S+S ISA, dividend hunting vs diversification?

lepidopterist

I'm about to fill out a S+S ISA, using iWeb. Never done this before, and I'm slightly nervous, so thought I might seek advice from you guys.

My plan is to split 12k in (relatively) long-term positions between 6 safe-looking stocks with a focus on value, high yields and (if possible) a decent PEG, and then use 3k to chase some more risky short-termist stuff. My safe looking stocks are -

De La Rue
National Grid
BP
GSK
Vodaphone
Sainsburys


...my goal is to have the bulk of the money working hard, in a relatively low-risk way, and I've picked these 6 as they combine dividend yield with good price growth potential. Curious to hear people's opinions; should I diversify more?

Your_Hero

Interesting that you've not done this before but dive straight into stock picking. You may wish to consider using investment funds instead for more diversification and first time investors?

ChesterDog

I can only agree. Individual stocks are never 'safe' and having only six means you are very exposed to their inherent risks.

It's all very well picking them carefully and looking at the dividend, but a three or four percent dividend won't taste very sweet if the capital disappears at a rate of knots.

I would save the individual stocks for later and start with trackers/etfs/funds/ITs, where somebody (or the market itself) does the work for you.

jimjames

As above.

I've been investing for 18 years and do not hold any shares directly. If you're new to investment then buying shares just seems very risky when a fund is far more diversified.

Remember BP & Rbs, both massive companies that were totally secure? Still think they're secure?

moxter

My dad had almost his entire pension in RBS. He's now 68 and reckons he will continue to work until he dies as there's nothing elsewhere. That was a pretty harrowing lesson for me.

bowlhead99

It depends what you mean for "safe-looking" and "relatively low risk way". Holding six shares is high risk in anyone's standards.

Even holding the entire UK index of hundreds of thousands of shares is still considered relatively high risk because they generally move together, and you are excluding all the overseas shares and other less volatile things like bonds that most people would have in a balanced multi-asset portfolio.

So you can see that with that context, just grabbing 6 shares you like the look of, is a gamble. "Good price growth potential"? That could apply to thousands of companies around the world. A nice yield doesn't make it a safe investment when the price is moving up or down in 20-50% jumps.

Most people investing for dividends and a fair chance of long term growth, with only £12k to spend, would consider equity income funds, or a few different types of funds held as a portfolio of funds, rather than pick their own portfolio of individual shares. If their portfolio is only big enough to support 6 main holdings (or their time to research and properly review limits them to 6 main holdings), they can just pay a fund manager a few pounds a year to do it for them.

That said, it's more fun to look at individual companies because your value moves around much more. But that fun comes from high risk, high reward mentality. It is not a "relatively low risk way", holding six companies.

Consider BP share price. If you look at the 30 months from Sept 2000 to Jan 2003, price dropped from 650p to 350p (-45%). After 40 more months it was up 100% off its low to 700p. After 20 more months it was back down at 500p (-30%). After 5 months it was back up to our 650p again, a 30% gain.

Then, give it just another 5 months and we're at October '08 way down at 370p in no time (-45%). If you hung around another year and a half, you'd recovered up to 650p, a tasty 75% gain. Great! Then just 3 months later, down more than half, to 300p. Keep holding for 4 more years and we're back at 500p.

That's all just share price movement, and between Q4 2000 and today there's been 270p of dividend. So total value is the 500p price plus the 270p divs, =670. Assuming you had reinvested the divs or saved them in a cash account rather than just spending them when you got the cash, you'd probably have over 700p total value from the dividends-on -dividends compound effect.

Still, you started at 650p so it's not a monster performance. 10% in 14 years would have been beaten by cash, without the risk losing half your money on multiple occasions. Must admit I haven't done a proper review, this is just mental arithmetic off a chart and maybe there's a stock split or something i don't know about.

So, from that example you can see the company has dividend potential and share price change potential, just like most other companies in the world. And it's worth billions so hopefully won't be gone tomorrow, just like most other companies hopefully won't be gone tomorrow. But without a full analysis and consideration of how the energy sector will change in the next 30 years, it's difficult to make a case for BP over Shell or Exxon or a different sector entirely.

If you think BP and the other 5 offer value and a high yield, ask yourself why other people in the market as a whole do not. Why do they not give it a high price and a lower yield? How can you, who has never bought a share before, know better than them? Is it not more likely that they know better than you, the risks and potential returns inherent in the stock at 500p?

Not saying this can't work for you, individual stocks was how I started out (from an accounting background and being interested in financial reporting and performance and markets). But know what you're getting into isn't "low risk"

lepidopterist

*post deleted*


Some people seem to have inferred a lot of information - almost all of it incorrect - from my initial post. Please be clear: I didn't ask for lectures. I asked for advice.

(Some) Things I never said:

1. I have never bought stocks before
2. I have no other investments
3. I am unaware of potential risk
4. I cannot afford to lose this money

I appreciate your concern. It is not necessary.

jimjames

lepidopterist wrote: »

*post deleted*


Some people seem to have inferred a lot of information - almost all of it incorrect - from my initial post. Please be clear: I didn't ask for lectures. I asked for advice.

(Some) Things I never said:

1. I have never bought stocks before
2. I have no other investments
3. I am unaware of potential risk
4. I cannot afford to lose this money

I appreciate your concern. It is not necessary.

In that case it is probably best to make your situation clear in your post. "I've never done this before" doesn't sound much like item 1 for example.

None of your clarifications are obvious from what was said initially so I'm not sure how you expect anyone to comment on something in isolation from the rest of the picture

Your_Hero

lepidopterist wrote: »

*post deleted*


Some people seem to have inferred a lot of information - almost all of it incorrect - from my initial post. Please be clear: I didn't ask for lectures. I asked for advice.

(Some) Things I never said:

1. I have never bought stocks before
2. I have no other investments
3. I am unaware of potential risk
4. I cannot afford to lose this money

I appreciate your concern. It is not necessary.

The terminology used in your OP would indicate otherwise.

Good luck with your stocks anyway.

C_Mababejive

I think VOD and TSCO would be a good bet..and for a possible big payout VOG.

moxter

lepidopterist wrote: »

*post deleted*


Some people seem to have inferred a lot of information - almost all of it incorrect - from my initial post. Please be clear: I didn't ask for lectures. I asked for advice.

(Some) Things I never said:

1. I have never bought stocks before
2. I have no other investments
3. I am unaware of potential risk
4. I cannot afford to lose this money

I appreciate your concern. It is not necessary.

Given that your previous posting history mainly concerns debt, unemployment and bailiffs, rather than suggesting a lengthy history of investing, might I suggest a little humility?

As previously stated "Never done this before sounds awfully close to (1).

As for (2) that changes everything. If your £12k is your only investment then punting it all in a handful of stocks would seem incredibly risky at best and downright foolish at worst. If you've got £200k already invested elsewhere then a speculative punt sounds far more reasonable. Why didn't you say so? (And were your creditors aware of all these investments?) But apparently a year ago you had "no assets" http://forums.moneysavingexpert.com/showpost.php?p=61286475&postcount=1 - you've had a rapid turnaround.

(3) with respect rings hollow. You say "safe-looking" and "relatively low risk" - presumably you mean "compared to other individual stock picks" rather than "as an investment strategy". If you meant the latter then that's plain wrong.

As for (4) I hope for your sake that you're right.