How to invest on a (weeny) budget

Lokolo

gadgetmind wrote: »

Doesn't stock picking reduce diversity somewhat?

Active Fund management can go either way. You could get more diversification, you could get less.

Stock picking doesn't necessarily reduce diversity. Obviously it can do if you pick 3 shares compared to 30.

FSA have a number of guidelines on diversification. And I believe research has shown that once beyond a certain number, diversification has no effect (which I believe is something around 35 number).

gadgetmind

Linton wrote: »

Really! Sorry G but I can't let you get away with this. A FTSE tracker in no way could be considered low risk (using volatility as "risk"), whereas a cautious or balanced managed is far more stable.

Agreed, but the article was discussing holding a tracker+bonds, which is what cautious/balanced is. However, active cautious/balanced will usually also attempt stock picking, and market timing, which is where the luck and skill (or lack thereof) of the manager will either improve or degrade performance. After fees, the long term result is nearly always worse than a passive tracker+bonds approach.

This is simply not true - investing solely in the FTSE100 is pretty high risk however you do it.

Agreed, and I'd always advise using bonds alongside, but the chances of an investor picking a UK equity fund that will show long-term outperformance of a FTSE tracker are very slim unless they have a lucky dart.

gadgetmind

Lokolo wrote: »

And I believe research has shown that once beyond a certain number, diversification has no effect (which I believe is something around 35 number).

My own high-yield portfolio has 20 holdings, a number that I arrived at by using the scientific process of seeing how many shares would fit on the Google Finance portfolio page on my notebook's monitor.

I'm looking the buy some Reckitt Benckiser, but I'm waiting for the right price, and scrolling seems like too much trouble.

Linton

gadgetmind wrote: »

....
but the chances of an investor picking a UK equity fund that will show long-term outperformance of a FTSE tracker are very slim unless they have a lucky dart.

1) If one wanted to invest mainly and broadly in the FTSE100 then I would agree, a tracker is the way to go. But why would anyone rationally want to do it? Its volatility is high and the returns over say the past 10 years have been poor. Looking to the future, I have yet to meet anyone who believes that it represents a sector with good prospects of high steady growth. To push for trackers, without considering the nature of the underlying sector seems bizarre to me.

2) Maximum performance doesnt seem to be the major concern of newbie investors; they seem to be far more concerned about the chance of major losses. To advocate one strategy over another purely on the basis of long term growth is rather misleading.

3) People just starting investing, with their first fund purchase, are unlikely to be well versed in the need for regular asset balancing. IMHO it would be much safer for them both in terms of performance and volatility to go for a balanced managed fund from one of the major fund managers.

gadgetmind

Linton wrote: »

1) If one wanted to invest mainly and broadly in the FTSE100 then I would agree, a tracker is the way to go.

Agreed. I'd have been happier to see a global tracker there, but that's also difficult for a novice. Portfolios tend to be given a home bias so that the investor doesn't get spooked when the papers talk about the markets going up and all they see is their investments going down. And no, this isn't balanced out when everything goes the other way as gut reactions don't work like that.

2) Maximum performance doesnt seem to be the major concern of newbie investors; they seem to be far more concerned about the chance of major losses.

Hence the big whack of bonds the article suggested.

IMHO it would be much safer for them both in terms of performance and volatility to go for a balanced managed fund from one of the major fund managers.

Something like a Vanguard LifeStrategy tracker would be ideal, but there doesn't seem to be a good way to drop feed into those.

Derivative

jamesd wrote: »

Know any good sources for researching smaller companies in Indonesia, Taiwan, Panama and Chile so I can decide which to buy? Who do I need to know to get in to investing in a new business in Kazakhstan? What are exchange rate and dealing costs like in £100 chunks while I'm diversifying with lots of holdings in each of those markets and only say a £100,000 total budget for all investments? Any idea who I can cost-effectively hire to check the sales a Chinese company is making through its distributors when I'm trying to check whether its overall sales figures aren't grossly inflated?

I pay fund managers for a reason. There's too much investing world for it to be practical to research the useful places to invest adequately and it's important to invest in the right places, not just stick to the easy ones because they are easy and practical for individual investors to use.

For some places it's a bit easier to do it yourself, though I have my doubts that many UK private individuals would do well in researching say the US smaller companies area just because of lack of familiarity with even that major economy.

My apologies, I meant with regards to UK shares.
For small investors, international shares are pretty much out of the question. You can't hold them within an ISA, you'll be fiddling with various taxation regimes, etc.

Lokolo

EdgEy wrote: »

My apologies, I meant with regards to UK shares.
For small investors, international shares are pretty much out of the question. You can't hold them within an ISA, you'll be fiddling with various taxation regimes, etc.

Yes you can. Well I am anyway...! (mine is quoted on NASDAQ)

Derivative

Lokolo wrote: »

Yes you can. Well I am anyway...! (mine is quoted on NASDAQ)

Hm, I wasn't aware of that. Can you explain? No need to name the actual company etc - simply interested in how I could invest directly in US stocks through an S&S ISA.

Ark_Welder

EdgEy wrote: »

Hm, I wasn't aware of that. Can you explain? No need to name the actual company etc - simply interested in how I could invest directly in US stocks through an S&S ISA.

From http://www.hmrc.gov.uk/isa/faqs.htm#24

A. Stocks and shares ISAs can include:

• shares and corporate bonds issued by companies officially listed on a recognised stock exchange anywhere in the world

List of recognised exchanges: http://www.hmrc.gov.uk/fid/table1-rse.pdf

Lokolo

EdgEy wrote: »

Hm, I wasn't aware of that. Can you explain? No need to name the actual company etc - simply interested in how I could invest directly in US stocks through an S&S ISA.

I buy through HL and the stock is TSLA. Good luck finding out why though!

Edit - nevermind! Someone has explained.