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A Newbies (short) Guide to Investing - No Advice Given *under construction*
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Lokolo
Posts: 20,861 Forumite
Investing
A lot of people on this forum get confused when talking about Investing and Saving. This thread is out to explain a few things that are considered when investing. This little post has been put together through a number of posters, some IFA, some just plain old investors. There is no biast information and none of this is advice, it is information which is available to everyone who wants it, which has been put together.
So what is Investing?
Ok, investing is putting your money into something risky (be it high risk or low risk, but there is still risk), in order for a return, aiming to be better than in savings.
This is different to saving. You are not guarenteed a return what so ever, but you are with savings (upto the £50k per person per institute limit).
An example, you could put £10,0000 into Company A for 9 years. After 5 years it is valued at £25,000. However after the 9 years it is now worth £124. This is what can happen with investing.
Ways to Invest
There are many ways to invest, every person for themself but there are a main few catagories which people tend to go for.
- Shares
- Corporate Bonds and Gilts
- Unit Trusts and OEICs (Open Ended Investment Company)
- Investment Trusts
- Property (? Valid ? Yes No?)
^^ explanations and examples
What do they all mean?
Shares -
Shares are the basic building blocks of investing. Once a company gets big they tend to start trading on the stockmarket. Now you can be a part of this company by buying shares in it. Share price can go up and down whilst its trading. Buying individual shares are high risk, as you have put all your eggs (money) into one basket (the company), if this falls, so does your money!
Corporate Bonds and Gilts -
These are fixed income accounts. Gilts are issued (ie sold) by the government and have a return of capital at maturity, and trade on the stockmarket. The price of gilts moves inversely to the expected trend in interest rates. If you buy at issue and sell before maturity you may gain or lose on your capital invested. There are then Corporate Bonds, these are basically loans to companies, and in return, you will get some interest from this. However as things change for example; demand and interest rates, the price of the Bond will change so you can get better or worse returns that when first released.
Unit Trusts and OEICs -
This is where companies ask for your money which they then invest into something. This a way of not to put your eggs all in one basket. For example, a fund (as they are commonly called) will invest in around 50 different countries. So your £100 which you could have put in a company by buying shares, will be split across loads of companies. So if the company you bought shares in dies, you will have lost the £100. However in a fund, to lose the whole £100 you will have to have the 50 companies die, hence why you lower your risk.
In these you tend to buy a number of units (just like number of shares) which will tend to flucuate with how well or badly the fund is doing.
These also tend to be specialised in an area. For example, high income or something? someone give a decent example, I will do it badly
Investment Trusts -
These are a lot like Unit Trusts but they are companies. This company's sole purpose is to use the money investors put in to put it into other investment products for a return. They are a lot like shares. The company will release x number of shares on the stock market in which people will then buy up. Depending how well the company does will then flucuate the share price (there are other factors, this is just a basic explanation). Unit trusts can give out as many units as they feel but Investment Trust companies release a set number of shares.
These are then traded among investors and brokers. You can buy them from most stock brokers, as you do with shares.
There are many types of shares that are out there (as with normal company shares) so if you are interest in this area then more research will be needed.
Where to Invest
If you are buying individual shares you need to go through a broker such as TD Waterhouse, Halifax Sharebuilder or ... These will usually charge either monthly, per transaction or both. Depending on how you plan to invest in shares will determine where you go so it would be rise to do your research on as many brokers as possible before deciding. This is the same for investment trusts. As explained earlier in this post Investment Trusts are a lot like shares, so they can also be bought through by the same stock brokers above.
If you want to buy Bonds or Funds then you will usually either go to an IFA, who will help you choose where to invest or go DIY and go through a broke such as Hargreaves Lansdowne (commonly referred to as HL). Charges can change but are usually a %. And IFA will typically charge upto 3% but the average (LINK PLEASE DUNSTONH) is 1.8% (annual fee yes no? I can't remember 0:-) ) You can also pay per hour which will range from around £x to £y. HL will charge per investment and have an annual fee on of this, this will range from fund to fund.
How do I choose where to put my money?
If you are going to be buying shares there a number of things you should know;
- Small Companies tend to be more risky, this is because they have less stabilty, as common sense should tell you. Example, Shell is less likely to become bankrupt than a petrol pump that is owned by some person in the neighbourhood.
- If you put all your money in, you could lose it all. Many people have lost money through shares, Northern Rock and Carter and Carter for example.
- However, if you bought shares in Google in 2004, for $100 then in at beginning at 2008 you would have seen them valued at $700. 4 years, 700% raise.... wow. Now have a look at the share price...
Corporate Bonds and Gilts tend to be less risky as it means the company will have to default for you not to get your money. A lot of big companies such as Tesco are less likely to fail (such as Shell explained above) so chances are more in your favour when going through here.
If you are going through funds you must look at where your money is going. With different strategies for different people its very hard to say which is the best for yourself, you need to do the research yourself to determine whats best for you. If you do not think you can do this it maybe wise to go and see an IFA.
Ways to Spread Risk
- Geographically
- Industry / Sector
- Range of Investments (not just 1 or 2, try going for 9 or 10)
Yes / No ? Other Ways?
I don't want to choose, I want an IFA
Ok so you've decided you don't think you would want to do this and you would rather go and see someone about it. There are a few things to know before you go asking for financial advice.
- Don't go to banks or building societies, these tend to have tied-advisors and will give you a limited range of products to choose from.
- www.unbiased.co.uk - Very good website for local IFAs.
- Word of mouth, know anyone whose gone to see one? Ask them who they would recommend, you do with the plumber don't you?
- If you don't like the sound of someone or you think they are giving bad advice, don't continue. With the number of IFA's out there you can pick and choose. (pretend you're shopping or something!)
- How well are they explaining things? If you ask a question and they don't explain it to you, but instead try to avoid the question - they are not worth your while.
- Ask them how much they are going to charge. Lets face it, if they are charging too much for you whats the point in you being there?
- Anything Else?
If anyone wants to contribute please PM me or reply to this thread and I will update it ASAP. I am a student and therefore I would prefer to do this (geek :cool:) than my C++ Assignment so am on most of the day (except Wednesday afternoons, footy woop) and can update accordingly.
Some of this stuff has been taken from another thread which has gone off the map. (http://forums.moneysavingexpert.com/showthread.html?t=416337)
RED MEANS HELP ME
A lot of people on this forum get confused when talking about Investing and Saving. This thread is out to explain a few things that are considered when investing. This little post has been put together through a number of posters, some IFA, some just plain old investors. There is no biast information and none of this is advice, it is information which is available to everyone who wants it, which has been put together.
So what is Investing?
Ok, investing is putting your money into something risky (be it high risk or low risk, but there is still risk), in order for a return, aiming to be better than in savings.
This is different to saving. You are not guarenteed a return what so ever, but you are with savings (upto the £50k per person per institute limit).
An example, you could put £10,0000 into Company A for 9 years. After 5 years it is valued at £25,000. However after the 9 years it is now worth £124. This is what can happen with investing.
Ways to Invest
There are many ways to invest, every person for themself but there are a main few catagories which people tend to go for.
- Shares
- Corporate Bonds and Gilts
- Unit Trusts and OEICs (Open Ended Investment Company)
- Investment Trusts
- Property (? Valid ? Yes No?)
^^ explanations and examples
What do they all mean?
Shares -
Shares are the basic building blocks of investing. Once a company gets big they tend to start trading on the stockmarket. Now you can be a part of this company by buying shares in it. Share price can go up and down whilst its trading. Buying individual shares are high risk, as you have put all your eggs (money) into one basket (the company), if this falls, so does your money!
Corporate Bonds and Gilts -
These are fixed income accounts. Gilts are issued (ie sold) by the government and have a return of capital at maturity, and trade on the stockmarket. The price of gilts moves inversely to the expected trend in interest rates. If you buy at issue and sell before maturity you may gain or lose on your capital invested. There are then Corporate Bonds, these are basically loans to companies, and in return, you will get some interest from this. However as things change for example; demand and interest rates, the price of the Bond will change so you can get better or worse returns that when first released.
Unit Trusts and OEICs -
This is where companies ask for your money which they then invest into something. This a way of not to put your eggs all in one basket. For example, a fund (as they are commonly called) will invest in around 50 different countries. So your £100 which you could have put in a company by buying shares, will be split across loads of companies. So if the company you bought shares in dies, you will have lost the £100. However in a fund, to lose the whole £100 you will have to have the 50 companies die, hence why you lower your risk.
In these you tend to buy a number of units (just like number of shares) which will tend to flucuate with how well or badly the fund is doing.
These also tend to be specialised in an area. For example, high income or something? someone give a decent example, I will do it badly
Investment Trusts -
These are a lot like Unit Trusts but they are companies. This company's sole purpose is to use the money investors put in to put it into other investment products for a return. They are a lot like shares. The company will release x number of shares on the stock market in which people will then buy up. Depending how well the company does will then flucuate the share price (there are other factors, this is just a basic explanation). Unit trusts can give out as many units as they feel but Investment Trust companies release a set number of shares.
These are then traded among investors and brokers. You can buy them from most stock brokers, as you do with shares.
There are many types of shares that are out there (as with normal company shares) so if you are interest in this area then more research will be needed.
Where to Invest
If you are buying individual shares you need to go through a broker such as TD Waterhouse, Halifax Sharebuilder or ... These will usually charge either monthly, per transaction or both. Depending on how you plan to invest in shares will determine where you go so it would be rise to do your research on as many brokers as possible before deciding. This is the same for investment trusts. As explained earlier in this post Investment Trusts are a lot like shares, so they can also be bought through by the same stock brokers above.
If you want to buy Bonds or Funds then you will usually either go to an IFA, who will help you choose where to invest or go DIY and go through a broke such as Hargreaves Lansdowne (commonly referred to as HL). Charges can change but are usually a %. And IFA will typically charge upto 3% but the average (LINK PLEASE DUNSTONH) is 1.8% (annual fee yes no? I can't remember 0:-) ) You can also pay per hour which will range from around £x to £y. HL will charge per investment and have an annual fee on of this, this will range from fund to fund.
How do I choose where to put my money?
If you are going to be buying shares there a number of things you should know;
- Small Companies tend to be more risky, this is because they have less stabilty, as common sense should tell you. Example, Shell is less likely to become bankrupt than a petrol pump that is owned by some person in the neighbourhood.
- If you put all your money in, you could lose it all. Many people have lost money through shares, Northern Rock and Carter and Carter for example.
- However, if you bought shares in Google in 2004, for $100 then in at beginning at 2008 you would have seen them valued at $700. 4 years, 700% raise.... wow. Now have a look at the share price...
Corporate Bonds and Gilts tend to be less risky as it means the company will have to default for you not to get your money. A lot of big companies such as Tesco are less likely to fail (such as Shell explained above) so chances are more in your favour when going through here.
If you are going through funds you must look at where your money is going. With different strategies for different people its very hard to say which is the best for yourself, you need to do the research yourself to determine whats best for you. If you do not think you can do this it maybe wise to go and see an IFA.
Ways to Spread Risk
- Geographically
- Industry / Sector
- Range of Investments (not just 1 or 2, try going for 9 or 10)
Yes / No ? Other Ways?
I don't want to choose, I want an IFA
Ok so you've decided you don't think you would want to do this and you would rather go and see someone about it. There are a few things to know before you go asking for financial advice.
- Don't go to banks or building societies, these tend to have tied-advisors and will give you a limited range of products to choose from.
- www.unbiased.co.uk - Very good website for local IFAs.
- Word of mouth, know anyone whose gone to see one? Ask them who they would recommend, you do with the plumber don't you?
- If you don't like the sound of someone or you think they are giving bad advice, don't continue. With the number of IFA's out there you can pick and choose. (pretend you're shopping or something!)
- How well are they explaining things? If you ask a question and they don't explain it to you, but instead try to avoid the question - they are not worth your while.
- Ask them how much they are going to charge. Lets face it, if they are charging too much for you whats the point in you being there?
- Anything Else?
If anyone wants to contribute please PM me or reply to this thread and I will update it ASAP. I am a student and therefore I would prefer to do this (geek :cool:) than my C++ Assignment so am on most of the day (except Wednesday afternoons, footy woop) and can update accordingly.
Some of this stuff has been taken from another thread which has gone off the map. (http://forums.moneysavingexpert.com/showthread.html?t=416337)
RED MEANS HELP ME
0
Comments
-
i'd help if i could
good post though. too sleepy otherwise.. will read more tmrw :P
C++ is also kak, and i agree, MSE is greater than C++Mr & Mrs Doomcow Wedding Fund: £10200/£18000 (by 04/2012) (spent £2000)
meiow meiow purr meep merp purr urble purrup
requires further financing0 -
Bump this before I go off to footy, hopefully will have a few replies or comments when I come back.0
-
investing is usually what is considered longterm savings by putting your money into some sort of asset to hopefully get back a return
I prefer
investing is putting your money into some sort of asset with the expectation of profit
or more briefly
asset acquired for unknown future financial return
(it doesn't need to be long term)0 -
gilts are issued by UK Govt and not a company0
-
Good thread to start.
I would describe investing as buying anything.
You exchange cash for another item, whether it is stocks/shares, gold coins, art, property, your house, your car etc...
Immediately the item then takes on its own worth according to its circumstance - for instance we all recognise the situation when a new car loses x% of its value as soon as you drive it off of the garage forecourt; whilst a year ago we could safely assume a house would rise in value (sadly at the moment not the case).
The value of your purchase changes, over hours, days, months, years, up- or down-ward; such that when you sell and convert back into cash - you realise a gain, or a loss.0 -
"I would describe investing as buying anything"
what even a tin of baked beans ??
needs to be
asset acquired for unknown future financial return
or if you prefer
buying anything for unknown future financial return0 -
So what is Investing?
Putting your money at risk.
From there different Investments just involve differring amounts of risk.'In nature, there are neither rewards nor punishments - there are Consequences.'0 -
leaving your wallet on the pavement is putting your money at risk, but its not an investment as there is no future financial return (other than possibly getting your wallet back)0
-
"I would describe investing as buying anything"
what even a tin of baked beans ??
needs to be
asset acquired for unknown future financial return
or if you prefer
buying anything for unknown future financial return
Yes - even a tin of beans - why not - its value in a years time can be either higher or lower than when it was originally bought (ignoring BBE dates etc).0 -
How are they different from Unit Trusts?
Investment Trusts are company's, usually PLC's set up with the sole purpose of investing their liabilities into assets for a return.
Investment Trusts have a set amount of Shares (units) in issue, and therefore their prices fluctuate in response to supply and demand at any given time. (Unit Trusts are opened ended, which means they can issue as many units as required)
Because Investment Trust share prices fluctuate they can be at a premium or discount to their NAV (Nett Asset Value) which is basically the underlying value of the assets they own.Where to buy investment trusts - no idea
Investment Trust shares are traded on the Stock Market like any other publically quoted stock, and are traded via stock brokers.'In nature, there are neither rewards nor punishments - there are Consequences.'0
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