Stocks, Shares and Bonds Explained: The UK Beginner's Guide
Just the Basics, No Jargon.
This guide explains investing in plain English. We're skipping the complicated finance terms and strange jargon that puts most beginners off. Let's just focus on understanding what these things actually are and why people invest in them in the UK market.
What exactly is a Share?
A share is simply a small piece of ownership in a company. Sometimes, people refer to stocks, which is just another word for shares. When companies need money to grow, instead of just borrowing from a bank, they divide ownership into thousands or millions of pieces (shares) and sell them.
When you buy shares, you own a tiny piece of a company like Tesco, HSBC or Greggs.
Imagine Tesco is a big cake cut into millions of little pieces. Each piece is a "share." Buy one share, and you own one tiny bit of Tesco.
People buy and sell these shares through the London Stock Exchange, which works a bit like eBay but for company ownership.
As a shareholder, you:
Own a tiny bit of the company
Might get dividend payments (the company sharing profits with you)
Can sell your shares later if you want
Why Do UK Investors Buy Shares?
To make money if the share price goes up
If more people want to buy the company's shares later, the price might rise and you could sell for more than you paid. This is called "capital growth" or "capital appreciation." For example, if you bought shares in Ocado at £2 each and later they're worth £5 each, you've made a £3 profit per share. Many UK investors focus on companies they believe will grow over time, like technology firms or businesses expanding into new markets. The FTSE 100 (the 100 largest UK companies) has grown significantly over decades, despite ups and downs along the way. While there's no guarantee shares will always go up, historically the UK stock market has risen over the long term.
To receive dividends from UK companies
Some companies share their profits with shareholders. This is like getting a little bonus payment a few times a year. Dividends are regular payments companies make to reward shareholders. Many established UK companies like BP, GlaxoSmithKline, and the big banks are known as "dividend stocks" because they regularly share profits with shareholders. For example, if you own shares worth £1,000 in a company with a 4% dividend yield, you might receive around £40 per year in dividend payments. These can be taken as cash or reinvested to buy more shares. Many UK retirees invest in dividend-paying shares to create a regular income stream alongside their pension.
What Are UK Bonds and Gilts?
Bonds are completely different from shares. Instead of buying ownership in a company, you're lending money to a company or government.
Think of bonds like this: If you buy a £100 bond from Tesco, you're lending Tesco £100. They promise to pay you back after a set time (maybe 5 or 10 years), plus regular interest payments along the way.
UK government bonds are called "gilts" and are considered among the safest investments available to British investors.
Why Do People Buy Bonds in the UK?
For regular, predictable income from fixed-interest payments
Bonds typically pay a fixed amount of interest, often twice a year. This is more reliable than share dividends, which can change or be cancelled.
For lower risk investments in uncertain markets
Bonds are generally safer than shares because bondholders get paid before shareholders if a company runs into trouble. UK government bonds (gilts) are considered very safe investments, especially when the stock market is volatile.
To balance out share investments in a diversified portfolio
Many people own both shares and bonds because when share prices fall, bond prices often stay more stable. This investment strategy helps protect UK investors from market downturns.
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