company shares vs managed funds

crisp

Lokolo wrote: »

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.

not always. it depends on the amount we are talking. as the charges are fixed with stocks, but variable with funds then it would work out cheaper for me.

Lokolo

crisp wrote: »

not always. it depends on the amount we are talking. as the charges are fixed with stocks, but variable with funds then it would work out cheaper for me.

Yes but if you're investing £1000 (to get the equivalent of 1.25% charge) in 1 stock is pretty risky unless you've got a lot of £1000s to invest compared to HLs one of charge of 0.5% or 0%

I suspect if you're investing £10-20k on shares then you wouldn't be on this site as you'd be loaded already lol

crisp

apologies what I mean by track the stocks carefully, is once you buy you are not "lazy" but actively, even daily, checking the performance of the stocks themselves so you are maximimisng your chances of selling at a superior price. I dont think a particularly well read individual or one prepared to get out there and research is any worse off than the majority of "fund managers" - there are some pretty dire ones!

the whole reason for me asking this question, is that Peter Lynch (in his book, one up on wall street) seems to advocate the purchase of individual stocks rather than the "market". Its a pretty similar line to that of Jim Slater. Its pretty contrary to what I have been doing of late! I am starting to see what I believe good stocks trading at bargain prices to recent levels.

Dont get me wrong, there are definitely certain advantages to taking a fund or etf, but I am talking about returns and in particular the chance to compound gains ( or losses!). Sabretoothtigger, you are correct in saying that a blend of the two (funds and individual stocks) is probably best.

Again, as said previously, with this I will only be using money I can afford to lose, so I can afford to be patient if necessary and so much in investment terms depends on your time horizons.

I thought I would ask and there seems by the response a pretty even split so far between those with individual stock holdings and those invested in funds. trackers etc.

Lokolo

But you are. If you want to pay £12.50 comission for buying and are planning on 'day trading', then to get a profit on £1k the share price has to raise at least 2.5% before you're even in profit (12.50 to buy, 12.50 to sell. Total cost £25. Which is 2.5% of £1000), so you've got to be pretty on top of things to get profit.

Obviously if you know some news about something and share price is bound to rise then it will obviously be worth it.

If you are in it for the long haul then unless you are reinvesting dividends, got a big portfolio, and get cheaper comission (so like iii's £1.50 charge, but can only buy once a month or X day) then I can understand. But thats why funds exist, because you get all that in one.

Rollinghome

Lokolo wrote: »

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)

You seem to have misunderstood.

I said: "The majority of UT managers underperform their index... That may not be a problem if you can be sure of finding the consistently better performers."

The reason I have UTs and ITs as I said is primarily for non-UK exposure. Most of my stocks are in UK companies. Buying small-cap stocks in emerging markets etc. I know nothing about would be a sure loser.

No, the majority of unit trusts underperform the relative index. It's obvious why.

Without costs, the average fund would by definition be average and about in line with the index. Very few shares are in private hands so it's the funds that determine the index. They can't all be be better than average so after costs are added, the average perfomance is below the indexes.

It's the management costs that are the killer and if returns on investment is low over the next few years then paying someone 1.5% of your capital every year could be a big problem. Paying 1.5% p.a. out of a 10% return is one thing, out of 3%, or even less than 0% as it has been in recent years something else.

Suggest you look at Trustnet figures. Something like 75% underperform the indexes and around 25% outperform. That's largely due to charges. Trouble being that the ones that outperform one year may under-perform the next year. If you can figure the ones that will out-perform next year then you're on a winner.

Rollinghome

Lokolo wrote: »

I suspect if you're investing £10-20k on shares then you wouldn't be on this site as you'd be loaded already lol

Well... I've got many times more than £20K invested in shares and be surprised if I'm the only one here. With lots of people inheriting property that's surely not a lot now.

Personally, I'd suggest that £20K is the absolute minimum to start investing in shares because it wouldn't be worth the effort for less. I'd also suggest that's also the minimum to invest in collective equity investments including UTs too. Don't believe the hype or glitz. Anything less than that for most people would be better in risk-free savings.

Lokolo

Yeh obviously if you can find one that will out perform year after year you're onto a winner, but no-one has a crystal ball lol.

When I was looking for funds the one that spotted my eye was one that consistantly outperforms the index by miles, when the index is going up. But as soon as the index reduces it collapses like anything. So its quite high risk. So why would I choose the index over that?

If you pick the right funds then I don't see why you wouldn't go for it over index trackers or shares. Shares are going to be even more expensive then unit trusts. Trackers really depend on where and what you want to invest in.

Lokolo

Rollinghome wrote: »

Well... I've got many times more than £20K invested in shares and be surprised if I'm the only one here. With lots of people inheriting property that's surely not a lot now.

Personally, I'd suggest that £20K is the absolute minimum to start investing in shares because it wouldn't be worth the effort for less. I'd also suggest that's also the minimum to invest in collective equity investments including UTs too. Don't believe the hype or glitz. Anything less than that for most people would be better in risk-free savings.

Yeh but not everyone has dead family or a loaded job straight after school. I'm still studying but I am investing for 10-15 years, even though I only invest £100 a month, I plan to increase the contribution after a while (when I've got a job) so I can have around £5-10k before stopping.

Rollinghome

Lokolo wrote: »

Yeh obviously if you can find one that will out perform year after year you're onto a winner, but no-one has a crystal ball lol.

When I was looking for funds the one that spotted my eye was one that consistantly outperforms the index by miles, when the index is going up. But as soon as the index reduces it collapses like anything. So its quite high risk. So why would I choose the index over that?

If you pick the right funds then I don't see why you wouldn't go for it over index trackers or shares. Shares are going to be even more expensive then unit trusts. Trackers really depend on where and what you want to invest in.

Yes, a crystal ball would be useful.

Would you like to say which fund you mean? Have you put all your money in just one fund. That in itself can be riskier. Fine if you just want a flutter rather than to seriously invest.

Even some managed funds that appeared to be very consistent came badly unstuck last year. It's the bad times that show up the managers who were just lucky.

No, shares are not more expensive than collective investments and generally much, much cheaper. It depends on how you invest.

Rollinghome

Lokolo wrote: »

Yeh but not everyone has dead family or a loaded job straight after school. I'm still studying but I am investing for 10-15 years, even though I only invest £100 a month, I plan to increase the contribution after a while (when I've got a job) so I can have around £5-10k before stopping.

I'd have thought everyone does have dead family - unless your family has discovered the secret of eternal life. :rolleyes:

Your choice, but I certainly wouldn't be putting my money at risk if it was less than £5K (or even several times that). I hope it works out for you.