Great News - the stock market is starting to receive some good data i.e. Oil production in the US will rise by 25% by 2014 according to the Energy Information Administration (EIA) – because of this and other positive signs, the FTSE 100 is now trading today at over 6100 today (Jan 10 2013). I think it’s time to enter/re-enter the stock market again for this year’s ISA allowances not yet used – or lose out at the start of the recovery.
No involvement in the stock market is not a sensible option for serious investors. But buying stocks of individual companies (e.g. Lloyds) is not for the fainthearted – it’s a real roller coaster ride! I’ve tried it before. It’s mainly for those with strong stomachs, lots of time to research and a large cash balance.
Not for You?
Then the answer is to buy into funds – with each fund containing a ‘basket’ of stocks from a variety of different companies – i.e. spreading the risk (and avoiding one share going down the tubes before you can react – usually because you’re just too busy trying to earn a living). The fund manager is tasked to look after his stocks of shares and buy and sell on your behalf.
Using some form of professional service is the only real solution for busy people wishing to invest and get the full benefit from trading in the stock market. The problem is that its expensive to obtain a personal ‘hands on’ service of a financial advisor to purchase funds for you (especially if you don’t have a lot of money to invest in to begin with). The added dilemma is they don’t always get it right – and even if they do, charges are high and they are geared serious investors, with cash! For new starters, young families etc. their fees can seriously eat into any profits that the funds make, especially in times when returns are low.
One solution is to do a spot of DIY (with your ISA allowance) and invest in the market directly through a funds network system. I personally use Fidelity and Hargreaves Lansdown – both offer great trading deals but I tend to favour H/L as their telephone support is good and their website is easier to understand (for me anyway). I also like the on-line fund analysis service they offer, including their top 150 funds guide – which is regularly updated (and previously discussed).
For a new investor who has decided the DIY approach is the only sensible way to benefit from the tax advantages of ISAs, you need to take a balance approach on your investment selection strategy – i.e don’t invest all your funds in one sector – e.g. UK, USA or Asia funds – try to spread your risk over a range of funds/market sectors i.e. by putting batches of say £1000 pounds into different sectors, such as the ones suggested below. These funds are currently listed in H/L’s top 150 and from the analysis tools they provide, these all show a positive upward trend on value.
- Liontrust Special Situations
- Cazenove UK Smaller Companies
- Newton Asian Income
- GLG Technology Equity
- Troy Trojan Income
The above funds form a 60/40 ratio i.e. 60% of UK funds and 40% of oversea funds. Your selection of funds may be quite different this list, due to your individual risk tolerance.
Happy investing!
Don’t forget to put your investments into a spreadsheet to be better able to analyse each ‘batches’ individual performance – yearly or more frequently – to enable you to throw out poor performers and purchase alternatives (all on-line!)
