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Feb 2021

Best Stocks & Shares For Beginners

Best Stocks & Shares For Beginners

Just because you are a ‘beginner’ when it comes to the stock market doesn’t mean that you shouldn’t take out a stocks & shares ISA, as there can be significant tax benefits in doing so, as well as the potential for achieving significant investment growth.

Best stocks and shares ISAs for beginners

What is a stocks & shares ISA?

An Individual Savings Account (ISA) is one of the principal ways in which you can invest without having to pay tax on your investment gains.

Although there are other forms of ISA available, such as cash ISAs, many people prefer stocks & shares ISAs. If you are investing over the medium to long-term, which usually means a period of at least five years, then shares-based investments have the potential to achieve much greater returns than cash deposits.

To apply for a stocks & shares ISA, you simply need to be a UK resident and aged 18 or over.

Despite the name, it’s rare for a stocks & shares ISA to involve directly purchasing the shares of individual companies. Instead, the funds you commit to a shares ISA are placed in one or more investment funds, which might have names such as ‘unit trusts’ and ‘open-ended investment companies’. 

These investment funds are managed by expert fund managers, who invest the customers’ contributions in many different individual companies with the aim of achieving the best returns. Ideally, the company shares the manager chooses will perform well and your investment will increase in value.

Is a stocks & shares ISA for me?

Just because you are a ‘beginner’ when it comes to the stock market doesn’t mean that you shouldn’t take out a stocks & shares ISA, as there can be significant tax benefits in doing so, as well as the potential for achieving significant investment growth.

A stocks & shares ISA isn’t a risk-free investment, but by investing in an investment fund, the risk you take is reduced. If you purchase the shares of an individual company, you would lose a significant sum if that company’s shares plummeted in value. However, because an investment fund invests in many different companies, the risk is much reduced. The fund is also managed by an expert who should hopefully be able to predict which stocks are set to perform well.

It should also be possible to find an investment fund that suits your risk profile. If you are of a more cautious nature, you could invest in government bonds, gilts and property; while at the opposite end of the scale, there are options such as technology stocks and shares of companies in emerging economies such as those in the Far East. In between, there are different risk profiles to suit all tastes.

How much can I contribute to a stocks & shares ISA?

You can contribute up to £20,000 per tax year to all ISAs in your name. The tax year runs from 6th April in one year to 5th April in the following year. If you wish, you can contribute the full £20,000 to your stocks & shares ISA. You cannot carry over any unused allowance to the next tax year, so if you haven’t used any of your allowance by 5th April, then it’s gone forever.

If you choose to make any contributions to any other ISAs in your name during the same tax year, then these amounts are deducted from the amount you can put into the stocks & shares ISA. For example:

If you contribute £5,000 to a cash ISA and £4,000 to a lifetime ISA, you can contribute £11,000 to a stocks & shares ISA in the same tax year

If you contribute the full £20,000 to other forms of ISA, then you can’t have a stocks & shares ISA in that tax year

You don’t have to contribute the full £20,000, nor do you have to make your contribution as a lump sum. Many people prefer to make regular contributions, just as they would to a savings plan. If you can only spare £50 per month, it’s certainly more tax efficient than not making any ISA contributions at all.

In addition to contributing £20,000 to ISAs in your own name, you can also contribute up to £9,000 to a junior ISA in any one tax year. It’s also possible for all of this £9,000 to be invested in stocks & shares. A junior ISA is held in the name of a child under the age of 18, and is opened by their parent or legal guardian, but anyone can make contributions on the child’s behalf.

Model portfolios

If you are an inexperienced investor, one of the most daunting things about taking out a stocks & shares ISA can be choosing where to invest, as there is a very large number of investment funds available.

Therefore, instead of choosing where to invest your contributions, there is the ‘ready made model portfolio’ option, where you let the experts choose where to invest on your behalf, and you just have to decide what level of risk you want to take.

Some of the model portfolios available include:

Interactive Investor – which offers two portfolios for those seeking growth from their investments, and two for those seeking to take an income. There is one ‘growth portfolio’ and one ‘income portfolio’ that make use of investment funds that are actively managed by investment managers; and also a further growth portfolio and income portfolio that track the performance of a number of stock market indices

Hargreaves Lansdown - which offers three portfolios for growth investors and three for income investors. These three portfolios are all at different risk levels – cautious, balanced and adventurous

Moneyfarm - which offers seven different portfolios to suit different risk profiles

Fidelity - where the company will narrow down the list of available funds based on whether you wish to invest for income or growth, whether you want your investments to be closely managed or whether you want to keep management costs down, and what your attitude to risk is.

Financial advice

If you are a beginner, then you might want to seek financial advice. As we have seen, even if you choose the model portfolio option, where you won’t have to pick your own investments, you would still have to identify your own risk profile.

The assistance of a skilled financial adviser can be invaluable in this respect, especially in identifying your capacity for loss – the level of risk you can afford to incur without suffering financial hardship.

It can also be difficult to work out exactly how much you can realistically commit to a stocks & shares investment, and comparing the fees associated with different ISA options is also much easier with the assistance of an adviser. 

Investment Fund Supermarket ISAs

Stocks & Shares ISA

from Fidelity

ISA Option
Allows ISA Transfers
Regular Savings
  • Protection Scheme: FSCS
  • Fund Choice: Choose from over 4,000 investment options, including one of the widest fund ranges in the UK, plus shares, investment trusts and exchange-traded funds. There’s also expert guidance to help with your investment decisions, which includes a selection of tools and insights from Fidelity’s experts. Capital at risk. Tax and ISA rules apply.
  • Invest From: £25 through regular savings or £1,000 lump sum

Why we like it: Fidelity has lots of investment options, plus an extensive range of guidance tools to help you decide what to invest in. Their award-winning ISA is easy to start and offers great value, their a typical service fee of just 0.35%. Other ongoing charges apply. On top of that, everything is backed by Fidelity’s 50 years of investment experience.

Important: The value of investments can go down as well as up so you may get back less than you invest. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

Tax treatment depends on individual circumstances and all tax rules may change in the future.

Stocks & Shares ISA

from Hargreaves Lansdown

ISA Option
Allows ISA Transfers
Regular Savings
  • Protection Scheme: FSCS
  • Fund Choice: Choose from over 2,500 funds, shares, investment trusts and more to build your portfolio. UK and overseas shares. Corporate and government bonds. Exchange Traded Funds (ETFs). Ready-made portfolios to suit your goals and attitude to risk from £1,000. Expert research to help make your decisions. Investment trusts and much more. Capital at risk.Tax & ISA rules apply
  • Invest From: £25 pm or from £100 lump sum

Why we like it: Choose your own funds or alternatively a ready made portfolio. Market-beating savings and discounts of up to 5.5%. No charge to buy and sell funds. Low, tiered annual charges for holding funds, with a maximum of just 0.45% per annum. Free fund updates and analysis from experienced research team. Invest with a financially secure, FTSE 100 company.

Important: The value of your investments can rise as well as fall. You may get back less than you invested. If you’re unsure, we recommend you ask for independent advice.

Model Portfolio ISA

from Interactive Investor

ISA Option
Allows ISA Transfers
Regular Savings
  • Protection Scheme: FSCS
  • Fund Choice: Need help choosing the right investments? ii's experts have carefully selected investments to point you in the right direction.
  • Invest From: £25 a month or any lump sum

Why we like it: Designed to make it easier for investors, these four portfolios offer either growth or income options, with a choice of actively managed investments or low-cost tracker funds including an ethical growth portfolio. Low cost fees and trading.

Important: The value of your investments can rise as well as fall. You may get back less than you invested. If you’re unsure, we recommend you ask for independent advice.

Model Portfolio ISA

from Moneyfarm

Allows ISA Transfers
  • Protection Scheme: FSCS
  • Fund Choice: Choose your risk profile and have it matched to an investment portfolio expertly built and managed using exchange traded funds (ETFs)
  • Invest From: £1,500

Why we like it: Answer questions about your goals, financial situation and attitude to risk, and Moneyfarm will recommend the right ISA portfolio for you, built and managed by experts to help your money grow. You’ll always be invested in a portfolio that’s suitable for you, and you can manage this through the Advice Centre. See what you’re invested in, how you’re performing and how much you’re paying anywhere and any time with the Moneyfarm app. Add money to your ISA by setting up a direct debit, investing a lump-sum, or by transferring old ISAs for free

Important Risk Information:

The value of investments can go down in value as well as up, so you could get back less than you invest. It is therefore important that you understand the risks and commitments. This website aims to provide information to help you make your own informed decisions. It does not provide personal advice based on your circumstances. If you are unsure of how suitable an investment is for you, please seek personal advice.

High Income ISAs

High income ISA ideas:

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Cash ISAs

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Stocks & Shares ISAs

Types of Stocks and Shares ISA include: 

Stocks and Shares ISAs

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