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DIY investing has never been more accessible and more are being encouraged to take charge of their wealth, but new investors — and the experienced — need to weigh up whether to pick shares, funds, investments trusts or a mix of them all.

The main forms of investing are through shares or funds. Stock picking lets you find companies you believe will rise in value, while putting money into a fund gives that responsibility to a fund manager.

Both methods have their own benefits and costs. We reveal what you need to know when it comes to fund and share dealing below.

Direct approach: Investing in funds and shares comes with various costs

Shares

Buying shares means you become a part, albeit small, owner of a company. The value of your stake will rise and fall according to supply and demand.

Investors create a demand – or lack of it – depending on a company’s future or their opinion of it.

The advantage of investing directly in shares is that you choose exactly where your money goes. You can do your own research to try and find hidden gems.

Your share may increase in value, known as capital growth, although you can only benefit from this growth when you sell the share. A more steady return is delivered by dividends.

Many companies share their profits with shareholders in the form of dividends, so you are normally paid an amount per share twice a year. The compound growth delivered by taking this income and reinvesting it over time in new shares can provide a steady foundation for your investing.

Do your research

The key to picking shares is proper research. You  need to choose a company that you feel is going to grow its share price and pay dividends.

When analysing a company stock you should look at what is known as their fundamentals. This is the qualitative and quantitative data that makes up the economic health and value of a company. It includes debt, assets, liabilities, profits and staff.

You should look at figures such as the outlook for dividends, previous dividends and the price-to-earnings ratio to get an idea of the value of the share and work out whether it is cheap or expensive right now.

Analyst notes, news stories and company reports can all give a good indication of the state of a company and will help you make an informed decision about whether it is worth investing.

Diversify

You will need to spread your risk by having a number of shares, usually between 20 to 30 making sure they are companies that do different things. This way there is less risk of all the shares falling in value at the same time. You don’t want all your firms to do the same thing in the same market.

For example, a portfolio could encompass sectors such as financials, consumer goods, housebuilding, known as cyclical sectors which do well when the economy is on the up, but also  utilities, drug companies and telecoms, known as defensive sectors, which are things people always need regardless of how the economy does. If the value of the financial stocks fell, you could still be protected by other sectors.

Rebalancing

Stock investing is a long term investment but you should still regularly keep an eye on your portfolio. Make sure certain shares are not bringing the value of the portfolio down too much and also make sure that you haven’t ended up weighted too much towards just the shares that have done well.

Also consider the time of year, some stocks may do better depending at the start or end, and political and economic events in general.

Costs

When you buy a share you will need to pay a trading fee to either the trading platform or stockbroker you are using.

Trading DIY online platforms typically charge about £12.50, some are more expensive and some cheaper, but you also need to bear in mind the service you are getting.

If you use a traditional stockbroker to buy and sell shares by phone and get the share certificates in paper format, you will usually pay more.

Shares may also have a stamp duty charge. If you buy stocks and shares for more than £1,000 you will normally have to pay stamp duty. The stamp duty rate for shares is 0.5 per cent of the value of the stock rounded up to the nearest £5.

You could save money with some services through regular investing rather than putting in a lump sum, this can push the cost of buying once a month down to about £1.50.

Read our guide to choosing a DIY Isa platform

Why invest through an Isa?

Investing in an Isa is one of the few opportunities we have for making money with very little tax but it doesn’t offer complete tax-free status.

Any gains within an Isa are free from capital gains tax. Everyone has a CGT allowance of £10,600 per year and many may feel they are unlikely to ever make more than this in profit each year from selling their assets. However, those who invest consistently over time may one day be surprised at how much those investments are worth and holding them in a tax-free wrapper makes sense.

Income from investments is also treated in a tax-friendly way in an Isa. Corporate bonds and gilts income is tax-free. Dividends and shares income are still taxed at 10% before they are received, so basic rate taxpayers will not gain any extra benefit, but higher rate taxpayers do not have to pay any extra tax.

And if you are a basic rate taxpayer you may hope to be a higher rate taxpayer one day, so putting your investments in a tax-free wrapper is a sound tactic.

It used to be that investing in an Isa was not always worthwhile, as charges were higher. In most cases charges are now exactly the same as for normal investing, so using the Isa wrapper makes sense.

Shares vs funds: the professionals’ thoughts