How to Invest

Investors – especially those starting out – have a choice of going it alone, taking guidance from an independent financial adviser (IFA) or seeking out a broker. There is a wealth of information on the web if you have the patience to do the research. If you're taking professional advice, you'll have to pay for this service, but the cost may be worth it in the long run.  

Currently, an independent adviser will offer you the choice of paying a fee, which must be agreed in advance, or by commission.  However, the Retail Distribution Review (RDR), which comes in on 31 December 2012, is changing this system so that IFAs must draw up a clear pricing structure for their advice and services. They will also only be allowed to charge upfront fees.

The golden rule is always to do your homework before parting with your money. If you go down the advised route check whether a financial advisor is tied, multi-tied or independent. A tied advisor is only contracted to sell you products from a single provider, while a multi-tied advisor will sell you products from a specific range of financial companies. Tied and multi-tied advisers do not have to offer a fee option. An independent advisor is whole-of-market and is able to sell you products from all providers.

If you can forgo the advice of an IFA and make your own decisions about where to invest, online fund supermarkets and discount brokers are a canny way to reduce your investing costs when buying funds.  Never buy funds directly from the investment house – they all charge upfront fees of around 5% and annual management charges of around 1%  – 2%.  Fund supermarkets and discount brokers reduce the initial charge for buying the fund – sometimes down to zero – and may hand back some of the ongoing annual charge as well.

Comparisons between fund costs are not straight forward. Some refund all the annual fund fees in return for a small flat fee. Others have different charges once you branch out into tracker funds and exchange traded funds (ETFs). 

Companies worth looking at include Hargreaves Lansdown, Fidelity FundsNetwork, Alliance Trust, Bestinvest, Chelsea Financial Services and Commfreefunds.com. But it's not all about costs - also consider the services they offer. Some will provide share buying and overseas stock markets, and the quality and range of their fund guides and investment research make these companies very helpful resources.

With many funds, you can start investing from as little as £25 a month. It's a good idea to set up regular payments into your chosen fund as this will smooth out the ups and downs as the price changes.

Investors with strong stomachs can go it alone completely and buy shares on an individual basis but they must be confident, disciplined and prepared to do their research. They can buy and sell shares through an "execution-only" stockbroker, now a relatively easy process thanks to the internet, and the stockbroker will take a relatively low cut from your transactions.  High street banks and building societies also offer low-cost, online share dealing.

Alternatively, you can join an investment club, or even form one yourself. Get together with some like-minded people, research possible investments and pool money together to invest in shares.