Can you really invest with just £1?
26 Apr 2024
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An investment platform, sometimes called a fund supermarket, allows investors to buy and hold a range of investments in one place online, and sometimes with a smartphone app.
The crucial point is that investment platforms are designed for people who are making their own investment decisions. This is referred to as 'execution only'.
Please note: the content contained in this article is for information purposes only and does not constitute financial or investment advice.
While the platform might provide useful guides and data, you're wholly responsible for selecting and buying investment products.
You'll therefore need to know your investment goals and understand your appetite for risk.
The Financial Conduct Authority describes 'execution only' as a 'transaction executed by a firm upon the specific instructions of a client where the firm doesn't give advice on investments relating to the merits of the transaction and in relation to which the rules on assessment of appropriateness do not apply'.
Do-it-for-me platforms, sometimes referred to as robo-advisers, offer a halfway house between investment platforms and traditional financial advice.
Most ask you for your investment aims and assess your attitude to risk through a questionnaire in order to recommend a tailored portfolio of funds, gilts and bonds.
While you can't generally specify the exact investments you want to hold, many platforms offer themed portfolios, for example of Ethical investing explained or investments in technology.
Some investment platforms only offer Investment funds.
But many others also offer access to stock-exchange-listed investments, such as shares, investment trusts and exchange-traded funds (ETFs), as well as bonds and other investments.
Make sure you know what's on offer before opening an account – you can find out in our reviews of the best investment platforms in the UK 2024.
As well as offering access to funds and other investments, investment platforms allow you to put your investments inside one or more of these tax-efficient wrappers:
Within these wrappers, dividend income is untaxed, even if it exceeds the annual dividend allowance (£500 for 2024-25, and £1,000 for 2023-24). Dividends in an Isa or Sipp don't count towards your tax-free dividend allowance.
Interest from corporate bonds and gilts, and from funds that invest in these assets, is tax-free. There's no capital gains tax on any investment profits within either Isas or Sipps, and your profits don't count towards your tax-free capital gains allowance.
Outside of these tax-efficient accounts, you can also hold a general investment account, which is useful if you've used up your Isa allowances.
If you're planning your retirement, most investment platforms allow you to manage your pension in an income drawdown plan or buy an annuity
Customer service and price should be paramount when comparing investment platforms.
But it's also worth looking at the following:
When investing through an investment platform, the charges displayed by a fund manager aren't the only ones to consider.
Rules introduced in 2014 mean that investment platforms must now charge a separate fee for their services. These come in two forms: fixed fees and percentage fees (although some platforms charge neither).
This is when platforms take a fee as a percentage of the value of the investments you hold. Many platforms reduce this fee for larger portfolios.
So, you might be charged 0.5% on the first £100,000, then 0.3% on the next £150,000. Others will stop charging fees for investments over a certain threshold.
Percentage fee structures will best suit investors with £25,000 or less, although it's worth checking because some of the lowest percentage charges will also be good value for portfolios worth more.
Some brokers levy fixed annual or monthly fees in pounds and pence.
Fixed fees are usually better suited to investors with £50,000 or more in their portfolios, as they usually work out cheaper than percentage fees.
You might be charged each time you buy and sell a share, investment trust or exchange-traded fund.
Less common are fees for buying and selling traditional funds.
Many platforms that charge transaction fees will provide discounts for frequent trading, or offer free trades in exchange for paying a higher annual fee.
Transactions on international shares and funds will incur foreign exchange fees, and these will vary by platform – we found they ranged from 0.45% to 1.5% on amounts up to £5,000.
Some platforms offered lower rates for bigger trades.
You might be charged if you transfer investments from one platform to another.
However, many platforms have scrapped these fees, while others will offer to cover switching fees as an incentive to join them.
If you have a large portfolio, you might find that your ongoing savings from lower fees eclipse the switching fees you'll need to pay.
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