Stock market

Buying shares is a risky business. But if you get it right, you have an investment which provides both income (in the form of dividends) and growth (from the increase in the share price).

You can buy shares listed on any market in the world, but most investors buy shares on the main UK stock market, which are the companies listed on the London Stock Exchange.

Most investors limit themselves to the 800-plus companies which make up the FTSE All-Share index - but if they want the blue chip firms they go for the FTSE 100.

Buying shares

Shares are usually bought through a stockbroker - or you can buy them within a self-select ISA or self-invested personal pension (Sipp).

You will pay stamp duty of 0.5% when you buy, as well as a stockbroking commission which can vary from a few pounds to a lot more.

The broker’s fee depends on how much you’re investing and whether you're making your own investment decisions or relying on the help of a stockbroker to choose shares. The cheapest rates are for dealing on the internet.

If you buy shares, you own a tiny stake in the company issuing the shares.

Depending on how you hold the shares, you might be given a say on how the company is run by voting at the annual general meeting on resolutions.

In reality, however, small investors' votes carry very little weight - though you can attend the AGM and put the directors on the spot by asking questions.

However, if you hold your shares in an ISA, Sipp or in a nominee account with a stockbroker you probably don't have that right. Check if you think such rights are important to you.

Stock market performance

Don't buy shares unless you can afford to lose your money. There are no guarantees: A company could fail and its shares become worthless. Alternatively, it may be doing so badly that it can't afford to pay dividends - which you may be relying on to boost your income.

Investing in single shares is a high risk option. If you want exposure to shares with less risk, look at investment funds (unit and investment trusts or Oeics) instead.

However, there are ways of reducing risk when investing in shares. If you hold a number of different companies' shares in a portfolio, then you cut down the risk - if one company fails or underperforms, the others will hopefully make up for it (especially if they’re not in the same sector).

And shares in the largest FTSE 100 companies are going to be less risky than smaller concerns. That said, as the past few years have taught us, size is no guarantee of safety.

You can open a share dealing account at a bank (you don’t need to be a customer), a stock broker or an online share dealer.

Apart from share dealing you can also trade:

• Gilts - government bonds which can be traded on the stock market;
• CFDs - contracts for difference;
• ETFs - exchange traded funds;
• Alternatively, you can try spread betting.