Although online trading has become more accessible, is it best to leave things to the experts?

Not so long ago, if you wanted to invest you’d have to go through a stockbroker or a financial adviser. Now, investors can use a DIY investing platform to trade from the comfort of their own homes with a laptop or a mobile phone. But is it worth the risk?

What is online share dealing?
An online dealing platform allows you to buy and sell shares from companies that are listed on the stock exchange. Many platforms also include readymade portfolios tailored to your risk appetite and some services offer different types of investments in addition to shares, including bonds and funds. It’s worth noting that a ready-made portfolio may not always give you the best returns compared to using the expertise of a financial adviser.

Once you’ve set up an account you can start searching for companies and funds that you wish to invest in. You can then select the quantity or value of the shares you want to buy. You can hold any shares you purchase within the platform, so you do not need to retain any sales certificates.

Is online share dealing right for me?
Online trading is easy and convenient for experienced investors who can manage their expectations and the risks involved in going it alone. Of course, with a DIY investing platform, you won’t have to pay any charges to a broker, but for investors that are new or less experienced there are a host of pitfalls:

• Online trading platforms don’t provide advice or assess your attitude to risk, so you have to make your own decisions. Some people enjoy the flexibility and speed of this, but it can lead to problems if you don’t fully understand how markets operate.
• Don’t forget, the value of investment can go down as well as up, and you could lose most of if not all your money when you invest. Knowing the potential risk and return is an essential step before you start, along with what the worst-case scenario might be for your finances.
• Buying and selling online can be dangerous if you’re an undisciplined investor because it’s easy to act on emotion. A DIY investor might sell at the wrong time or start investing with a portfolio that is poorly suited to them.

Investors should also be aware of how much they are paying when choosing online share platforms and think about the combination of price and service. Avoid just looking at the admin fee or dealing charges, but instead think about how much they are combined. A low admin fee might look good, but costs could soar if you buy and sell a lot.

How much does it cost?
While you’ll be saving money by not paying a broker, if you use an online platform, you’ll still have to pay charges when buying, holding, and selling shares. Some charge a flat fee and others charge a percentage of your holdings. There will also be trading charges when you buy and sell shares. When purchasing UK shares you should expect to pay 0.5% stamp duty and an extra £1 on transactions above £10,000. You may also be charged an exit fee if you want to transfer to a different provider.

Benefits of financial advice
If you’re uncomfortable going it alone, you might want to think about speaking to an adviser who can recommend which investments are appropriate for you.

• A financial adviser can assess your attitude towards risk and help you select a portfolio that is compatible.
• Advisers know the importance of staying invested for the long run to take advantage of upward trends in the markets.
• While some investment platforms offer ready-made portfolios, an adviser can build a more tailored investment approach.

It’s always a good idea to make sure your portfolio is diversified so when one investment goes through a bad patch, there should be others that are doing well. A typical portfolio might consist of a mix of different assets, including shares, bonds and cash. A financial adviser is best placed to help you manage the risks associated with investing by building a well-diversified portfolio, so your investments are always working hard for you.

The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.

Due to the high-risk nature of these product will not be suitable for everyone

Key takeaways

• Investment platforms are a quick and easy way to start investing in a wide range of assets, but it’s usually best to leave it to an expert.
• It’s important to understand your attitude towards risk and how to manage your investments, as you could lose some or all your money.
• A financial adviser can help you improve your chances of long-term success with a diversified portfolio that corresponds to your financial situation and goals.