Get up to speed on one of the most common ways to invest
Chances are, you've heard of shares. They're one of the most widely known types of investment but that doesn't mean they're widely understood. The industry jargon might put many people off, while others balk at the seemingly mysterious movements of the stock markets.
We believe investing should be for everyone – it’s why we designed investing at Zopa with beginners in mind. We know that with the right information, anyone can feel confident enough to take that first step. Here, we cut through the jargon and mystery to explain shares in simple terms.
By the end of this guide, you'll understand:
What shares are
Why people invest in shares
What affects share prices
Ways to invest in shares
How to get started
What are shares?
When you buy a share, you're buying a small piece of a company, effectively becoming one of its owners. If that sounds a bit much, don’t worry – in big companies with millions of shareholders, each person only owns a tiny fraction.
Companies sell shares to raise money, often using it to grow the business. Investors buy shares to benefit from that growth in the future. You may also hear shares called stocks or equities, but they all mean broadly the same thing.
Why do people invest in shares?
Most investors buy shares in companies they think are going to do well. As a shareholder, that could benefit you in two ways:
The company increases in value. Each share becomes worth more, and you can sell at a higher price than you paid.
The company pays dividends. Some companies share a percentage of their profits with shareholders, providing a regular income – though this isn't guaranteed and it's becoming less common for companies to pay dividends, preferring to reinvest profits instead.
Shares in successful businesses can grow staggeringly quickly and many people wish they'd invested early in companies like Amazon or Meta. But shares can also lose all their value if a company fails, like Blockbuster when Netflix came along (that's one reason why owning a range of shares is a good approach).
Such extremes are rare, though. Usually, shares fluctuate in the short term but trend upwards over many years.
How company performance affects share prices
If a company reveals an exciting new product, appoints a popular new leader, or announces record profits, its shares become more desirable and the price rises. If it posts disappointing results, loses ground to a competitor, or gets caught up in a scandal, the price falls.
Other factors affecting share prices
Company performance is just one thing affecting share prices. Other factors include:
Industry events
Companies in the same sector often move together. A plane crash, for example, could cause all aviation stocks to fall.
News and politics
Elections, new policies, or global events like a pandemic can shift prices across entire regions or markets.
Economic conditions
Markets tend to follow the broader economic cycle of growth, peak, retraction, and recovery.
Market sentiment
Sometimes prices move based on how investors feel, rather than hard facts. Excitement around AI, for example, has pushed tech share prices beyond what company financials alone might justify.
The key point here is that share prices can change for many reasons, some impossible to predict. Rather than trying to second-guess the market, it's usually more effective to buy investments with good long-term prospects and stick with them through the ups and down along the way.
Ways to invest in shares
You can invest in shares either directly or indirectly.
Direct investment
Direct investment means buying shares in specific companies you believe will grow. It requires research, regular monitoring, and a fair bit of luck – there's no guaranteed way to pick only winners.
Indirect investment
Indirect investment means putting your money into a fund run by professional fund managers, who select and manage a wide range of investments on your behalf. At Zopa, we've partnered with Invesco, one of the world's largest investment managers.
Two common types of indirect investment are ETFs (Exchange Traded Funds) and multi-asset funds – both are managed by professionals, but with different goals:
ETFs
An ETF (Exchange Traded Fund) tracks an index – like the FTSE 100, a list of the 100 biggest companies on the London Stock Exchange – by automatically investing proportionally across all the companies in it.
The aim of the ETF manager is to accurately match the performance of that index, adjusting the underlying shares when needed to stay on track.
Each ETF contains thousands of individual shares, and because the process is largely automated, costs are kept low.
Multi-asset funds
Multi-asset funds take diversification a step further. Each fund is made up of different ETFs, which themselves each hold thousands of shares – a bit like Russian dolls, with shares on the inside, wrapped in ETFs, all held together in one fund.
Here, the manager's goal isn't to track a specific market – it's to choose the right mix of assets to achieve a target outcome, managing how much the value can rise or fall over time. This makes multi-asset funds a more controlled way to access a wide range of markets and asset types.
Many funds include both shares and bonds. A bond is essentially a loan to a company or government, repaid with interest over time. Bonds are generally lower risk than shares – less likely to shoot up in value, but also less likely to drop sharply. Mixing the two helps smooth out the bumps.
Indirect investment requires far less time and expertise than going direct, and you can choose funds based on your appetite for risk. At Zopa, you can pick between two multi-asset funds – Balanced or Bold – depending on your goals.
How to get started with shares
Here's a simple five-step process to get going.
1.Choose an approach
Direct or indirect? Most people new to investing find indirect investing quicker and easier, but the choice is yours.
2. Choose your provider
Some platforms offer direct investment, some indirect, and some both. Zopa offers indirect investment through two ready-made funds – ideal if you're just starting out. Most platforms charge a fee and these can vary a lot between providers, so it’s definitely worth doing some research.
3. Choose your account
If you haven't used your annual ISA allowance, a Stocks and Shares ISA lets you invest while protecting your returns from tax. If your ISA allowance is used up, a General Investment Account (GIA) is the alternative – Zopa’s GIA lets you invest up to £250,000. Just be aware that any returns are taxable. Either way, your account choice doesn't limit what you can invest in.
4. Choose your investments
Find a well-diversified fund to cover a broad spread of companies, industries, and countries in one go.
5. Make your first purchase
Buy through your investment platform – with Zopa, it takes just a few taps in the app. If it all feels a bit nerve-wracking, start small. Zopa lets you invest from as little as £1.
That's really all there is to it. There's plenty more to learn as you go, but there's no need to overcomplicate things at the start. With investing, it's often those who keep it simple who come out best in the long run.
Ready to get going? Explore investing at Zopa.
