Advice on How to Invest Efficiently

slick_detective

Hi all, Im just in need of a bit of advice, I am new to investing, and I want to buy my own shares in a few companies.

Now Im gonna start by investing £100 - £200 and I will probably invest another £100 every few months. So what I am wondering is whether it is best for me to just get an execution only normal account? Or do I get one with a stocks and shares ISA? Now I want to be able to spend my dividends, and I am thinking of having the option to sell my shares, incase of emergencies. Can I do this with an ISA? Or will it affect certain things?

Now ive trawled all through the internet and cant seem to find an answer im happy with. Would I be best with a normal account or an ISA? considering im not likely to be investing a lot of money, but what if my stocks rise sharply?

I am going to use X-O.co.uk as these are the cheapest, and I will only need a basic account as a beginner.

Any help or advice is much appreciated.

bowlhead99

Whether you really need an ISA depends on whether you're a high rate taxpayer and need to pay extra taxes on your dividends.

I'm guessing you're not, and with the amounts you're investing you're not going to be making capital gains if £11k in any one tax year to go over your annual capital gains allowance, so an ISA is probably not really worth paying extra for. However, if X-O or whatever other broker you use don't charge any extra for the ISA version of the account, you might as well have it as it saves keeping tax records if/when the amounts get bigger.

If you need to sell up and pull some of the cash out of the account, with the amounts you're talking about, it will not be an issue as you can contribute £15k to an ISA in any one tax year so putting £200 in here and £100 out there all year long is not going to take you over the limit. Just be careful that if you have an ISA account and entirely empty it, some brokers might charge you an ISA closure fee because they have to make money to pay for the HMRC paperwork from somewhere.

Having said all that, buying shares for £100 is a bit of a nonsense. If you buy £100 of shares you pay 50p stamp duty and £6 or so dealing fee. So it's cost you £106.5. Immediately if you wanted to sell, you might only get say £96-99 for the shares because there's a spread between buying and selling prices. Then on the £96 you pay the £6 selling fee and you net £90. So, if the share price stays flat you've £16.50 which is 15.5% of your £106.50.

In that scenario youc can see you would need the shares to go up by a lot (about as much as the average share goes up in two years, in the long term) just to come out even.

Also you say you want to spend your dividends? Some shares pay 0% some may pay 5% if you're lucky. The average growth stock is going to be 2% or less. Are you really so tight and short of cash that you need to take out the £2 you earn in a year on your £100 investment, to go and buy half a pint of beer or perhaps some toilet roll or toothpaste? Rather than investing it along with the new money you're adding every so often? If so I would seriously reconsider whether you can afford to invest the £100.

slick_detective

So if I just continued to add to it, which I most probably will, maybe I'll buy chunks of £200 in one go, so as to save on the fees. Also how would I go about reinvesting the dividends in the stock? I assume the brokers just credit it into my ISA? and I then just reinvest with my next chunk of £200? Also I am right in assuming that I cant lose any more money than what I put in? Say a company gets into lots of debt and goes bust, will their creditors come knocking on my door?

bowlhead99

Yes, if you earn some dividends and end up with a spare fiver in your ISA account you can just invest £205 in your next share purchase (less fees on the purchase is ~£199 actually free to buy shares).

If you were definitely going to invest £100 or £200 a month there are some brokers (e.g. Youinvest, TD Direct, Halifax and others) that let you combine your orders with their other customers for some major shares and they buy for you at a reduced dealing fee of say £1.50 a time. However this only works for major shares and you have no control what day or time of month to buy, you just feed them a direct debit. And you still pay full price to sell. If you're only investing every so often it's not so neat but it would work for some people who are just buying and holding.

You're right on the other point. Whether you invest in a single company or an investment trust which owns lots of companies, you'll be investing into a PLC: a public limited company which means the shareholders liability is limited to the capital they've invested. If the company does all kinds of bad things or goes bust, the company and its directors who the shareholders appointed might get sued by everyone under the sun, but what you invested to buy the shares can't ever be worth less than nothing.

slick_detective

Thank you so much bowlhead99 for all your help and knowledge!

I think I will start off just investing £200 to start and then seeing how much I can afford to put in each month, and I will hopefully build a decent amount up after a few months, and also have fun picking my own stocks in the process!

puk999

slick_detective wrote: »

Hi all, Im just in need of a bit of advice, I am new to investing, and I want to buy my own shares in a few companies.

Have you considered investing in funds? Internally, the fund will contain shares in tens or hundreds of companies. This reduces the specific risk when a particular company has severe problems (e.g. oil spill, unsuccessful patent application, liquidation) because the other companies will be unaffected.

I believe your dealing costs will be far lower than purchasing shares especially if you're making regular contributions. When investing in funds (typically, though it depends on the platform provider) the dealing charge will be £0.