There was a time when stock market investing was the sole preserve of the affluent and well-connected. Those with money had their ‘man in the City’ – and it was almost without question a ‘man’ back in those days – who invested on their behalf.
The stockbroker was as much a status symbol as the golf club membership and the yacht in Cowes. But much has changed over the past few decades.
Whether you agree with the motives behind it or not, Margaret Thatcher’s decision in the 1980s to privatise the likes of British Gas, Jaguar, British Telecom, the remainder of Cable & Wireless, British Aerospace, Rolls Royce and BP created a nation of shareholders.
The national “Tell Sid” advertising campaign for British Gas ensured mass market interest in the ‘sell off’ – about 1.5 million individuals bought shares in the 1986 privatisation.
For those on a middle to low salaries, these privatisations encouraged participation in the stock market. A further boost to those with limited resources was the arrival of online trading in the late 1990s.
Those on lower salaries were able to start investing because the charges were so much lower than those offered by traditional office-based stockbrokers.
The advantage of online trading is that the low charges for execution-only deals empowered a huge number of people. Arguably the downside with DIY share investing is that traders are acting under their own steam with no advice from professionals.
While that can be a hindrance, investors looking to keep trading costs to a minimum at least have the opportunity these days to do their own research on companies and follow broker recommendations online. There is no shortage of information on the web and most company annual reports are free to download.
How to start investing
Before you invest any money, you need to do an appraisal of your financial health. If you have mounting debts, you should not be considering stock market investing as a way of bailing you out.
You should not be investing money you cannot afford to lose. Nor should you need to rely on selling your stocks if you need money quickly – you should have other savings put by for this.
What can you afford to invest?
Just because you have a modest salary it does not follow that you cannot build a sizeable share portfolio – over time. When considering how to invest in shares, it is a good idea to set a budget of what you can afford to invest in the stock market each month or every six months.
It is easy to get caught up in the get -rich-quick hype that often follows a particular investment theme – the tech bubble of the early noughties is a prime example. The temptation to pile in with everything you have got is sometimes too much to resist for novice investors – but it is usually better to drip feed your money into the market and live to fight another day.
It is better to learn from your mistakes when there is little money invested rather than after you have made a very bold opening gambit. If you lose 40% of the value of your shares shortly after investing a lump sum, you might be discouraged from ever investing again – especially if you decide to take a hit and cash it all in.
Whether you are buying shares individually or in collective funds (unit trusts, OEICs or investment trusts) the advantage of regular investments is that by putting money into the market over time means you don't buy when the price per share/unit may be high.
Regular savings are also flexible in that you can stop and start them when you like and increase and decrease the amounts you invest. Regular savings shares accounts are also a cost-effective way of getting started – with dealing charges as low as £1.50 per stock per month.
Terms for regular share dealing will vary between brokers but typically you could invest as little as £20 per month (with a minimum investment of £5 per stock). Not a huge amount admittedly but it is a start.
Even if you don’t choose to set up a regular savings account, online trading costs are by no means prohibitive.
Online brokers will charge different admin fees and dealing commission depending on whether you choose a standard dealing option or a frequent dealing option. For instance, you could expect to be charged between £5-£6 on a frequent trader account; while on a standard trading account, you might typically be charged between £8 and £12.50.