Investment for beginners in the United Kingdom
Apologies if this question has been asked elsewhere. I live in the UK and earn a decent salary. I have never invested in shares or stocks, or bought a government bond. But I have recently started updating my finance and economic knowledge, and would like to start investing.
I am sure this is a common question, but how do I go about investing my money in stocks and shares in the UK? Is it safe to invest in government bonds? Should I invest via a broker? Any advice or pointers are greatly appreciated.
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I'd go to specialist community web sites such as The Motley Fool and read their investing articles, and their forums, and everything. You cannot get enough information and advice to get going, as it is really easy to think investing is easy and returns are guaranteed. A lot of people found that out in 2008 and 2000!
For example, they have a 'beginners portfolio' that will teach you the very basics of investing (though not necessarily what to invest in)
I'm in the US as well, but some basic things are still the same. You need to trade through a broker, but the need for a full service broker is no longer necessary. You may be able to get by with a web based brokerage that charges less fees. If you are nervous, look for a big name, and avoid a fly by night company. Stick with non-exotic investments. don't do options, or futures or Forex. You may even want to skip shares all together and see if UK offers something akin to an index fund which tracks broad markets (like the whole of the FTSE 100 or the S&P 500) as a whole.
Most investors should not be in individual stocks. The market, however you measure it, can rise, yet some stocks will fall for whatever reason. The diversification needed is to have a number of shares of different stocks, and that a bit higher than most investors are able to invest and certainly not one starting out. I suggest you look at either mutual funds or ETFs, and keep studying. (I'm told I should have offered the UK equivalent Investment Trusts , OEIC, or Unit Trusts)
a) Go to Money super market and compare all the share dealing accounts and choose one to your liking.
b) That depends on one's own circumstances. Nobody can be give you any specific strategies without knowing your financial situation, goals and risk averseness.
If you havent yet maxed out your ISA, then its a no-brainer. You get excellent tax rebates and its silly not to take advantage of these before considering self investing in shares.
Note that even if your ISA is maxed out, the economic turbulence means that investing in individual stocks is an intimidating place for beginners right now.
The FSA is also looking at revising the average percentages used for pension, from 7% for adventurous investments, down to 5% or 6%, so there is industry wide recognition that on average the stock market is going to be a little less lucrative than it was a few years ago.
Thats not to say you cant still make a whopping profit, but the chances of you doing so as a first time investor are remote to say the least.
My advice would be to look seriously into some of the social lending sites, where you can still easily get a 7% return with minimal risk. Whilst I do have a portfolio which is performing well overall (I am a very speculative investor), I am moving a lot of funds into Zopa.com, as I am averaging 7% return with a lot less time, effort and risk than the stockmarket.
Whatever you decide, I think its time you thought about consulting an IFA. They can help you understand what sort of risk you are willing to tolerate, which is a very important aspect of investing.
Before jumping into stock trading, do try Mutual Funds and Index funds, That should give you some good overview of the equity markets.
Further, do read up on building a balanced portfolio to suit your need and risk apetite. This would help you decide on Govt. bonds and other debt instruments.
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