Become an expert investor
Once you have researched, chosen and bought your investments you can afford to put your feet up and relax, knowing that your money is working harder than ever before.But you can't afford to shut the door on your investments and forget about them altogether.
REVIEWING YOUR PORTFOLIO
Failure to monitor your portfolio can be one of the amateur investor's biggest mistakes. Experts recommend you take a look at it every six to 12 months. Check how your funds are doing, but don't look at them in isolation.
For the full picture compare them with other funds in their peer group. And, as time goes on, don't let your investments drift - make sure your asset allocation is still appropriate for your level of risk.
BUILDING YOUR PORTFOLIO
If you have more money to invest and you are impressed by the returns you're getting on your existing investments you may want to start buying more – particularly if your salary has risen or you have a lump sum in need of a home.
If your portfolio is doing well and your goals, timeframe and attitude to risk have remained the same, the simplest approach is to spread your money across your existing investments.
However at this stage, as your investing confidence grows, many investors will want to start spicing up their portfolio with more interesting – and higher risk – funds. This might mean adding in smaller companies or more international or specialist funds.
These funds might seem a bit more interesting than a run of the mill UK equity income fund, but they come with a health warning - and some experts suggest you don't even contemplate this type of investment until your portfolio is worth at least £10,000.
If you are happy to proceed, you should only invest a small percentage of your overall portfolio and while you will always hope for sizeable gains, you must be prepared for sizeable losses and have the time to ride out what will inevitably be a bumpy ride.
As your confidence grows you may also want to look at different investment types.
Investment trusts are another type of collective investment where your money is pooled with that of other investors and managed on your behalf according to the mandate and objectives of the trust. And, like unit trusts, you can choose where in the world you want to invest.
As a general rule, they do tend to perform better than unit trusts, however they are structured very differently and the risks are greater as a result, so investors need to understand the differences before they part with their cash.
EXCHANGE TRADED FUNDS
Another investment you may want to consider is an exchange traded fund or ETF. These might sound complicated but they are actually a relatively simple and low cost way of accessing the growth of a basket of shares.
Like tracker funds, ETFs mimic the make up and performance of a particular index, which could be anything from the FTSE 100 to a timber or forestry index. You can also buy exchange-traded commodities which can be an easy way of accessing commodities such as gold and other precious metals.
The most confident of investors, who have the courage and the conviction to hand-pick those companies they think are going to perform well, may want to add some zing to their portfolio with some direct shareholdings.
Concentrating a portion of your portfolio on individual companies can be a great way of boosting your returns - but only if you make the right choices, which, for the majority of us, is easier said than done.
The chances are that if you are acting on tips from someone you met down the pub, the easy money has already been made.
It is much more sensible to buy shares in companies you are familiar with and have a good understanding of – your job for example, may provide you with some insight. If not you really do need to do your research.
An easy way for investors to learn about buying shares is to join an investment club where you can team up with like-minded people to buy shares together.
HOW TO BUY SHARES
The cheapest ways to buy shares is from an online sharedealing service. Average dealing fees are around the £10 mark but some companies offer low cost regular investing services. Interactive Investor, for example, charges £1.50 to buy shares, investment trusts and ETFs but you need to agree to make the purchase on an agreed day every month. This makes it a great way for small investors to invest regularly, but it is less suited to the short-term investor who wants to be able to time the market. In many cases your fund supermarket/Isa platform will allow you to buy shares too.
DO I NEED ADVICE?
It is cheap and easy to invest in a whole range of investments online, but if you are confused by the options, have large sums to put away or have particularly big goals in mind such as school fees or early retirement, it may be worth seeking independent financial advice.
Also known as index funds, tracker funds replicate the performance of a stockmarket index (such as the FTSE All Share Index) so they go up when the index goes up and down when it goes down. They can never return more than the index they track, but nor will they lose more than the index. Also, with no fund manager or expansive research and analysis to pay, tracker funds benefit from having lower charges than actively managed funds, with no initial charge and an annual charge of 0.5%.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
A market-weighted index of the 100 biggest companies by market capitalisation listed on the London Stock Exchange. It is often referred to as “The Footsie”. The index began on 3 January 1984 with a base level of 1000; the highest value reached to date is 6950.6, on 30 December 1999. The index is “weighted” by how the movements of each of the 100 constituents affect the index, so larger companies make more of a difference to the index than smaller ones. To ensure it is a true and accurate representation of the most highly capitalised companies in the UK, just like football’s Premier League, every three months the FTSE 100 “relegates” the bottom three companies in the 100 whose market capitalisation has fallen and “promotes” to the index the three companies whose market capitalisation has grown sufficiently to warrant inclusion. Around 80% of the companies listed on the London Stock Exchange are included in the FTSE 100.
An Exchange traded fund is a security that tracks an index or commodity but is traded in the same way as a share on an exchange. ETFs allow investors the convenience of purchasing a broad basket of securities in a single transaction, essentially offering the convenience of a stock with the diversification offered by a pooled fund, such as a unit trust. Investors buying an ETF are basically investing in the performance of an underlying bundle of securities, usually those representing a particular index or sector. They have no front or back-end fees but, because they trade as shares, each ETF purchase will be charged a brokerage commission.
A term applied to raw materials (gold, oil) and foodstuffs (wheat, pork bellies) traded on exchanges throughout the world. Since no one really wants to transport all those heavy materials, what is actually traded are commodities futures contracts or options. These are agreements to buy or sell at an agreed price on a specific date. Because commodity prices are volatile, investing in futures is certainly not for the casual investor.
A financial adviser who is not tied to any financial services company (such as a bank or insurance company) and is authorised by the Financial Services Authority (FSA). They can advise on financial products to suit your circumstances. All IFAs have to give consumers the choice of paying by fees or commission and have to explain which would best suit the customer in that particular instance. Also, if commission is paid either by the client or the financial service provider recommended by the IFA, the IFA must disclose what that commission is.