Everyone has heard of the footsie one hundred (FTSE), the list of the top UK companies in the stock market, but for many people that is as far as their knowledge goes.
Anyone can buy shares in a company listed on the London Stock Exchange (LSE), but successful investing is not just a matter of picking the right investments at the right time, but finding the best and most cost effective way of buying them. These days you can trade shares through your bank, over the phone or on the internet.
Traditionally, staying within the footsie 100 has been seen as the safest way to trade in UK shares. However, this is not always the case, and certain companies (particularly technology companies) have been known to make a brief appearance, and then fade away. There is also a FTSE 250 (the top 250 UK companies below the FTSE 100) and a FTSE Eurotop 300 (Europe).
But what to buy? And how? Firstly decide on a stock broker. Do you want help and advice, in which case you might go for a full advisory service, where a broker will look at your individual circumstances and devise a strategy for buying and selling.
Alternatively, many people prefer to do their own research so need to find an execution only stockbroker. Execution only means the broker will simply take your order and execute it for you. These are the cheapest brokers and usually operate over the phone or on the internet, but remember you will not get any advice from them as they are legally not allowed to give it! However, many execution only brokers offer all kinds of research and online tools. Generally, the better the information the more you pay, so think carefully about the quality of the information, speed of execution, markets available and cost. Locate a broker through banks, internet, Yellow Pages or the London Stock Exchange.
Because shares can now be held electronically rather than in paper form, deals can be done speedily. Telephone and internet means access to instant dealing, but completing can take longer. Legally share deals have to be ‘settled; in three days from when they were struck. If you want the share certificate you might pay an extra fee and the deal might take 10 days or more.
If you want help picking investments choose an independent financial advisor (IFA). IFAs either charge a fee for their advice or alternatively take commission (typically 3-5%). Another option is fund supermarkets which are internet based and offer a quick service for investors wanting to choose between funds from a range of companies. Fund supermarkets offer big discounts to normal fees and you can buy and sell quickly, often within 24 hours, but remember no-one will be monitoring your investment or advising you when it is time to shift.