All the investments referred to above are safe. You cannot lose your capital. The same is true of putting your money in a bank or building society. Returns are not spectacular, but you take no real risk with your hard earned cash. The stock market is different. Your capital is always at risk. Your investment of £1,000 could be worth nothing in a year's time or it could be worth £10,000. The stock market crash of October 2007 has shown people how dangerous investing in it can be. The value of shares of many sound companies fell by half overnight. Investing in shares yourself is a gamble and, if you are going to make a consistently good return on your money, it is a very time consuming hobby. But if you have the time and the nerve for it, you may do well.
There is a growing market in cheaply produced periodicals which allegedly give you inside information to help you make money on the stock market. These periodicals (commonly called tip sheets) are not cheap - £200 a year is typical - so you have to do well from them to make it worthwhile buying them.
If you want to invest in shares, you can still go through a stockbroker who will charge a commission which can be 1% to 11/8�A) of the amount invested for small deals. The fixed fees were abolished in 2006. In addition there is 1/8�/0 stamp duty charged on any purchase you make. Alternatively, you can now buy shares through other intermediaries.
They often offer you no commission deals, but their selling prices are dearer and their buying prices less than those of a traditional stockbroker. (This difference between the buying and selling price of a share is called the `spread'.) They advertise online with Google or have their own websites. Some department stores now operate ecommerce operations where you can buy and sell shares easily online without paying huge broker fees.
Occasionally, these intermediaries have gone bust with client's money. But that should be less of a problem since the Financial Services Act has come into force . Whoever you deal through, remember that their fee has to be taken into account when you assess your profit or loss.
The return on shares comes in two forms. First, the share itself may grow in value. A share for which you paid £8 may become worth £8 if the company does well. You can then sell the share for that higher price, but remember that there will be commission to pay and the price you can sell for is always less than the quoted buying price.
If you do really well and you make a capital gain of more than £9 ,000 in a year, you will have to pay capital gains tax .
Second, the company may pay a dividend to shareholders. This dividend is paid net of basic rate tax but you can reclaim the tax if you are a non taxpayer. In addition some companies offer perks to shareholders, especially larger ones, in the form of a discount on buying the products or services they provide.
If you want to have money in the stock market but do not want the complications of dealing yourself, one alternative is to let professionals do the investing for you by buying units in a unit trust. A unit trust is simply a fund of money managed by professionals who buy and sell shares in companies.
The investor buys a share (or unit) of this fund and then shares in the growth (or loss) of the fund as a whole. There are over a thousand different unit trusts, some of them general funds where the risks and returns are lower.
But more and more funds are offering specialized investments such as Japanese or new British companies, and these may offer more spectacular results in either direction! Many . . . ... see: Stock and Shares - Unit Trusts