, we at the Fool UK think now could be a superb opportunity for new investors to get involved.
Here — in a nutshell — is how to do it.
1. Sort your finances
Before you’ve even bought a single share, you need to work out what funds you have available. Investing is a long-term game and should only be done using cash you won’t need for at least five years. With the coronavirus placing the economy in snooze mode, that’s harder to gauge than it used to be.
The good news is that you don’t need to already have a fortune to make one, and every little helps. Investment portfolios can be built from as little as £25 a month.
If you’ve already tackled high-interest debts and have an emergency fund built up, you’re probably good to go.
2. Open a Stocks and Shares ISA
If you’re wanting to invest, you may as well do it in the most tax-efficient way possible.
Keeping anything you own within the ISA wrapper rather than in a standard trading account saves you from paying tax on any profits you make or dividend income you receive.
Opening a Stocks and Shares ISA with an established provider, such as Hargreaves Lansdown, AJ Bell or Interactive Investor, takes only a few minutes. Your broker will act as the middle-man in the market, matching buyers with sellers. It will also hold your shares on your behalf.
3. Get to know yourself
Before launching into a buying spree, it’s vital to know how long you intend to stay invested and what proportion of your portfolio should be in stocks.
A good starting point is your age. Generally speaking, someone in their 20s will usually have a far higher risk tolerance compared to someone approaching (or in) retirement because they have more time to respond to setbacks.
Young investors will, therefore, have more of their money in individual stocks or funds. This allows them to benefit as much as possible from the power of compounding over time.
Those in their golden years will likely hold stocks too. However, they’ll also own more of other assets such as bonds and property since these tend to give more protection during volatile periods (even if the returns aren’t as good).
4. Start slow
To buy stock in a company, you need to enter its ticker. Tesco‘s ticker, for example, is TSCO. You’ll then get a live quote that needs to be accepted before the countdown expires for the trade to go through.
Inevitably, purchasing stock incurs a fee (in the range of £8-£12). Another cost to consider is the ‘spread’ (the difference between the price at which you can buy and the price you can sell at). Stamp duty, at 0.5%, is also charged to buyers.
Don’t think that you need to invest all your money in one go. A good option for understandably nervous newbies is to buy in equal, monthly instalments. Doing this should help smooth out volatility in the markets. When stocks are down, your money buys you more and vice versa.
The commission fees for regular investing are also lower because trades are made on a fixed date. Expect to pay roughly £1 per trade.
Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.