MSE News: Financial advice shake-up: what will you pay?

doughnutmachine

jamesd wrote: »

But that's mostly moot anyway. Most people just don't have high enough investment value to diversify properly with shares and will need to use collective investments to get sufficient diversification, including sufficient international diversification at a tolerable cost. Getting that diversification in place is going to be one of the most important parts of a full IFA workup and recommendation.

as i understand it about twenty shares in a portfolio is plenty? two grand in each share is only 40k - not a massively large amount of money.

dunstonh

doughnutmachine wrote: »

as i understand it about twenty shares in a portfolio is plenty? two grand in each share is only 40k - not a massively large amount of money.

That gives you a high risk portfolio. How about a lower risk one? How are you going to achieve your uk bonds allocation, global bonds, property etc?

doughnutmachine

dunstonh wrote: »

That gives you a high risk portfolio. How about a lower risk one? How are you going to achieve your uk bonds allocation, global bonds, property etc?

you really think investing in a portfolio of blue chips like shell/ unilever is high risk?

even if you think shares are high risk you could leave some money in the building society?

Linton

doughnutmachine wrote: »

you really think investing in a portfolio of blue chips like shell/ unilever is high risk?

even if you think shares are high risk you could leave some money in the building society?

Shell and many other FTSE100 companies nearly halved in value in about 5 months in 2008, and dropped around 20% in a month in July/August 2011. Sounds like high risk to me - enough to cause most inexperienced investors sleepless nights.

dunstonh

you really think investing in a portfolio of blue chips like shell/ unilever is high risk?

Yes. Not just me but include the ombudsman, regulator and pretty much any risk analysis.

even if you think shares are high risk you could leave some money in the building society?

So, that is some money at one extreme and some at the other with nothing in between and less diversification in the process.

doughnutmachine

dunstonh wrote: »

Yes. Not just me but include the ombudsman, regulator and pretty much any risk analysis.



So, that is some money at one extreme and some at the other with nothing in between and less diversification in the process.

surely unit trusts etc all invest in shares? so by investing directly i'm cutting out the middle man and saving some cash?

tbh, i know a lot of people say gilts/ bonds are moderate risk, but there is no way my cash is going into fixed income with the BoE printing money. so i'd rather mix my shares with some cash to get an overall medium risk

doughnutmachine

Linton wrote: »

Shell and many other FTSE100 companies nearly halved in value in about 5 months in 2008, and dropped around 20% in a month in July/August 2011. Sounds like high risk to me - enough to cause most inexperienced investors sleepless nights.

fair point, but did they not go up in value later?

Linton

doughnutmachine wrote: »

fair point, but did they not go up in value later?

Yes, they normally do but you only know that with hindsight. If you had happened to want the cash in August 2008 you would have been disappointed. That is basically what risky means - there is a reasonably high risk that when you want to sell the investment you get less than what you paid.

doughnutmachine

Linton wrote: »

Yes, they normally do but you only know that with hindsight. If you had happened to want the cash in August 2008 you would have been disappointed. That is basically what risky means - there is a reasonably high risk that when you want to sell the investment you get less than what you paid.

but surely a unit trust (or whatever) holding shares will go down in value too? i really don't see why directly held shares are riskier than a unit trust holding the same shares?

Linton

doughnutmachine wrote: »

surely unit trusts etc all invest in shares? so by investing directly i'm cutting out the middle man and saving some cash?

tbh, i know a lot of people say gilts/ bonds are moderate risk, but there is no way my cash is going into fixed income with the BoE printing money. so i'd rather mix my shares with some cash to get an overall medium risk

They could also invest in bonds. However the point is that a unit trust can buy a much larger number of different shares than you could simply because its resources are much larger. This is important if for example you want to invest £5K in the USA - you could not sensibly buy sufficient USA shares to create a diversified holding. A fund can invest in shares that you would find difficult and/or expensive to deal in, say those in the Far East. Finally in some areas a fund managers expertise is essential. A good example is smaller companies where the fund manager would analyse the accounts and talk to senior management before putting significant money into a company's shares. You would find it difficult to get the same level of insight.