company shares vs managed funds

crisp

which do you prefer? Is buying 10 to 20 individual stocks any more risky than a managed fund and certainly it will produce better returns if you track the stocks carefully. I am very tempted to forget about managed funds and just buy the individual stocks. Is this foolhardy?

Lokolo

Its more expensive. Trading costs of £100s (say £12.50 per trade, 10 trades, thats £250 to buy and sell). Compared to 1-2% with funds after discounts.

So in that respect its more risky.

Also unless you've got the knowlede and experience you're less likely going to make the best decisions of the individual shares.

However, you can always quickly change with individual shares.

JoeCrystal

@crisp Indeed, I took one look at the funds and found it all very very confusing. So I decided to take light dip into shares instead. On the whole, I used Halifax Sharebuilder with £1.50 a trade. The con of that is that you can only choose one day to buy the shares. So I did, I chose ten companies that I think got good stability and needed and buy them with same amount every month. (Basically paying £15 every month) but I think it is worth it. Eventually shares get built up but really it is for very long view. (Sadly, to sell the ten companies in one go would be £119.50).

I preferred holding shares because you can read about these companies and what are their problems and be more or less warned. Funds do not have these kind of feelings. It is just a faceless way to invest and hope that funds can do better, relying utterly on these fund managers. At least I made decisions personally, choosing shares. Of course, I may suffer 100% loss (extremely unlikely) and feel like a fool but that is my decision to make.

While shares are risky by their very natures, you should only invest with the money that you can kiss today and never see again, never need to pine after these money.

Aegis

crisp wrote: »

which do you prefer? Is buying 10 to 20 individual stocks any more risky than a managed fund and certainly it will produce better returns if you track the stocks carefully. I am very tempted to forget about managed funds and just buy the individual stocks. Is this foolhardy?

I prefer managed funds because it essentially leaves me free to basically pick a few sectors and get a huge amount of diversification without having to pay the dealing costs for buying into the same number of companies myself.

sabretoothtigger

very risky, most money should be in funds invested regularly not just once. If you do that then you can take an interest in one or two small shareholdings and it wouldnt be foolish

Rollinghome

crisp wrote: »

which do you prefer? Is buying 10 to 20 individual stocks any more risky than a managed fund and certainly it will produce better returns if you track the stocks carefully. I am very tempted to forget about managed funds and just buy the individual stocks. Is this foolhardy?

The 'risk' depends on what you're comparing with and how you do it. The fewer the number of companies you invest in, the greater the risk. 15 to 20 used to be regarded as the sensible number or you could always take the advice of Andrew Carnegie: "The way to become rich is to place all your eggs in one basket and then watch that basket" (if you're ready for the risk).

The majority of UT managers underperform their index, i.e. do worse than what you'd hope to achieve by picking shares with a pin, and charge up to 2% p.a. for the privilege. That may not be a problem if you can be sure of finding the consistently better performers. An alternative would be to look at ITs - many with management fees below 0.5%.

How the costs compare depend on how long you keep shares. You'll have stockbroker fees and stamp duty but won't have a whacking 2% pa sucked out of your returns.

With non-UK shares it becomes more tricky and not much option to collective funds of some kind.

I've currently got shares in 22 companies (including 2 non-UK), probably too many, with overseas exposure via ITs and UTs. I'm getting lazier and more easily bored, so likely to move more towards collective funds including ITs, UTs, ETFs and trackers when, or if, the prospects for investment looks better - which I think is still a long way off.

JoeCrystal

I do agreed with Rollinghome, risks does have it massive influence on your bearing on Investments. I am young, a mere twenty three years old worker, I can take 100% loss in my Investment without blinking. I can always recoup any losses by keep earning money.

Also, it is sometime hard to strike a balance on the numbers of shares. I was under impression that ten shares should be fine for start but eventually I am heading toward fifteen or twenty shares as the ideal (providing, of course, they are in good companies and in many different sectors as possible).

As for non-UK shares, there are few companies that listed on LSE from aboard, State Bank of India come to mind as well BHP Billiton from Australia.

tradetime

crisp wrote: »

which do you prefer? Is buying 10 to 20 individual stocks any more risky than a managed fund and certainly it will produce better returns if you track the stocks carefully. I am very tempted to forget about managed funds and just buy the individual stocks. Is this foolhardy?

It depends to a great degree on what you know and understand about the markets and the companies you wish to invest in, or how much work you are prepared to do in order to know enough, for the majority of people managed funds are probably the best way to go since they don't have the knowledge, or the interest to rectify that.

Bazn

crisp wrote: »

certainly it will produce better returns if you track the stocks carefully.

lol yes, just as the majority of the population consider themselves above average.

Aegis

Rollinghome wrote: »

The majority of UT managers underperform their index, i.e. do worse than what you'd hope to achieve by picking shares with a pin, and charge up to 2% p.a. for the privilege.

This is something of a myth perpetuated by the pro-tracker crowd of late. In an average sector, you would expect to see most of the tracker funds more or less exactly mid table. Eliminate the passive managed funds and you have the majority of fund managers beating the index. Eliminate the bank managed funds and you have even more of a majority.

Doesn't work for all sectors, but it's a hell of a lot more in favour of the managers than some places would have us believe.

Lokolo

Rollinghome wrote: »

The 'risk' depends on what you're comparing with and how you do it. The fewer the number of companies you invest in, the greater the risk. 15 to 20 used to be regarded as the sensible number or you could always take the advice of Andrew Carnegie: "The way to become rich is to place all your eggs in one basket and then watch that basket" (if you're ready for the risk).

The majority of UT managers underperform their index, i.e. do worse than what you'd hope to achieve by picking shares with a pin, and charge up to 2% p.a. for the privilege. That may not be a problem if you can be sure of finding the consistently better performers. An alternative would be to look at ITs - many with management fees below 0.5%.

How the costs compare depend on how long you keep shares. You'll have stockbroker fees and stamp duty but won't have a whacking 2% pa sucked out of your returns.

With non-UK shares it becomes more tricky and not much option to collective funds of some kind.

I've currently got shares in 22 companies (including 2 non-UK), probably too many, with overseas exposure via ITs and UTs. I'm getting lazier and more easily bored, so likely to move more towards collective funds including ITs, UTs, ETFs and trackers when, or if, the prospects for investment looks better - which I think is still a long way off.

Why have you got ITs and UTs if they always do worse than index....?

Also when I look through funds I usually see they outperform the index (the majority) compared to what you say when you say they do badly? HL also says the same. (a lot of the fund average vs index, fund average is better than index)