My guide to investing in shares for beginners

Investing in shares can be a minefield for beginners. But it doesn’t have to be. Harshil Patel looks how he’d do things if starting from scratch.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

I’ve spent many years investing in shares, and I’ve learnt many lessons along the way. It has been a lucrative journey overall but if I were to start with my first investment again, I’d do things a little differently.

Investing in shares for beginners

Firstly, I’d try to think in five-year blocks of time, or more. Investing in shares for shorter time frames is possible but it’s much harder and riskier, in my opinion. Share prices can often be volatile. If I plan to invest for longer than five years, it should allow more time for my shares to grow. If the business does well and manages to grow its earnings, it can lead to higher share prices over time. A word of warning, though. There are many other factors that affect share prices like the number of shares in issue, expected future earnings, or the overall economic cycle.

Next, I’d plan to automate and invest a fixed amount every month. There are two main reasons for doing so. The main reason is that it could minimise downside risk. If share prices move lower, my automatic monthly investment would be buying shares at these lower prices. This is known as pound-cost-averaging. Another reason is that it’s difficult to time the market. There is an old investment phrase along the lines of, “time in the market beats timing the market”. I’d say that’s pretty accurate, especially if I’m investing alongside my day job.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Boosting returns with dividends

If my shares distribute dividends, I’d reinvest this share of the profit to buy more shares. By doing so, I’d own more shares that distribute dividends and the cycle can continue over time. This is known as compounding returns and its power shouldn’t be underestimated. Let me explain with an example. Over the past five years, the FTSE 100 returned just 1% per year. But by reinvesting its dividends, its total return was 5% per year. Over time, the difference in returns can make a meaningful impact on the total pot. In this example, after five years, I’d have gained an astonishing 21% more by reinvesting the dividends.

What to invest in

Next, I’d need to pick some investments. There are thousands of potential options including managed funds, index funds, shares, bonds, and many more. I’m more interested in investing in shares (also known as equities), so that’s where my focus would be.

If I wanted exposure to the US equity market, I could invest in a diversified fund like the Vanguard S&P 500 ETF. This is an exchange-traded fund that attempts to replicate the performance of the S&P 500 index.

Alternatively, I could try to be more selective and pick and choose individual shares that I think will grow over time. For instance, right now in times of soaring inflation I’d be keen on buying shares in BP, Vodafone, and Centrica. Not only do I think they could offer some protection against rising prices, but they also provide a juicy 5% dividend yield.

Lastly, I’d use resources including The Motley Fool to learn more about a variety of companies and what drives their performance. I’d also learn more about the risks of stock market investing and the various pitfalls to look out for. Overall, with a bit of knowledge, I find investing in shares to be both lucrative and enjoyable.


Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harshil Patel has no position in any of the shares mentioned. The Motley Fool UK has recommended Vodafone. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

ISA coins
Investing Articles

Can funds like this help ISA investors retire with a large passive income?

Exchange-traded funds (ETFs) can be powerful weapons in helping ISA and SIPP investors build wealth for retirement.

Read more »

ISA Individual Savings Account
Investing Articles

With a yield of up to 6%, could this bank help a Stocks and Shares ISA generate £10,000 of passive income a year?

A Stocks and Shares ISA is a popular way of saving for retirement. But how much would be needed to…

Read more »

Thoughtful man using his phone while riding on a train and looking through the window
Investing Articles

This FTSE 250 trust is easily beating the global index in 2025. Time to buy?

One global FTSE 250 investment trust has been turning things round recently, with a handy bit of outperformance. Ben McPoland…

Read more »

Bournemouth at night with a fireworks display from the pier
Investing Articles

Is the fizz about to go from the Coca-Cola HBC share price?

The world’s most popular drink’s hitting the headlines again. Our writer considers whether there are any implications for the Coca-Cola…

Read more »

Portrait of a boy with the map of the world painted on his face.
Investing Articles

3 top FTSE 250 investment trusts to consider buying today 

This trio of high-quality trusts from the FTSE 250 index would give a Stocks and Shares ISA portfolio a truly…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

Another strong set of results from this FTSE 100 telecoms company. Time to buy?

The FTSE 100’s Airtel Africa released its first-quarter earnings yesterday (24 July). Our writer’s been taking a closer look at…

Read more »

A quiet morning and an empty Victoria Street in Edinburgh's historic Old Town.
Investing Articles

The Rightmove share price is too hot… a pullback could be coming

The Rightmove share price has pushed above the consensus share price target. And while analysts are often wrong, this could…

Read more »

Branch of NatWest bank
Investing Articles

With the bank’s income, margin and earnings higher, the NatWest share price continues where it left off!

Post-pandemic the NatWest share price has been the third-best performer on the FTSE 100. Our writer looks at the bank’s…

Read more »