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This can take several forms - a Self-Select ISA, a SIPP (Self Invested Personal Pension) and/or a ‘Normal’ Share Dealing Account (i.e. not a SIPP or an ISA !!). These things all have different features but also a lot of similarities. With a SIPP you are much more ‘locked-in’ and in essence you cannot get your hands on any of the Money you put in or the Dividends/Profits you make on the Account until you Retire (this would probably be 55 as a minimum legally I think but you need to check this as it will be rising in step with the State Retirement Age in future), but you get some nice Tax Benefits like with all Pensions (although you will be Taxed on any Money you take out in the Future to some extent).
With an ISA you get no Tax Benefits when putting the Money in but any Money you take out and any Dividends and/or Profits you make are entirely Tax Free (and Tax Free when you take them out of the ISA Wrapper) - this is lovely. In addition, with an ISA you can take the Money out at any time - this could be a disadvantage if you don’t trust yourself because it really is best to see a Share Portfolio as a Long Term Investment approach and you need to let your Money grow - if you are taking Money out all the time you will be missing out on the ‘Free Lunch’ of Compounding Returns (reinvesting of Dividends in particular is very useful). However, if you are deliberately setting up an Income Portfolio as per my comprehensive Blog Series on this subject, then you would probably find a Self-Select ISA the ideal ‘Wrapper’.
I am a big fan of ISAs and because you can now shove £20k in for yourself (and possibly another £20k for your Spouse), you can soon build up a nice Pot of Tax Free Money.
For me the benefits of access to an ISA outweigh the Tax Benefits of a Pension - in fact, had I done a Pension many years ago rather than an ISA, I would still be working now because I would not have been able to access my Money (I am 52 now so I would have at least 3 years to go and I have already been ‘retired’ for 8 years !!). Another concern with Pensions is that they are easier for a future government to meddle with - people just don’t tend to notice when the Rules are tweaked; with an ISA people are much more aware of what is going on and woe betide any government which attempts to alter the benefits.
With any type of Account you open you will probably have to fill out an online Application Form and maybe a bit of paperwork to sign and send back - it is a long time since I did it myself and it will probably differ for an ISA and a SIPP. Once the Account is all accepted and stuff, you will need to shove money into the Account at some point before you are able to buy any Stocks.
Once you have your Account created, you need to figure out how to use it to buy and sell shares etc. In order to Buy a Stock you will probably need to go to part of the Platform called ’Trading’ or ’Dealing’ or something like that. You will probably then have to identify the Stock you want to buy - this normally involves typing in the TIDM Code (Tradeable Instrument Display Mnemonic - note sometimes it is called an EPIC Code) - so for Vodafone the Code would be ‘VOD’ which you would type in and then it will usually confirm your Code by saying something like ‘Ordinary Shares in Vodafone PLC’ or whatever. Next there is probably some sort of ‘Order Type’ and you probably want a ‘Market’ Quote or something like that - so not a ‘Limit Order’ or ‘Stop Order’ or ‘Fill or Kill Order’ - these are all complex Order Types which you don’t really need to worry about until you are a lot more experienced.
You then have to enter the Number of Shares you want or an Amount in £s you want to Invest and your Broker will work out the appropriate number of Shares on your behalf. For example, if you want to buy about £2000 worth of Vodafone, then if the Price you get from ADVFN is 217p you could buy about 920 Shares (£2000 divided by £2.17), so you might round that down to 900 Shares or something - up to you. You might have to click some other Buttons like ‘Pounds Sterling’ or ‘GBX’ or ‘Pence’ or whatever but that is pretty much it.
Make sure your ‘Order ticket’ is filled out as you want it and then you will probably have a Button at the bottom which says ‘Get Market Quote’ or ‘Get Quote’ or something - if you press this you should get a ‘Quote’ back to you and then you have 10 seconds to press an ‘Accept’ button - but you need to read it very fast to make sure it is correct. Don’t worry, if it ‘times out’ and the Quote is cancelled, then you can just go through the process again and get another Quote - with most Platforms the details you keyed in will probably be kept. Note there will be a Dealing Fee on the Ticket and on larger Stocks you will be charged Stamp Duty but this is not a particularly large amount - AIM Shares are exempt.
If you press ‘Accept Quote’ or whatever, it will probably then confirm that you have bought the Shares and you will see your ‘Cash’ level in your Account has reduced by the Amount you spent on the Shares and in your ‘Portfolio’ or ‘Shares List’ or whatever, you should see your Vodafone Shares now listed and already they will be moving around with the Market.
Don’t panic, due to the Spread between the ‘Buy and Sell’ Price of the Shares, you will be slightly down straight away but this is normal. Also don’t worry - your Share Prices will move up and down all the time and before long you could be showing a Profit - this is a Long Term game remember. In addition, as I mentioned above, you will have spent a bit on the Trading Fee and on Stamp Duty (sadly this is something you do pay even in an ISA) so when the value of your Shares and your remaining Cash are added together you will be out of pocket at the start but this is nothing to be concerned about.
I won’t dwell on it here because this is about getting you started and building your Portfolio - but when it comes to Selling some of your Shares it is pretty similar to the Order Ticket etc. process I talked about earlier and I will let you figure that out !! (Here’s a clue, you needed to select ‘Sell’ rather than ‘Buy’ - I am sure I can trust you with that….)
A few Decent Platform Providers
There are loads of Share Dealing Accounts to choose from with varying features and prices and suchlike. As always there is a balance to be struck and you need to make sure the Accounts on offer suit your needs. Here are some examples but these are just off the top of my head and you need to poke around a bit:
Hopefully that covers the basics of getting going - feel free to ask me questions via Tweets, DM, Emails etc. if you are a bit confused. Please note much of the information I have included here with regards to Platform Fees and Tax Allowances etc. are liable to change but are pretty much correct at the time I scribbled this blog.
Good Luck on your new Investing Career !!
I mentioned the TIDM Codes and stuff earlier - this Blog might help you understand all this:
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