How to invest in a stocks and shares Isa

Ed Bowsher runs through the nuts and bolts of opening a stocks and shares Isa, and gives you some investment ideas to consider.

Ed Bowsher runs through the nuts and bolts of opening a stocks and shares Isa, and gives you some investment ideas to consider.

Dont forget, a stocks and shares Isa protects you from paying capital gains tax (CGT), and you dont even have to tell the tax man you have the account.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.


the Isa Revolution 2014

So now you've made that decision, you want to know how you're actually going to make that investment. What are the nuts and bolts? Well, the first step is to pick your investment platform. These platforms are sometimes named as fund supermarkets and that's a really good description because basically an investment platform is a shop where you can invest your money in a wide range of different possible investments. Fund supermarkets are slightly misleading though, because it's not just funds you can invest in. You can also invest in investment trusts and in individual shares.

Advertisement - Article continues below

So, the great thing about investment platforms is that they give you all this choice. The charges are cheap, you can manage your investments online and the platform does all the boring admin for you. The dividends - if you get any dividends - are paid straight in to your online platform account. The best known investment platform is probably Hargreaves Lansdown. It's definitely the biggest player in the UK market and it offers good customer service, a really nice website and it's got a very strong brand.

The trouble with Hargreaves Lansdown is the platform charges you'll be paying are higher than pretty much all of the company's rivals. So, you may want to go elsewhere and pick a platform that's cheaper. Now sadly I can't just recommend one platform for everyone. It depends on your circumstances, how much money you're going invest, are you going to invest in funds, in shares, or a combination of the two. Depending on your approach different platforms will work best.

If you want to research all the leading platforms, check out our online brokers cost comparison table and you should get a feel for all the top guys.

Having said that, I know that you probably just want me to give a couple of names. So, here are two names of good reputable platforms. One is Charles Stanley, another one is AJ Bell You Invest. The charges are low on both platforms and they're run by reputable companies, so you should get a decent service.

So, we've not chosen the platform. The next step is how you're actually going to invest. What kind of stocks and shares are you going to buy?

The classic thing to do - the easiest thing to do if you like - is to put your money into an index tracker fund. These are funds that track a particular index. So, if you put your money in a FTSE 100 tracker index, you would effectively buy in shares in all of the hundred largest companies on the London stock market.

Advertisement - Article continues below

Then if the FTSE 100 goes up by 10%, your index tracker fund should go up by roughly 10% too. One of the best UK index trackers is the HSBC FTSE All Share Index. It's got an annual charge of 0.17% - nice and low. With this fund, you won't be invested in just the hundred largest companies on the London stock market, it'll be more like 600 companies. So, as that index goes up, your investment should go up too.

Just to be clear though, you won't just pay the 0.17% charge, you'll also pay a charge to the platform, whether Hargreaves Lansdown, Charles Stanley or whoever. The platform charges typically will be between 0.25% and 0.45%, but it does vary depending what you're investing in.

Now, this fund isn't the only cheap way to invest in the UK stock market. You could also go for an ETF an exchange traded fund.These are very similar to the ordinary investment funds, but then also a bit like a share that traded on the stock market so it's really easy to buy and sell.

There's one really cheap UK ETF which just tracks the FTSE 100. It's the Vanguard FTSE 100 UCITS ETF - its charges are even lower than the HSBC index tracker. It's just 0.1% a year. Having said all that, both of the funds I've just recommended are great.

But it's probably a mistake to put all of your money in the UK stock market. You need to get more global diversification. You can do that with the Fidelity World Index Trust. It's an index tracker which tracks companies in all of the leading stock markets around the world including the UK and you'll be paying a 0.3% charge for that fund.

Now, just to be clear, there's loads of other index tracker funds out there. There's loads of other ETF's out there that operate a passive investment policy, ie they're just following particular stock market indices.

Advertisement - Article continues below

You can also invest in actively-managed funds where you've got fund managers who are picking the investments for you. I haven't got time to recommend any funds right now, but there's loads of information about all the best actively managed funds on the Citywire website.

Then, of course, you could decide just to pick individual stocks yourself. That's what I do for a lot of my money, and it's a great way to try and really deliver strong performance if you get it right. I haven't got time to highlight any individual shares today, but if you start reading Money Week magazineand you keep reading it for a couple of months every week, you'll soon start to pick up some nice stock ideas for your portfolio.

So, that's a really quick overview of getting a stocks and shares Isa. The really important part is to get on the platform and click on the Isa button. That'll tell you how to do the basic process of logging on and then you're ready to get investing without paying much tax. Good luck with that.

I hope to be back with another video next week. Until then, good luck with your investing.



Investment strategy

How demographics affects stock valuations

New research suggests that stock and bond valuations are driven by the age of the population – at least in the US.
24 Feb 2020
Stocks and shares

Do you own shares in Sirius Minerals? Here’s what you need to do now

Mining giant Anglo American has proposed a cash takeover of Yorkshire-based minnow Sirius Minerals. Unhappy shareholders must decide whether to accept…
20 Feb 2020

Why investors should be “cautiously bullish” for 2020

Analysts have been out in force making rosy predictions for stockmarkets in 2020, but while there is certainly a case for optimism, investors should r…
17 Jan 2020
Share tips

Class acts going cheap: buy into Europe’s best bargains

Value investing appears to be making a comeback, while shares on this side of the Atlantic are more appealing on metrics such as price/earnings ratios…
16 Jan 2020

Most Popular


Will coronavirus kill off the bull market?

It seems clear now the coronavirus will at some point go global. And when it does, will it bring down the stockmarket’s bull market? John Stepek looks…
27 Feb 2020

Gold, coronavirus, and the high cost of face masks in northern Italy

The price of gold is spiking – as it always does in a global panic. But this bull market predates the coronavirus epidemic, says Dominic Frisby, and w…
26 Feb 2020
Pension tax

Why it makes sense to scrap higher-rate pensions tax relief

The point of pensions tax relief is to keep you out of the means-tested benefits system. The current system is ridiculously generous, says Merryn Some…
24 Feb 2020

The rare earth metal that won't be a secret for long

SPONSORED CONTENT – You can’t keep a good thing hidden forever; now is the time to consider Pensana Rare Earths and the rare earth metals NdPr.
31 Jan 2020