How to Invest in the Stock Market in the United Kingdom?

What is stock market investing?

Investing in the stock market involves buying financial securities – mainly stocks or bonds – with the aim of making a profit in the medium or long term. These securities are traded on the financial markets, where buyers and sellers meet.

Investing in the stock market allows you to become a shareholder in a company (through shares) or a creditor (through bonds). In return, the investor can receive income (dividends or interest) and hope for a capital gain when reselling the securities. This type of investment is therefore a way to grow your savings by taking advantage of the development of companies and the economy.

Unlike speculation, which is based on short-term operations that are often riskier, stock market investment is part of a long-term approach. It requires a good understanding of how the markets work, accepting a share of risk and diversifying investments to limit exposure to losses.

What are the different accounts for investing in the Stock Market in the United Kingdom?

To invest in the stock market, you need a dedicated account that will hold your financial assets (such as shares, bonds, ETFs) and serve as the platform for your transactions. In the United Kingdom, several types of investment accounts are available, each offering different tax treatments, limits, and investment goals:

Here’s an updated comparative table, including an "Investor Profile" column to help you choose the account best suited to your objectives and experience level:

Once you have opened your investment account, you must select a financial intermediary to execute your trades. Here are the main options:

• A financial advisor: Provides personalised investment advice, wealth management strategies, and human interaction for investors seeking tailored guidance.
• An online broker: Ideal for self-directed investors who want access to a wide variety of UK and international markets with competitive fees. Popular brokers include Hargreaves Lansdown, AJ Bell, and Interactive Investor.
• A robo-advisor: Offers automated portfolio management based on your risk profile, often with low minimum investment requirements (e.g., Nutmeg, Moneyfarm).
• A CFD broker: Suitable for active and experienced traders interested in short-term leveraged trading on markets such as forex, indices, and commodities (e.g., IG, CMC Markets).

What to invest in on the Stock Market?

The Stock Market offers a wide range of financial products allowing you to diversify your portfolio according to your objectives, your risk appetite and your investment horizon. Here are the main types of assets in which it is possible to invest:

Stocks Trading

Stocks represent a share of a company's capital. By buying a stock, you become a shareholder and can receive dividends (a share of the profits) and hope for a capital gain on resale if the price increases. Stocks are investments with high potential returns, but also high risk, as their value depends on many factors (company results, economic situation, geopolitics, etc.).

The best stocks to invest in on the Stock Exchange depend on your goals and investment style. Thus, you will not invest in the same stocks whether you are looking for a regular return or a significant capital gain.

• For a steady return : focus on the most stable shares such as Astrazeneca, Total or McDonald's.
• For significant capital gains potential : focus on growth stocks such as Tesla, NVidia, Apple or Airbus.

Our opinion

Stocks are suitable for investors willing to accept market volatility in exchange for the prospect of higher long-term gains. Sectoral and geographical diversification is essential to limit risk.

ETF (trackers)

ETFs (Exchange Traded Funds) are index funds listed on the Stock Exchange. They replicate the performance of an index (such as the FTSE 100, the S&P 500 or the MSCI World) by investing in all the securities that compose it. ETFs are traded like stocks, in real time, and allow for broad diversification at a lower cost.

Our opinion

ETFs are particularly suited to beginner or intermediate investors wishing to easily gain exposure to a market or sector without having to choose each individual stock. It is an excellent tool for long-term passive management.

Unit Trusts

FCPs are collective investments actively managed by professionals. They pool the savings of several investors to build a diversified portfolio, according to a defined strategy (equities, bonds, mixed, thematic, geographic...). Unlike ETFs, they are valued once a day, and their fees are generally higher.

Our opinion

Unit Trusts are for investors who prefer to delegate the management of their portfolio to experts. They are well suited to those who wish to benefit from a structured management framework, at the cost of a return often lower than ETFs, due to fees.

Obligations

Bonds are debt securities issued by governments or companies. By buying a bond, you lend money to the issuer, who undertakes to repay you at maturity, with the payment of regular interest (coupon). Bonds are generally less risky than stocks, but offer a more moderate return.

Our opinion

Bonds are an essential component of a balanced portfolio, especially for cautious investors or those nearing retirement. They help stabilise overall performance and ensure regular income.

How to invest in the stock market when you are a beginner?

More and more young people are getting into stock market investing today, but there's no age limit to start in this field. However, as a beginner investor, it's necessary to take a few precautions before getting started.

• The simplest solution is to entrust the management of your investments to a third party whose profession it is, such as a financial advisor, or to software specially developed for this purpose, such as a robo-advisor.
• It is also possible to make your own investments on the stock market, but in this case, it is preferable to take the time to train yourself and take an interest in how the markets work before you start investing your money.
• Since an investor does not become profitable overnight, it is also preferable not to invest money on the stock market that you may need to live on or to cope with unforeseen expenses.
• Similarly, it is necessary to put in place a precise investment strategy and ideally over the long term by setting achievable goals and taking risk into account.

When to Invest in the Stock Market?

While it's possible to make investments in the stock market at any time, it's necessary to identify good opportunities before buying stocks. To know if it's the right time to buy one or more shares on the stock market, you should ask yourself these simple questions:

• What is the current economic situation? Is there growth, or are we in a period of crisis?
• What level of risk are you willing to take? An investor with a high-risk appetite will frequently find interesting opportunities in the stock markets, while a cautious investor will prefer to wait to invest.
• What is a listed stock really worth? The intrinsic value of companies listed on the stock exchange must be defined in order to know if it is the right time to acquire their shares.
• When does the company pay its dividends? Finally, if you have opted for a yield strategy with shares that pay a dividend, you must hold these shares no later than the day before the ex-dividend date.

Why Invest in the Stock Market?

Investing in the stock market offers numerous advantages for growing your wealth, protecting your capital against inflation, and diversifying your income streams. Here are the main reasons to invest in the financial markets:

• Grow your savings over the long term: Historically, stock markets have generated attractive returns over several decades. Regular, long-term investment allows you to benefit from the growth of companies and the economy.
• Protect your capital against inflation: Uninvested savings lose value over time. By aiming for a return higher than inflation, the stock market makes it possible to maintain, or even increase, the purchasing power of your capital.
• Generate passive income: Some stocks pay regular dividends. Bonds pay coupons, offering a stable income to the investor.
• Diversify your assets: The stock market allows you to complement property investments or secured savings products.
• Good diversification reduces exposure to a single type of asset or risk.
• Easily access global markets: With online brokers and ETFs, it is possible to invest in thousands of companies around the world. This allows you to position yourself in different sectors, geographic areas and levels of economic development.

Good to know

The Stock Market is a powerful tool for investors ready to adopt a long-term vision. Well managed, a stock portfolio can become a lever for sustainable growth and a pillar of your wealth strategy.

Which broker to choose to invest in the Stock Market in the United Kingdom?

To invest in the stock market, it is essential to go through an approved financial intermediary, called a broker. They transmit your buy and sell orders to the markets. The choice of broker directly influences your investment experience, the fees you pay, the products available, and the tools at your disposal.

Here are the main categories of brokers available in the United Kingdom, with their characteristics:

Expert's opinion:

• An independent investor looking to diversify at a lower cost will favour an online broker.
• An active trader will opt for a CFD broker, being aware of the risks.
• A beginner or long-term saver will prefer automated management with a robo-advisor.
• Finally, a cautious profile or one attached to their bank will use a bank broker, despite higher fees.

How Much Money Do You Need to Invest in the Stock Market?

The amount of money needed to invest in the stock market will depend on various factors, especially your personal financial situation. Here are the rules to follow if you want to get started:

• Investing a portion of your savings in the stock market: it is important not to put all of your savings into your stock market investments. You must keep part of your savings to use if needed. Ideally, if you can, keep 20% of your capital in a secure investment or a classic savings vehicle and invest 80% in the stock market.
• Investing in the stock market with a small budget: it is entirely possible to invest in the stock market with a small budget. It is not necessary to have a large capital to start building a stock portfolio. £500 to £1,000 will be enough to create the basics of it, and you can then reinvest your income from dividends or capital gains to buy new securities.
• Don't put all your eggs in one basket: while the stock market is attractive in terms of returns and investment, it is necessary to properly distribute the money you invest in the stock market, ensuring that your portfolio is diversified. For example, you can invest part of it in stocks, another part in one or more funds, and another part in bonds.

Investing in the Stock Market with a Small Budget: Our Tips

If you are a beginner investor and want to invest small amounts in the stock market, you have two solutions:

• Invest your current savings: this is possible from £500
• Invest a small amount each month : you can also freely make payments to your stock market investment accounts, such as a securities account, in order to gradually fund it.

What is the taxation on income from stock market investments in the United Kingdom?

Income generated from stock market investments — capital gains, dividends, and interest — is subject to taxation in the UK. However, the British tax system offers several allowances and exemptions that investors can benefit from. Here’s an overview of the applicable tax rules depending on the type of account and the nature of the income:

1. Capital Gains Tax (CGT) and Dividend Taxation

In the UK:

• Capital gains (from the sale of shares, ETFs, etc.) are subject to Capital Gains Tax (CGT) if they exceed the annual CGT allowance (£3,000 for the 2024/25 tax year).
• Dividends are taxed after applying the dividend allowance (£500 for the 2024/25 tax year).

Tax rates for individuals:

• Capital Gains:
• 10% for basic rate taxpayers
• 20% for higher and additional rate taxpayers
• Dividends:
• 8.75% for basic rate taxpayers
• 33.75% for higher rate taxpayers
• 39.35% for additional rate taxpayers

Note

Gains and dividends held within a Stocks and Shares ISA or SIPP are generally tax-free

.

2. Taxation by Account Type

3. Treatment of Losses

If you incur a capital loss:

• It can be offset against capital gains made in the same tax year.
• If not fully used, it can be carried forward indefinitely to offset against future gains, provided the loss is reported to HMRC.

4. Special Case: Dividends

• Dividends from UK companies are subject to the dividend allowance (£500).
• Dividends above this threshold are taxed according to your marginal income tax band.
• Foreign dividends are also taxable but may allow foreign tax credits under double taxation agreements.

Example

If you earn £1,500 in dividends, the first £500 is tax-free, and the remaining £1,000 is taxed at your applicable dividend tax rate.

Our 5 Tips for Investing Wisely in the Stock Market

Now that you know the basic rules of investing in the stock market, here are five simple tips to follow to quickly become a profitable investor:

• Set achievable goals: every self-respecting investor should set financial goals for their various investments. These goals will depend on the purpose of the investment. Is it to prepare for retirement, finance a purchase or a specific project? A motivating goal will be an engine that allows you to devote yourself to your investment with passion.
• Learn about the stock markets: a good knowledge of the stock markets and how they work is essential if you want to make profitable investments. So take some time each week to inform and train yourself. There are many online training modules that allow you to learn analysis methods and you can also consult targeted financial news feeds.
• Prefer a long-term investment horizon: unless you are an expert in the financial markets and want to speculate in the short term in order to generate maximum profits in a short time, it is more prudent to invest with a long investment horizon. Speculation involves many risks that you can avoid with progressive investment.
• Know your risk tolerance: you must define as precisely as possible the level of losses and variability of your capital that you are prepared to bear. Remember here that the higher the potential return of an asset or market, the higher its level of risk will be. A strong aversion to risk should guide you towards the least risky instruments such as bonds or certain secured funds. If you have a high tolerance for risk, you can try riskier investments such as shares or cryptocurrencies.
• Don't let your emotions take over: finally, investing in the stock market is an activity that can generate all sorts of emotions such as stress, enthusiasm or fear. A good investor must not let these feelings make them make bad decisions and must always keep their initial strategy in mind and stick to it.

Looking to invest in the stock market independently? Join a quality online broker without delay and start placing your orders on the market.

All our guides on stock market investing

P. Laurore

Finance expert

Co-founder of HelloSafe and holder of a Master's degree in finance, Pauline has recognised expertise in personal finance, which she uses to help users better understand and optimise their financial choices. At HelloSafe, Pauline plays a key role in designing clear, educational content on savings, investments and personal finance. Passionate about financial education, Pauline strives, with every piece of content she oversees, to provide reliable, transparent and unbiased information for independent and informed financial management. To this end, she has tested over 100 trading platforms to help internet users make the right choices.