nigel woollsey

Nigel Woollsey

Online Writer
Published: 06/03/2020

At a glance

  • Investment platforms enable you to buy and sell investments.
  • They also allow you to easily monitor the ongoing performance of your investment portfolio.
  • There is a wide choice of platforms available – all with differing charges and fees.
  • Choose an investment platform that suits your portfolio and investment experience.

What is an investment platform?

At the simplest level, an investment platform is an online service that allows individuals to buy and sell investments. The term ‘investment’ covers many things, such as shares, funds, bonds, investment trusts and exchange-traded funds (ETFs).

  • Shares – These are investments made in individual companies. Having shares in a company means that you own a part of it. If the company does well, the price for individual shares rises and you make a profit, whereas bad performance means the share price will drop ,reducing your profits, causing your shares to be worth less than you originally paid for them. There is even the possibility that you could lose all your investment
  • Funds – These are a very common way of investing. Funds pool individual shares, bonds or both that have a common ‘theme’. The individual parts are called units. The theme can be quite wide-ranging. For example, you might invest in a fund that is specific to a region such as Europe or Asia or an individual country, such as Germany. Or you might pick a fund that is investing in a commodity, such as oil, gold or one that invests in green technologies – in fact almost anything you can think of However, there is still the possibility that you can lose all your money.
  • Bonds – These are where you are lending money to a company or even Government (Government bonds are called gilts). In return, you will be paid interest on the loan. Of course, some companies (and Governments) are more stable than others and bondholders are much further up the list of investors to be repaid so the risk is less – However, you should always be aware that there is still the chance you could lose your whole investment. 

Do I have to pay for an investment platform?

Yes, but how you are charged will vary between platforms. Some investment platforms will charge you every time you make a trade (i.e. when you buy or sell investments), some will levy a flat fee every month or year and others will charge based on how large your total investment is. Some will not charge you for fund dealing at all but might levy an ongoing administrative fee.

Essentially, there are many different pricing structures, so you will have to do some homework as to which is the cheapest or best value depending on the size of your investments and how often you anticipate trading shares, funds or bonds.

Most investment platforms will charge you an exit fee if you decide to leave, so this should be balanced against the gains to be had from introductory bonuses being offered if you decide to move.

Do I need a lot of money to start using an investment platform?

Many people make the mistake of assuming to make investing pay you need to invest huge sums. However, the truth is that many ordinary investors take a ‘drip-feeding’ position whereby they may invest sums as small as just £10 per month and gradually build up their trading portfolio.

The golden rule of investing is this: Don’t invest any more than you are prepared to lose.

While the potential gains of investing can result in a much better return than the low-interest rates currently endured by savers, there is always the possibility that your investment can go down in value, perhaps even being lost entirely. Investment is about balancing the potential risk against the potential return.

Remember, high-risk investments could have the potential to pay off handsomely, but at the same time there is a greater probability that you will lose some or all your money.
It’s for this reason that smart investors will have a portfolio with a mix of high and low-risk investments. This takes a balanced approach to earning a decent return but does so by carefully managing risk.

Investing is not a ‘get rich quick’ choice – most experts will tell you that you must be willing to invest for at least five years. If you can’t commit to this, then you will probably be better off with choosing a medium-term savings account or fixed rate bond instead.

Five years is considered a reasonable length of time in which investments can generate decent returns that can ride out any downturns but whether you gain or lose will ultimately be down to the value of the investments when you need to cash them in.

What sort of investment platforms are there?

There are many different investment platforms out there, so again you’ll need to consider carefully which one best suits your needs. Some investment platforms can offer you lots of help with trading, others very little, so which you choose should be based on your level of investment experience. Confident and experienced traders can opt for one of the more ‘do-it-yourself’ investment platforms, while inexperienced newcomers would be wise to choose a platform that gives lots of help and guidance.

What do I need to think about when choosing an investment platform?

There are three main areas you need to consider when choosing which investment platform is best for you. These are cost, access methods available and the total value of your investments – this last one is closely allied with costs, so we’ll tackle those together:

Costs and portfolio size
The smaller your trading portfolio, the more you need to focus on costs. If you have a modest portfolio – say up to £5,000 – then you’ll want to ensure that any profit you do make is not immediately gobbled up by trading fees and monthly costs.

As outlined above, every investment platform is subject to differing fees and charges. Some will charge per trade, some by flat fee, others on what investments you are selling and finally some will charge you a percentage of your total portfolio value.

Those who are irregular share-dealers or those with a smaller pot of investments should look carefully at costs and make sure that your profits are not wiped out by the cost of an expensive trading platform.

You might want to remember that different investment platforms will give you different investment options, so this will influence the choice that an individual will make. A more experienced investor will probably seek the widest range of investments, whereas for a less experienced investor, a more limited choice may still be acceptable.

 

Accessibility
The old practice of calling your stockbroker every time you wanted to make a trade is long gone. Now, most people will happily buy and sell through an online provider – either through a smartphone app or via an online portal.

Choose an investment platform that suits the way you feel most comfortable trading with. For beginners, you may want a platform that provides lots of ‘hand-holding’ and tools that enable you to make better decisions, while experienced traders might prefer something that is more responsive.

Next, consider which platform matches how you want to manage your portfolio. Online share-dealing via a laptop or home PC is great if you prefer larger displays and you don’t envisage wanting to do much trading while on the move. Apps have the advantage of allowing you to access your platform while out and about (providing you have a decent 4G signal) but the display is markedly smaller than if you use a conventional home computer.

I keep seeing ‘execution-only’ – what does this mean?

Basically, ‘execution-only’ means that you will be buying and selling shares without any advice or guidance. Therefore, you will have to rely on your own knowledge and/or research when making a trading decision and you are taking the responsibility for your decisions. This a something of a double-edged sword – while this may not be a good idea for those who are very new to trading, execution-only does mean than you won’t be paying any additional management or advisory fees.

Moneyfacts tip

Moneyfacts tip nigel woollsey

Don’t forget that it’s possible to get a stocks and shares ISA (sometimes called an ISA ‘wrapper’), which, like a cash ISA, will protect your investment growth or interest earned from a certain amount of tax. Currently, you can save up to £20,000 per year tax-free.

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

At a glance

  • Investment platforms enable you to buy and sell investments.
  • They also allow you to easily monitor the ongoing performance of your investment portfolio.
  • There is a wide choice of platforms available – all with differing charges and fees.
  • Choose an investment platform that suits your portfolio and investment experience.

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