Advice and ideas on stock market, tracker funds, etc please.

MrExample

Mamzie wrote: »

What is a large cap please? My dh is a low risk type of person, I am a comps and MSE nut, so quite enjoy a gamble/ hunt for best returns if that makes any sense.

We have a fair bit of savings, reasonable pension pot, the 2 k is money that if I lost it, I could replace it for the kids, but if I could get a much better return from it, I would be very happy to improve things for them.

I am thinking more of a FSTE 250, possibly a smaller FSTE 100 and maybe some shares. I do feel that some big firms are going to struggle greatly.

I don't know much about shares but my general feeling is that, retail is very dodgey, but I would hope that oil and energy firms would be diversifying in anticpation of fossil fuels needing to be replaced/aided by other products, and I am very interested in greenish firms, recycling, reclamation, etc.

Would 2k be big enough to split into 4 funds? Do people buy shares or funds in £10, £100, £500, lumps etc?

Investing in individual shares is risky right now, but you know that.

For investing small amounts, Halifax offers a service called ShareBuilder (I think another company does something similiar too). The shares are bought in bulk four times a month. I believe you can invest as little as £25 each time (or nothing if you don't want to). You forfeit the ability to pick the exact purchase time (but that doesn't matter, unless you know what you're doing), and in return are only charged £2.50 in fees.

This is probably the best way to invest small amounts in shares if you want to do it yourself. You can pick a few companies, and invest a small amount each week, with the aim of smoothing out peaks and troughs.

If you are careful to pick companies that pay dividends, you get a nice payment each year, and you can set the dividends to be automatically re-invested.

The problem with only having £2000 is you can't diversify much.

Don't be lured into buying banks yet though. They are cheap for a reason. :-)

mr_jetlag

Mamzie wrote: »

This is something I completely don't understand.

I get if I buy a share at £1 and it gets to £2, then I have doubled my money, less charges. But what happens with trackers and funds, how do I know what a 100, 500, etc point rise is actually worth please?

Wikipedia is your friend:

By design, an index fund seeks to match rather than outperform the target index. Therefore, a good index fund with low tracking error will not generally outperform the index, but rather produces a rate of return similar to the index minus fund costs.

So let's say your fund charges you a 1% administration fee and in the year you've invested £2k in the FTSE250 the index has improved by 10%. You would then earn 10% less the 1% admin fee (i.e., your fund is now worth £2180).

Similarly if the FTSE250 has dropped by 10% your fund value would be £1780 (a loss of £220).

Other things complicate the matter like tracking errors. Therefore you want a fund with the lowest fees and minimal tracking error. This is why IFAs don't push trackers as much as they would - they are not as profitable as the actively managed funds that try to justify their fees.

Mamzie

that is exactly what I needed to know, what a fab explanton, thank you.

Is there a list of these trackers and the companies that offer them anywhere please?

Any other advice or ideas very welcome.

phoebe03cat

Oh yes for me too pls. I wanted to start off with this when I retire in a couple of years but now(or soon) seems to be a good time to dabble. I'm only going to risk 2k as well so would really appreciate any thoughts also pls.

MrExample

I've been looking at Birmingham Midshire's FTSE-linked ISA offerings (http://www.askbm.co.uk/), but I haven't done any research yet. Plus I'm not sure about the risk/reward ratio.

Also: the Halifax rate I mentioned is £1.50, not £2.50.

roysterer

I'm certainly no expert (in fact far from it), but how about going with the tracker now. If you think the market is close to bottoming in this current climate.
Put £1000 in now and then drip feed the 2nd £1000 over the next 12 months.
This would offer a better risk spread.

Mamzie

thats what I am thinking early next week, once I've explored some trackers over the weekend I hope.

I will be hunting down trackers and trying to compare fees I guess.

k8r4u

Mamzie wrote:

Any other advice or ideas very welcome.

You can trawl the web for good info, the links to the Motley Fool website that you were given above are excellent.

To set up a practice portfolio, go to a financial site that provides free portfolio services, and set one up. Example: www.ft.com. Then pick a bunch of shares using whatever strategy you want (alphabetical order/pin in the share price pages/whatever). Work out how many of them you would buy if you were spending your £2k, and put that number into your pretend portfolio at whatever the offer price is at the time. If you want to pretend that you have bought a tracker, try something like the "M&G Index Tracker A Inc" fund(symbol: MGITI) or an ETF like the "iShares FTSE 100" (symbol: ISF). You can then monitor the progress of your pretend portfolio to get a feel for the real thing. There are lots of online brokers where you can open an account to trade for real when you're ready (I traded on paper for nearly a year before I first bought shares, over a decade ago).

If you're finding it hard to figure this out, I think you should take it very slowly and consider getting some help. Don't just dump your hard-earned cash on the first few companies that take your fancy or that you instinctively feel are a good "bet". You'll gamble and lose, and you won't even get any fun out of it. If you can't wait to lose it, take the cash to a casino or have a day out at the races instead.

Mamzie

I am thinking tracker for the longer term I guess.

Will be doing lots of reading over the weekend, I am just thinking that we may be better to buy soonish, if things ever settle down, then sit back and wait for a few years.

I love the idea of these pretend portfolias to practise with and will def give that a try.

annie42

Virgin have a share dealing service you can manage online and do dummy deals on to practise.