Should you invest in shares or funds?

You’ve left your money to tick over in a savings account – but now you're ready to leap into the world of investing.

So where do you start? Should you buy shares in a company or invest in funds instead?

If you’re not sure, don’t worry. We’ve weighed up the pros and cons of choosing your own shares versus investing in funds so you can decide what’s right for you.

Investing in shares

If you buy shares in a company, you’re buying a slice of that company. It’s likely to be a small slice to start with – but it means you could get a share of its profits.

This profit share is called a dividend. And as well as the possibility of regular income in the form of dividends, the value of the shares could rise if the company does well.

So if you know what shares to invest in and pick the right company, you could do very well from buying individual shares. But not every company performs so well. And even household names can have a bumpy ride. 

The main risk is that you invest in a company that doesn’t do well or whose shares fall in value when you need to cash in – especially if you’ve invested a chunk of your savings

Investing in funds

Rather than buying shares in an individual company, funds invest in a collection of companies and other assets like bonds or property.

Certain funds focus on specific sectors like technology or healthcare. Others only look at companies of a certain size or in a certain country or region.

If you put your money into an investment fund, you’re spreading your money and reducing the risk of a single company performing badly.

There are hundreds of share-based funds to choose from, some with similar outlooks and near identical names. But they all fall into one of two categories.

Active or actively managed funds

A fund manager or team decides which companies to invest in, which shares to sell, when to trade and how many shares to buy and sell.

It’s a hands-on system where an expert researches and makes decisions on what they think will have the right mix of risk and return.

Passive or tracker funds

The aim here is to mirror the performance of a stock market index, like the FTSE All-Share.

A fund tracking the FTSE All-Share would buy all 600+ shares in the same proportion as the index – then buy and sell to keep the right allocation between them.

Investing in shares and funds compared

Whether you should invest in company shares directly or via an investment fund will depend on a number of factors.

How much risk you feel comfortable taking

There’s no getting away from it. Share prices go up and down and companies go bust from time to time – even the big ones.

Picking a single or small number of companies and buying shares in them can be risky because you're putting your eggs in one or a small number of baskets. So if you want to take on less risk, you may want to invest in share-based funds or equity funds.

This can be less risky, especially if your money’s spread across several different funds or your fund is spread across lots of different investments.

How involved in your investments you want to be

Many people enjoy checking the performance of their shares in newspapers or online – a bit like following your favourite sports team.

A shift of just a few percentage points could earn or lose you thousands depending on the size of your investment. Just think of the feeling of a last-minute winner – or a last-minute defeat.

If you don’t want to keep a close eye on your investments, then buying shares in individual companies probably isn’t for you.

But even if you invest in funds, you should still regularly review how your investments are doing.

How much you have to invest

You can start investing with a number of providers with just a small amount of money. And you can make regular monthly payments and pay in lump sums whenever you can.

But remember to only invest what you can afford to commit for longer periods. This is generally the best way of smoothing out the short term ups and downs you’ll get in the stock market.

Costs and charges

You may have to pay fees to buy and sell shares known as 'stockbroking fees'. The cost for this varies depending on the stockbroker you use.

With funds, the charges are normally a percentage of the money you’ve invested – and they’re taken out of the money you invest. The percentage will depend on the type of fund you invest in.

Heads up. Whether you’re investing in shares or funds, gains realized through the sale of your shares or funds are potentially liable to Capital Gains Tax dependent on your personal circumstances – unless you’re investing within an ISA or pension.

Virgin Money view

We know investing can be complicated. But it doesn't have to be that way. We believe everyone should have the opportunity to try and grow their money by investing in the stock market.

That’s why we’ve created three brilliantly simple, ready-made investment approaches, that invest in a wide range of investments to spread the risks, giving your money more ways to grow. They’re only available direct from Virgin Money. Plus, they’re easy to understand and you can start with regular payments from just £25. So you don’t need to be an investment guru or billionaire to get going.

Interested in finding out more about how we’ve made investing simple? Check out our investment pages and take a look around.