I need serious help with investing please!

jonj123

Hi

I have never traded stocks before and have very limited knowledge about them. I initially thought of investing in a Natwest stocks and shares account but I was strongly advised not to do so by people on this forum. I then thought of doing stock trading myself and looked at buying shares in the dogs of the dow or buying penny shares. Once again I was advised not to invest in these.
Here's my question: I am a student with £25000 that I wish to invest which I have earned over the last few years through my online business. I do not need to touch this in the next 5 years or even longer. I am very much interested in getting into the stock market but as I'm a student I cannot commit too much time to it. I desperately need advice as to where to start please.

Thanks

Reaper

If you don't want to take an active part in the investment decisions then your best bet is to go to an IFA, pay a fee (better than commission based IMO) and get them to advise you. Don't go to a bank advisor though.

If you are willing to take a more active part then I think the simplest way in to investments is either funds or index trackers.

If funds apeal then start by deciding how to spread your portfolio. Lokolo suggested a nice site recently which will give you suggestions:
https://www.fidelity.co.uk/investor/guidance-planning/plan-portfolio/myplan-portfolio-quickstart.page?
It is only a suggestion of course (for example I might choose to reduce the USA exposure they suggest).

Next pick a discount broker. Hargreave Landsdowne are a commonly used one by people on this board.

Finally choose a spread of funds within the investment areas of your portfolio. This is the tricky bit. HL have suggestions for what they consider the top 150 funds so you could just pick from those. However not everybody would agree with their choices and if you are willing to take it further extra fund research is better. There is a particularly good post from Munk in this thread that tells you how you can do further (free) research to narrow down the selection.

I can't guarantee you will make money but I think you will be a lot better off than buying individual shares in Dow Dogs or Penny Stocks.

A_nice_fellow

How much of the money are you prepared to lose?

jonj123

Thanks I really appreciate your help reaper. Hargreave Landsdown mention they have an initial charge of 3-5.5%. Is it true that IFAs have an initial charge of about 5% as well? Aren't discount brokers supposed to be significantly cheaper than IFAs?

Aegis

jonj123 wrote: »

Thanks I really appreciate your help reaper. Hargreave Landsdown mention they have an initial charge of 3-5.5%. Is it true that IFAs have an initial charge of about 5% as well? Aren't discount brokers supposed to be significantly cheaper than IFAs?

Hargreaves Lansdown typically have an initial charge of 0% on funds purchased on a self-select basis. In terms of getting advice from them, they're generally perceived as pretty expensive compared to other IFAs. And no, 5% is not a typical initial charge for an IFA. Generally the maximum you'll see from one is 3% (though there are exceptions, especially for smaller sums).

Reaper

As Aegis says you do not need to pay that. Funds typically quote up to 5% initial charge most of which is used to pay financial advisors commission.

However if you are willing to make your own decisions and do not want advice then you go to an "execution only" discount broker (eg Hargreaves Landsdown). Because they are doing no work other than forwarding your application they are willing to sacrifice their up front commission, which means a very low initial charge or often none at all. This makes it cheaper than you going to the fund owners themselves.

On the HL web site when you look at a fund it normally says what the normal upfront fee would be plus what they have discounted it by. So for example if they say "Initial Charge 5%" and "Initial Saving 5%" then it costs nothing.

They get their money from "trail commission" instead. The funds impose an annual management charge (e.g. 1.5%), some of which is sent to the broker (e.g. 0.5%). Again, even if you went direct you would still have to pay this fee. Actually HL often refund a small part of this. If so it is also listed with the fund details. So if it says "Annual Saving 0.2%" then the annual charge shown will be reduced by that amount.

If you need advice and went to an IFA or bank advisor you could let them take commission and on the face of it get the advice free. However this is an illusion as you will pay that 5% upfront fee which they will take (actually most will not take it all and may give some of it back to you, so it might only cost, say, 3%). It also tempts them to suggest investments which pay them more commission.

Better in my opinion is to choose the fee option instead. In this case they will not take commission so you won't pay that initial charge.

If you want an IFA get a recommendation if possible from somebody else who has used them or failing that visit http://www.unbiased.co.uk/ to find one near you. Ideally you want one that specialises in investments. If paying a fee make sure they discount the initial charge and if possible try to get their share of the trail commission refunded too.

dunstonh

jonj123 wrote: »

Thanks I really appreciate your help reaper. Hargreave Landsdown mention they have an initial charge of 3-5.5%. Is it true that IFAs have an initial charge of about 5% as well? Aren't discount brokers supposed to be significantly cheaper than IFAs?

3% if the typical maximum for IFAs. Although the last published FSA figures on what was actually being taken as an average was 1.8%.

Discount brokers are IFAs (or vice versa). Most IFAs will do execution only and some have direct offers. Because of the lower consumer protection, lower liability costs and less admin, you can get the transaction cheaper than advice. A discount broker is usually an IFA with a website doing the same sort of things you used to do execution only with a local IFA.

redb_2

"I do not need to touch this in the next 5 years or even longer."

As you are a student are you really sure about this - although you dont put any detail in your post, i might presume you will be graduating in 1/2/3 years time ? At which point you will have a world of opportunities and options available to you. (Emingrate, move to London, buy a house, further studies, go professional wiht your online business just to think of a few) Any stock market investment is for a 5 year period. So why risk having your £25k fall in value and limit your options at such an exciting time by risking your money in S&S ?

PS well done on saving/earning the money in your student days

jonj123

Thanks for your feedback. Of course I am not going to risk all my money. I have about 55K of which I am thinking of investing about 25K. Even then I would probably want to start off by investing only about 5-10K and see how it goes. I understand your concern though and rest assured I won't blow away all my money at once

On another note I've had a look at the Hargreaves Lansdown website and was wondering whether it was better for me to open a fund account or an ISA account. Also what are the advantages of a fund account as opposed to a share account? Reaper has already mentioned it is more suitable for beginners like myself but why is that? Is it significantly less risky than a share account?

Reaper

jonj123 wrote: »

fund account or an ISA account.

You are limited to a maximum of £10,200 each year in a stocks and shares ISA, or £5,100 if you already took out a cash ISA. The main advantages are:
1) You pay no capital gains tax (though you have to make a fair amount of profit before that becomes an issue)
2) You don't have to bother declaring it if you ever have to do a tax return
On the whole you may as well put as much in the ISA as you can.

Also what are the advantages of a fund account as opposed to a share account? Reaper has already mentioned it is more suitable for beginners like myself but why is that? Is it significantly less risky than a share account?

Three reasons spring to mind:
1) Buying individual shares without doing a lot of research is little more than gambling. You have to be willing to put in the effort to make money out of it. You still have to do a bit of work to select a fund but not as much, after that you are paying for an experienced manager to decide which shares to buy and sell on your behalf.
2) Putting large sums of money in a handful of shares is risky. You end up with a very volatile basket. A single company going bust could hit you hard. Whereas each fund invests in hundreds of shares, so even a small sum is well diversified and a single company going bust is a drop in the ocean.
3) Most share trading accounts limit you to the UK or western markets. I wouldn't know where to start buying shares in India or China. However with funds all I have to do is a select a fund whose strategy is to invest in the countries I am interested in.

Lokolo

Just to add on Reaper's post. If you are going with HL then fine, but be careful with some providers as they charge for the ISA usage, so it may then not end up being worthwhile. But if it's free, you may as well take it.