Stocks and Shares ISA potential loss

jober

I have just invested my first £50 into a company via a Stocks and Shares ISA. Yes, a small amount, but just as a point of interest, although I am fully aware this could be lost if my chosen investment fails, but is there any chance I can lose more than what I put in?

atush

No.

But do you realise if the price falls, you will get more units/shares for your 50 each month? that is a good thing. Look up pound cost averaging.

And are you investing in single shares (where you can lose it all) or funds (where you wont because each fund holds dozens if not hundreds of different shares)

jober

I was aware on the first point, yes, so all good on that front. I'm not using a managed account to disperse my shares, but rather doing lots manually, so effectively the same thing, just me doing it.
Cheers for your reply.

bostonerimus

The only way to lose more than the amount of your own the money you put in is to invest with money you borrow. This is called "buying on margin" and is to be avoided if your own money is at risk.

jimjames

It might be something obvious that you're aware of but generally £50 into individual company shares is a very expensive way to invest as the transaction cost will be a high part of the investment. How much is your broker charging ?

Heedtheadvice

Ooooh! I'll go against the grain and say YES!

Take note of jimjames comment and if you invest £50 then you will have costs on top and the worst case is you lose the lot as well as costs!

Investing £50 including costs then, no.

As already pointed out it would be far better to spread the risk (diversification) and buy collective investments such as a fund or a trust then the risk of losing huge amounts is much reduced and you gain on the managers expertise. For direct investment in individual company shares you have to expect some to lose, potentially big time such as after I bought long established banking shares :mad::eek::( , that cured me and gains from collective investments (and dividends) have been great.

rathernot

You can't lose more but it can end up costing you more.

If you spend £10 on a "trade" to buy those £50 worth of shares and they drop to £0 you've lost £50 but it's cost you £10 to do so.

If they drop to £20 and you panic and sell and that costs you £10 you've lost £30 but it's cost you £20 because you had the buy and the sell.

Subtle and maybe pedantic distinction but the costs can add up.

ValiantSon

jober wrote: »

I was aware on the first point, yes, so all good on that front. I'm not using a managed account to disperse my shares, but rather doing lots manually, so effectively the same thing, just me doing it.
Cheers for your reply.

It is similar, but I doubt it is the same. At £50 per month (or even £500, or £5,000) you cannot hope to replicate the diversification of a fund. Your investments will not be as well-diversified doing it this way, and it will also be very expensive due to trading costs.

Take a proper look at multi-asset funds like Vanguard LifeStrategy; HSBC Global Strategy; L&G Multi Index; or Blackrock Consensus

ermine

jober wrote: »

I'm not using a managed account to disperse my shares, but rather doing lots manually, so effectively the same thing, just me doing it.

OMG, at least check out your firm's regular monthly investing system, which usually has lower trading fees per transaction (and can often be switched off one month to another)

But even if it's only £1.50 per £50 share purchase, you're still eating a 3% hit on purchase.

The fundamental problem with stock market investments is that the long run average annual return in real terms is low - in the order of 5% after inflation. Pay 3% dailing to buy and you are taking a > 50% drag on returns. You must absolutely flay trading costs, else you're just working for your broker.

This explains that in more detail, as well as how to go about fixing that. There's absolutely nothing wrong in investing £50 a month, but you must do it in the right way to stand a chance in hell of making any money.

Ray_Singh-Blue

You can definitely lose more than you put in.

Imagine you buy shares in a company for £50. The company doubles in value, so your shares are worth £100. Then the company goes bust, so your shares are worth nothing.

You lost £100.

bowlhead99

Ray_Singh-Blue wrote: »

You can definitely lose more than you put in.

Imagine you buy shares in a company for £50. The company doubles in value, so your shares are worth £100. Then the company goes bust, so your shares are worth nothing.

You lost £100.

I do agree of course that if you get your £50 up to £100 then it is best to think you have £100 and invest that £100 wisely rather than thinking it's only £50 of yours and a load of 'free money' - that mindset can lead to some higher risk judgements

But in the above scenario, did you really lose £100 of cold hard cash? You lost the ability to be able to sell the shares for £100 (less costs of sale), but you haven't lost more cash than you gave them - your gain was all theoretical until you actually tried to sell it, so you're only out of pocket by £50 even though you could have replaced the £50 and had money left over, if you'd got out while the going was good.

If I go to a casino and buy £50 of coloured chips, and get some more chips due to good results, but then make some bad choices, I might walk away having just lost a £100 hand of cards but I haven't really 'lost' £100. I'm back at my start point less £50. If I had taken £1000 of casino credit and lost that too, then I could have lost £1050. Presumably OP''s concern is that he could lose more than he put in and be on the hook for losses beyond the capital he put up (i.e. owe another £1000 on top of it). That only happens if you're using leverage / borrowing or spreadbetting, contracts for difference etc to buy more shares than the value of your account suggests.