HOW TO CHOOSE AN INVESTMENT PLATFORM UK (the best for you)
Over the last 12 months, with more people working from home (and with fewer distractions), Stock Market investing has become very trendy.
It is something that is more on the radar for Millennials and Gen Z now more than ever, with more people now investing their money to make it work for them.
This drive to invest more has been driven by various factors including the marketing efforts of investment platforms (new and old) that see this period as a new gold rush.
Getting you and me onto their investment platforms matters because we represent a significant lifetime value in monetary terms.
Put simply, once you choose an investment platform, you're highly unlikely to ever move again!
This is ordinarily a super boring topic, which is why most people do not take the time to actually choose an investment platform properly.
But I can guarantee that if you take the time to do the research, you are ticking off one thing on your list that's necessary for you to build wealth.
The investment platform that you choose to commit your money to will dictate how much it costs you to invest that money over time.
There are also a bunch of things that we need to look at specifically before we get on that journey towards picking an investment platform.
DIFFERENT INVESTMENT NEEDS
Today I'm going to show you a step-by-step guide on what you should be looking at before you choose your investing platform.
When most people talk about investment platforms, there is a lot of bias.
People talk about them as though everyone should just pick an investment platform that their friends are using.
In fact, the investment platform that you choose should be specific to you only.
The reason being that:
i) We all have different pots of money in our lives.
So you might be somebody who has less than £10,000 and someone else might have £250,000.
The type of platform that you and that person choose will be vastly different.
ii) We will have different goals in our lives.
So you might be reading this and know that you need an investing platform that has ETFs, specific stocks, and shares or one that even has commodities.
Your goals are radically different from the goals of somebody else.
iii) We will have different investing strategies.
The strategy you choose might be passive investing or it might be trading, or you might be a simple buy to hold.
So you can see that these three different factors dictate the need for you to choose a platform that's super specific to your needs.
HOW TO CHOOSE AN INVESTMENT PLATFORM UK
Let's look at 5 different things that I believe you should be checking out before you choose an investing platform to put your money into.
1 – WHAT WILL I INVEST IN?
So the first question to ask yourself, what will I invest in?
The answer to that question should then guide you towards selecting or shortlisting a number of platforms that you might want to consider investing in.
Let's say for example, that your investing strategy is that you want to trade.
Ordinarily, that already rules out a bunch of platforms that might not be good for somebody who wants to trade.
Or let's say your investing strategy is that you are passive investing.
You want to check that the types of platforms that you are considering have the specific assets that you are interested in.
i.e these investment platform should have the right types of index funds, or ETFs, that you might want to invest your money.
You also want to consider – do these investment platforms have the right types of accounts that you may want to invest your money through?
Do they have the right tax-efficient accounts that will help your money to be invested in a tax-efficient way over time?
These are often referred to as tax-efficient wrappers.
2 – WHAT TYPE OF SERVICE WILL I GET?
The second question to ask yourself is what type of service will I get from the platform?
Lots of different platforms offer different levels of service.
Some platforms don't offer an app for investing e.g. Vanguard (partly because they want to give you the savings via cheaper products)
Whereas some offer you a really useful investing app e.g Hargreaves Lansdown.
So you might be somebody who might say, “Well, actually, I don't have a need for an investing app.”
I'd much rather pay less for my service as a result of having a need for an app.
Or you might be somebody who needs an app because you want to check how your investments are looking from time to time.
I'd say consider very strongly the service offering because buying cheap all the time is not necessarily the best thing to do.
Even though I know that the trend is downward as far as fees are concerned with investing platforms.
Balance the need for a good service with the need for paying for that service.
One action step I always do with these investment platforms is to give them a simple call.
Just call them up and just see if you get a vibe for what sort of service you get.
You know how useful they are in helping you answer questions and in understanding what you may be trying to invest your money into.
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3 – WHAT WILL IT COST YOU OVERALL?
The third thing to consider is what will it cost you overall?
This is such an important point.
That's because as soon as you've invested your money through an investing platform, most people typically do not move from their investing platforms.
They just put their money in and then invest on autopilot.
So you want to make sure that before you've even started that process of investing, that you've chosen the right investment platform for you.
Because guess what?
Fees will deplete your wealth over time.
This is the way that investing platforms are run because they're providing a service.
They charge fees (understandably) to maintain their costs and pay their staff members and pay for their technology and so on.
So you want to make sure that you are going into a platform where the fees are suitable for you.
In my opinion, the lower those fees you're paying, the better because that has less of a drag on your portfolio over time.
And as such lower the fees you pay, the bigger your portfolio gets over time.
However, this does not mean that you should just choose an investment platform because they're marketing themselves as “Free”.
You probably know exactly who I'm referring to here.
TYPES OF INVESTMENT PLATFORM FEES
So there are a bunch of fees you want to make sure that you are watching out for when you consider these platforms.
a) Admin Fee
This is the account fee that you have for your platform.
For most platforms it's a percentage, so for example, with Hargreaves Lansdown, they charge a 0.45% fee capped at around £45.
So you want to make sure that you understand what that fee means.
Vanguard, for example, charges a 0.15% fee, again capped out £375 for accounts over £250k.
Look at different platforms whether it's AJ Bell, Hargreaves Lansdown, The Share Center, etc and compare those admin fees.
Make sure you are comfortable with being able to pay those admin fees on an annual basis.
b) Ongoing fee
If you held some funds in your investment account, the ongoing fees are charged as a percentage again.
You want to pay close attention because the lower that percentage, the better for your portfolio over time.
c) Dealing fees
There are dealing fees if you're somebody who may be buying stocks or anything traded on a stock market such as an Exchange Traded Fund (ETF).
Exiting those stocks or funds on an ongoing basis, you want to make sure that you are happy with the level of fees you are paying.
Depending on the frequency by which you are buying and selling those shares on an ongoing basis.
All investing platforms have a schedule of fees.
You want to make sure you go and look at that schedule because it will be tucked away somewhere on their website.
Find it and have a look at what the Total Expense Ratio (TER) is.
The total cost is what you should fix your attention on.
This is what you'll be likely to be paying on an ongoing basis.
Typically annually for using that investing platform and putting your assets through their various products such as your stocks and shares ISA or your SIPPs and so on.
4 – WHAT EXTRA TOOLS AND ANALYSIS WILL YOU GET?
I know that Hargreaves Lansdown has a bunch of really useful information on their website.
Even before you've signed up to the website, you can see things such as the charts and performance, dividend history, and financials of a company.
You can even see directors' transactions and news information.
So much information to help you keep informed about a particular stock that you might be considering or a particular fund.
That's why I personally chose a platform like that.
So you have to also consider this for yourself when you're analysing various platforms and creating a shortlist.
Ask yourself what extra analytical tools or what extra bits of information am I getting such that I can make more informed decisions about my investing?
Maximise the information you're getting!
The more informed you are, the more equipped you are to make the right decisions about your investing.
5 – WHAT ADDITIONAL FEES WILL YOU PAY OVER TIME?
The final thing to check is what additional fees will you be paying over time?
This is a point that's often overlooked by lots of people out there.
Fees such as dividend reinvestment fees over time.
Lots of platforms, such as Hargreaves Lansdown charge 1%.
AJ Bell charges 1% as well with minimums and maximums that they specify for your dividend reinvestment.
The likes of The Share Center currently charge 0.5% for dividend reinvestment.
Other platforms such as Fidelity and Interactive Investors charge a flat fee instead, such as £1, £1.50, or 99 p, for dividend reinvestment compared to a percentage.
So you want to make sure you look across these platforms and say to yourself “Ah, okay, I'm going to go with this platform because of this.”
Or if you're somebody who has a strategy where you are reinvesting your dividends, for them to compound over time, this will matter to you…
…because over time, that will start to really create a drag on your portfolio.
You want to choose a platform where those fees are minimised so that your money has enough capacity to work for you over time.
It's also worth mentioning that some platforms actually don't have any dividend reinvestment fees.
You would know this by simply by doing your own research.
Other fees worth watching out for are the likes of transfer fees and other incidental costs that are all detailed in the schedule of fees for each platform.
So find the schedule of fees for each platform, dig into those documents.
Make sure you're comfortable and fully understand what sorts of fees you're likely to be paying as time passes.
I'd love to finish this blog by giving you action points for you to consider using.
1 – If you are already investing through an investing platform, go and review your platforms fees today.
And ask yourself are those fees suitable for my own personal circumstances at this very moment?
2 – Shortlist 3 other investment platforms to compare my current platform fee.
You should shortlist three other investing platforms, and then go and compare the fees that you are paying at the moment.
3 – Project forwards the impact on your wealth of the fee difference over many years ahead.
i.e. the fees that you are likely to pay if you move to a different platform you should project forwards into the future…
…and see what that fee differential between your current platform and your future platform looks like.
See the impact on the growth of your wealth over time.
A small percentage difference could make a huge difference in monetary terms over time.
What To Read Next>>
- How To Invest In Stocks With Confidence: Step-by-Step For Beginners
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For more on investment platforms – HOW TO CHOOSE AN INVESTMENT PLATFORM UK (the best for you)
I hope this blog on how to choose an investment platform here in the UK resonated with you. I'd love to hear from you in the comments 😀.