Investing via shares has the ability to dramatically increase the return of your capital compared to savings with a bank. However, there is clearly more risk associated with these potential financial rewards. Investoo.co.uk’s share tips should help with a decision regarding whether and how invest in shares:
1) Understand the other asset classes
Shares or equities are just one type of asset that you can place your money within. Other popular asset classes include bonds, property as well as commodities. Clearly, cash is regarded as the most safe asset as there are usually no risks associated with savings at a bank. Make sure you know the pro’s and con’s of other asset classes before you commit to shares.
2) Ensure an ‘emergency fund’ is available
You should always make sure that you have a pool of cash that is easily accessible in cash of an emergency. This makes it easier for your shares to be invested in the stock market for the suggested time period of five years. This will enable your shares to potentially smooth out the highs and lows of the stock market, although things can become volatile at any given time.
3) Finding third party share tips
If you are on the look-out for third party share tips, then these are available in a variety of places. For example, financial papers commonly integrate share tips as part of their columns. Likewise, online share dealers sometimes have specific share tips as part of their literature. However, Investoo believes that it is totally important that you do your homework! Share tips should by no means be treated as a guarantee of investment return, in fact quite the opposite can happen.
4) Do your own homework too!
Investing in shares is always a daunting task, as there is a good deal of risk associated. However, by doing your homework on potential share purchases, you can improve your chances of success. For example, companies release full year results which provide a break-down of how the company has performed and provide insights into the future strategy (available on their websites). Many people may look to ‘charting’ as part of their decision process, although this is by no means an indication of the future as any number of factors can affect the value of a company on a daily basis.
5) Invest in shares: How to
If you feel supremely confident in your share choice, it is possible to buy shares yourself in a specific company through what is known as an ‘execution only broker’. There are many online share dealing companies that can provide this functionality. However, compared to a stockbroker, they will not provide any advice to you. Execution only brokers also typically provide a wealth of share research in order to help you understand the competitive landscape further. However, there literature should by no means treated as a recommendation.
Besides a stockbroker or an execution only provider, another way to buy shares is through a ‘fund manager’. A fund manager will select a variety of shares in various companies, and pool together investors money to invest in these shares. Investing in shares through a fund comes with the benefit of less risk, as the fund invests in a variety of shares rather than in just one company. So the logic is that the high performing companies can offset the poor performing companies.
Always remember, the value of investments can fall as well and rise. Be prepared!