Last Updated on May 6, 2026
A beginner’s guide to shares, funds and online platforms
If you are wondering how to start investing online but are unsure where to begin, you are in the right place. This beginner’s guide to shares, funds and online platforms covers the essentials that a novice needs to know about investing in the UK stock market. Investing does carry risk, but done well and with a long-term view, it can deliver returns that outpace inflation and grow your wealth in ways a standard savings account cannot. When you invest in the stock market, you buy shares in a company, becoming a shareholder and part-owner of that business. Your return comes in two forms: dividends, which are your share of the company’s profits, and capital growth, which is the increase in the value of your shares over time.
Before making your first investment, you should have an emergency savings fund and a stocks and shares ISA, to shelter your returns from tax. You need to understand the difference between direct and passive investing, why a diversified portfolio is key to managing risk, and how pound cost averaging protects you from market fluctuations. This article also covers the power of reinvesting dividends, how to calculate your return on investment, and provides a comparison of some of the UK online investment platforms to help you choose the right one for your investing goals.
Why you need to invest for the long-term
Investing in the stock market carries risk as share prices can go up or down, and investing for the long-term helps mitigate against this risk. As a rule of thumb, you should have a minimum investment time frame of 5 years. Long-term investing also lets you benefit from compounding returns, which can significantly grow your wealth over time.
Why you need an emergency fund before you invest
You should have an emergency fund in a savings account to cover at least 3 to 6 months of your expenses. Having an emergency fund means you won’t need to withdraw money from your investments if you suddenly have an unexpected expense, like needing to buy a new washing machine. You should only invest money that you do not need in the foreseeable future. Investing is a long-term commitment, and suddenly finding that you need to sell part of your investment to access cash could result in you losing money.
Why you should invest using a Stocks and Shares ISA
Investing through a tax-free wrapper of a stocks and shares ISA lets you invest up to £20,000 a year tax-free. Investing using an ISA means that dividend income and capital growth on your investments are tax-free. If you invest outside of an ISA, you may be subject to dividend and capital gains tax. Many online investment platforms offer stocks and shares ISAs, traditional trading accounts and SIPPs (pensions). If you invest using a regular trading account, dividend income over £500 a year and capital gains over £3,000 a year may be taxable depending on your personal circumstances.
Where and what should I invest in?
In the UK, stocks and shares of publicly listed companies are traded on the London Stock Exchange (LSE). There are various asset and investment options available, such as shares, bonds, property, investment funds, gold, and commodities. Individuals can trade and invest via online trading platforms for a modest fee, thanks to the deregulation of the stock market in 1986, which opened up electronic trading. Online investment platforms allow individuals to invest worldwide, offering a vast range of investment opportunities.
Investment strategies
How you choose to invest will depend in part on your risk appetite and the time you are willing and able to spend researching investment opportunities. Passive or indirect investing is when you opt to invest in stock market funds, which in turn invest in several companies, often across a range of industries, which is a diversified investment. Direct or active investing is when you invest directly in a company, buying some of its shares.
Direct investing
If you have an appetite for direct investing, this requires a time commitment, as you will need to research and perform an analysis of the companies you are looking to invest in. This includes assessing the company’s current and historical performance, considering its future income and growth expectations, and ultimately deciding whether the share price is fair.
Indirect or passive investing in funds
There are numerous fund options available for those wanting to invest indirectly. Managed funds are actively managed by a fund manager and tend to have higher fees, of around 0.5% to 1%. Tracker funds and index funds are passive funds that follow stock market indices and typically have lower fees of around 0.1%. ETFs (Exchange Traded Funds) work in a similar way but are traded on the stock exchange throughout the day like individual shares, offering more flexibility.
Stock market indices consist of many publicly listed companies and are used as a benchmark to compare the performance of funds. The FTSE 100, which consists of the biggest 100 companies in the UK, is a renowned index. An actively managed fund is compared against its benchmark to determine how well it has performed, with the aim of beating it. Passive funds such as trackers and ETFs simply aim to match the index.
Why is investment diversification important?
Having a diversified investment portfolio is essential to mitigate the inherent risk of investing. What does investment diversification mean? Simply put, it means not having all your eggs in one basket or in investment terms, not investing all your money in one company. If you are investing directly in shares, make sure you invest in a variety of companies across different industries and geographical regions. When you invest in stock market funds, the funds will already have a level of diversification, which you can improve by investing in several diverse types of funds.
To add more diversification, consider a mix of direct and indirect investing and a mix of asset types, including bonds, REITS, commodities and precious metals, such as gold. Investment funds often include a mix of shares and bonds. Bonds are loans to companies or governments that pay a fixed interest rate and repay the capital after a fixed period. They are considered less risky than shares, although a company could default in repaying the loan. Gilts or government bonds are considered safer investments as the UK government has not yet defaulted on a bond.
What is pound cost averaging?
Pound or dollar cost averaging is another method to mitigate investment risk by averaging the price you pay for investments. Quite simply, it means drip-feeding your money into the stock market rather than making one or more large purchases. Setting up a direct debit and investing monthly reduces your risk of share price fluctuations. With pound cost averaging, some shares are purchased when the share price is high and others when the price is low, averaging out to a mid-range share price.
How to choose an online investment platform
There are numerous online investment platforms to choose from in the UK. The right one for you will depend on your investment strategy, how hands-on you want to be and the fees. Just a small percentage extra in fees can have a massive impact on the long-term value of your investment. You will usually pay a platform fee plus trading transaction fees. If you invest in funds, the funds will have their own fees, in addition to the platform fees. Fund fees are usually deducted directly from the funds. Platform fees can be paid via a monthly direct debit or deducted from cash balances held within your investment portfolio.
When comparing platforms, look at:
- Platform fee – usually a percentage of your portfolio or a flat monthly fee
- Trading fees – charged each time you buy or sell
- Fund fees – charged by the fund itself, on top of platform fees
- Account types – does the platform offer a stocks and shares ISA?
- Investment range – funds only, or can you also buy individual shares?
- Foreign exchange fees – charged when you invest in stocks and shares (you cannot hold foreign currency within an ISA)
Here is a brief comparison of some of the popular UK platforms offering ISAs suitable for beginners:
Vanguard is great for investors who want a simple, low-cost approach using index funds and ETFs. Vanguard only offers its own funds, and the fee is capped at £375 per year, making it very cost-effective for larger portfolios. They offer a stocks and shares ISA and SIPP (personal pension). For a portfolio of less than £32,000 the monthly fee is £4 (£48 a year).
Vanguard Asset Management | Personal Investing in the UK
Interactive Investor (ii) A good choice if you want to invest in both funds and individual shares. Interactive Investor charges a flat monthly fee rather than a percentage, which works out well as your portfolio grows. Plans start from £5.99 per month for stocks and shares ISAs, with foreign exchange fees of 0.75%. They also offer SIPPs plus one free trade a month on higher plans, while regular investing is free.
Stocks and Shares ISA | Investment ISA 2024-25 – ii
Hargreaves Lansdown (HL) is the UK’s largest investment platform and a popular choice for beginners. The platform fee is 0.35% per year on portfolios up to £250,000 (capped at £12.50 per month). Share trading fees start at £6.95 per trade but reduce with volume, while fund fees are £1.95. There is no charge for regular monthly investing.
Stocks and Shares ISA | 2026-2027 Investment ISA | HL
Trading 212 is a good option for cost-conscious beginners. Trading 212 offers a stocks and shares ISA that doesn’t charge commission on trades or a platform fee. It does charge a small exchange rate fee when you invest in foreign shares (0.15%). It also allows fractional shares, meaning you can invest small amounts in expensive stocks. The fund range is more limited than some rivals.
Stocks ISA with zero account fees | Trading 212
A couple of other options are Freetrade and AJ Bell.
Robo investment advisors
A newer option worth mentioning is robo-advisors such as J.P. Morgan Personal Investing (formerly Nutmeg) or Moneyfarm. These are fully managed services where you answer a few questions about your goals and risk appetite, and the platform builds and manages a portfolio on your behalf, typically using low-cost ETFs. They charge a slightly higher management fee, usually around 0.25–0.75% per year, but require no investment knowledge or decision-making on your part. They are a good option if you want to invest but prefer a hands-off approach.
Once you have chosen a platform and started building your portfolio, keeping track of your investments is important. Our free investment tracker spreadsheet lets you track the investment and dividend returns for five investments.
Compounding your dividends
It would be remiss not to mention the impact of reinvesting dividends that you earn, as opposed to taking them as cash. Some funds automatically reinvest the dividends, buying additional shares with the dividend income. You may need to ask your investment platform to reinvest dividends, and most providers offer this service for a modest fee.
By reinvesting dividends, you benefit from the magic of compounding returns. For every new share purchased with dividend income, not only does this increase the number of shares you own, but it also increases the amount of dividends you receive over time. This increases the value of your investments exponentially over time, highlighting the benefit of long-term investing and compounding returns.
Return on investment (ROI)
It is important to monitor your investments regularly to ensure they are performing well and providing a good return. Return on investment is the increase or appreciation of your investment. This is best illustrated by an example:
You buy shares for £250 and earn £5 in dividends during the year. At the end of the year, your shares are worth £275. Your total ROI for the year is:
Investment growth = £275 – £250 = £25, and dividend income is £5. Your total return is the investment growth plus dividend, i.e. £25 + £5 = £30. Divide £30 by your initial investment of £250 to calculate your total ROI, which is £30/£250 = 12%.
To calculate the real return, you need to deduct the rate of inflation. If inflation is 5% in this example, the real rate of return is 7%.
MQ’s return on investment calculator
Alternatively, use our ROI calculator to see how well your investments have performed.
Some other investing terms
Bull market: a market where share prices are rising over a sustained period.
Bear market: a market where share prices are dropping or are flat.
The tax implications of investing outside an ISA
Investing in the stock market outside of an ISA may result in your capital growth and dividends being taxable. There is a tax-free dividend allowance of £500 per annum. This means any dividends you receive of £500 or less in the current tax year aren’t subject to tax. Dividends above the allowance are taxable at 8.75% for basic-rate taxpayers (income up to £50,270). For higher-rate taxpayers, this rate increases to 33.75%, while additional-rate taxpayers pay 39.35% tax.
When you sell shares, you may be liable for capital gains tax on any capital growth of the investment. There is currently an annual personal capital gains allowance of £3,000. Capital gains on investments above the allowance are taxed at 18% for basic rate taxpayers. This increases to 24% for higher-rate taxpayers. You can avoid these taxes by investing in a stocks and shares ISA.
In conclusion
Investing is one of the most effective ways to build long-term wealth, but like any skill, it starts with taking that first step. The concepts covered in this guide — diversification, pound cost averaging, choosing the right platform, and reinvesting your dividends — are the building blocks of a solid investment strategy. Start small if you need to, invest regularly, keep your costs low, and take a long-term view. Once you are up and running, staying on top of your portfolio does not need to be complicated. Our free investment tracker spreadsheet lets you log every transaction, monitor your holdings, track your dividend income, and calculate your return on investment for five investments — all in one place. Happy investing!
Other resources:
These books about investing are well worth a read:
- How to Own the World – Andrew Craig
- Own It – Iona Bain