How to buy shares

Why buy shares?

One of the most obvious ways to invest your money is to buy shares in individual companies.

They form the asset class known as 'equities' and, historically, they have outperformed safer investments such as cash deposits and government and corporate bonds. Over the long term, shares can grow your portfolio significantly.

However, with this potential reward comes greater risk. Investing in shares exposes you to the potential to lose some, or all, of your money.

Please note: the content contained in this article is for information purposes only and does not constitute financial or investment advice.

What are stocks and shares?

Shares are issued by companies as a means of raising money. Essentially, companies are selling part of their business to investors, and shares offer people outside the company the opportunity to receive profits if the company is successful.

The words stocks and shares are generally used interchangeably, though shares are units of a company's stock.

As a shareholder, you become a part-owner of the company, which gives you certain voting rights and additional benefits beyond the receipt of your share of the profits. However, private investors have relatively little say in how the company is run compared to institutional shareholders such as pension funds.

There are two types of company shares you can buy:

How can you invest in stocks?

Many companies opt to have their shares listed on a stock exchange, for example the London Stock Exchange (LSE). This ensures that there is a ready-made market to trade shares.

Smaller companies are often unlisted, but hundreds are traded on the Alternative Investment Market (AIM). These companies are generally seen to be more risky investments than those companies listed on the main market.

The cheapest way to buy shares is through an investment platform (sometimes referred to as fund supermarket).

These predominantly online services offer share trading as well as funds, bonds and more.

• Find out more: Best stocks and shares Isas 2025  

How much does share trading cost?

Don't just think about the cost of the share itself: the extra charges involved with share trading can eat away your returns.

The main charges to look out for include:

• Platform fees: each platform charges a fee for the use of its services, this can be a flat fee or a percentage of your returns
• Trading fees: paid each time you buy or sell a share, these costs also vary by platform
• Stamp duty: trades of shares in the UK are usually liable for stamp duty at 0.5%

You can find out what fees are charged by each investment platform in our platform reviews and compare investment platform fees and charges. 

What kind of returns can you get from shares?

The return from shares comes in two forms: dividends and capital growth.

Dividends

Dividend payments are the distribution of the profits that the company has made, usually paid out twice a year.

You're more likely to receive dividends from larger, long-established companies - and the more profitable the company is, the larger the dividend pay-out could be.

Smaller companies are less likely to pay out a dividend, as they reinvest their profits to grow their business. However, if a smaller company does manage to successfully expand, the value of your shares could expand (see below) and provide opportunity for dividends at a later date.

Dividends are not guaranteed. Even regular dividend-paying firms may cut or suspend dividend payments in extraordinary circumstances, as happened during the early days of the Covid-19 pandemic.

Capital growth

You can make a profit if you sell your shares for a higher price than what you bought them for – this provides you with capital growth.

The price of your shares is affected by both internal and external factors.

Companies publish their financial results every six months, as well as trading updates and announcements of dividend distributions for the future. 

If the company is performing well and is expected to do so in the future, this should have a positive effect on the share price. Conversely, if the prospects aren't looking good, the share price can fall.

• Find out more: How to invest: a beginner's guide 

How risky is investing in shares?

Investing in shares carries risk – so you could lose some or all of the money you put in.

Individual shares are among the riskiest things you can invest in, as stock markets – especially less established markets – can be volatile.

Economic conditions

The wider economy is influential on the share prices. If economic conditions are good and investors have confidence in companies' ability to grow, the demand for shares increases. 

This market sentiment and investor demand for shares can increase the price. If demand outweighs supply, share prices will go up.

Of course, if the economic climate is not good, investors may not be so confident in a company's prospects. Therefore, the share price can fall, even if the company is performing well.

Spreading investments

When investing in shares it's important to diversify your portfolio, meaning you don't invest everything in just a few companies.

The more you spread your investments across different shares, as well as different asset types, the less vulnerable you'll be to specific company failings or even poor economic conditions.

Tax on shares

You will be taxed on any returns you make as a shareholder, either through dividends or when you decide to cash in on capital growth by selling your shares. Use our dividend tax calculator to find out how much you'll pay.

One popular way to invest in shares tax-efficiently is to buy within a stocks and shares Isa, junior Isa, or lifetime Isa.

You won't have to pay dividend tax or capital gains tax on investments held within an Isa.

Withholding tax

This is a tax levied by an overseas government on dividends or income received by non-residents. For example, the US Government charges 30% on any income received from US investments for non-residents.

The UK government has 'double taxation agreements' in place with many countries to reduce the amount of tax paid by UK residents.

It may be possible for investors to reclaim all or part of the withholding tax paid. You will need to contact the relevant tax authorities to determine their requirements.

• Find out more: Tackle your 2024-25 tax return with the tax calculator service from GoSimpleTax

Are there any alternatives to shares?

If you're looking to gain exposure to equities in your portfolio, but don't want to pick individual shares then an investment fund or investment trust could be a more efficient approach.

Funds can include thousands of companies, diversifying your holdings and reducing the impact of market downturns. It's possible to get funds that screen out companies on environmental or ethical grounds.

You will have to pay a fee, although these can be very low for tracker funds.

Investing through a fund also means you'll be reliant on the fund manager to act in your interest in voting matters.

• Find out more: Investment funds explained