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What to think when buying shares.

in Savings & investments
119 replies 31.5K views
This discussion relates to the 'how to think about shares' article

Important: Click on the following link to discuss dealing costs

WARNING: This site is not a regulated investment site, please do not discuss any individual shares, investment or stock picking. In the article linked to above a range of sites which do welcome those kind of discussions are linked to.
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Replies

  • I'd like to emphasise to anyone starting out buying shares not to overlook the importance of dividends.Most of the returns on stockmarket investing over the years come from reinvested divis, not changes in the share price.

    Many people know this because they bought shares in the Thatcher era "Sid" privatisations or got windfall demutualisation shares - most of these companies pay good divis.

    It's quite easy at the moment to put together a portfolio of shares which will give you a dividend yield of 5-6% a year (tax free to basic rate taxpayers, 25% to HRT). So you know that it's pretty certain you're going to get that 6% income return, even if the share price wobbles up and down.

    Here's a few shares you could consider - and if you can buy all 10, it will be safer, because they are in different sectors. It's rare for all types of company to be out of favour at the same time.

    Lloyds Bank 7.7% bank
    United Utilities 7.2% water company
    Northern Foods 5.9% food supplier to M&S
    Dixons 5.7% retailer
    BT 5.2% telecoms
    Legal and General 5.0% life assurance
    British American Tobacco 4.6% cigs
    Scottish and Newcastle 4.6% beer
    Pilkington 4.6% industrial/automotive glass
    Shell 3.8% oil

    Overall a 5.4% yield. This is the "forecast yield" - what analysts expect the company to pay out in dividends over the next year.
    Better than cash.:)

    These are mostly what they call "defensive" shares - when there's a downturn people tend to still use banks, pay their life insurance, drive cars, eat, drink, smoke and talk to each other on the phone. So shares like these did well during the dotcom crash and are still doing well today. They're all big well known companies too - size does matter :D

    I can't claim credit for inventing this idea of getting a basket of high yield shares - it was dreamed up by a very experienced share guru at the Motley Fool.He calls it a High Yield Portfolio (HYP).

    But I can say the idea works, I'm so keen on HYPs I now have two. :)

    If you're young and looking to grow your savings, just reinvest the dividends and buy more shares.Do this every 6 months when they've mounted up a bit -you don't want to trade a lot, as the charges cut into your profits. If you need income, take the divis to spend. Otherwise just buy and forget......of course some people just can't resist checking.....;).
    Trying to keep it simple...;)
  • muckellmuckell Forumite
    248 Posts
    I'll second that Editor, i've been using Fool.co.uk for years and my HYP has grown nicely...

    Would recommend
    You Can, If You Think You Can!
  • plumb1_2plumb1_2 Forumite
    3.5K Posts
    Part of the Furniture 1,000 Posts Name Dropper Combo Breaker
    Forumite
    Good post Editor,When starting out buying shares it is good to have a solid base of shares.
    If anyone is thinking of opening a share dealing account see my offer,lastest update from Comdirect is that the offer will end in July.
    http://forums.moneysavingexpert.com/showthread.html?t=235
    A thankyou is payment enough .
  • marymary Forumite
    1.6K Posts
    Part of the Furniture 1,000 Posts Combo Breaker
    My father left me some shares about 5 years ago with Norwich Union, as it was then. It is only a small amount, 250 shares. They were then taken over by Aviva. I usually receive about £50 a year in dividends from it.

    By pure coincidence today I had a letter from them saying that they are making a new Postal Share Dealing Service available to our shareholders who hold 500 Aviva shares or less. This service which will enable you to either sell your shares or purchase further shares, is entirely voluntary .....

    They continue ...we appreciate that it may be uneconomical or inconvenient to hold a small number of shares and therefore you may prefer to sell them if you are able to do so without incurring a siginificant fee .....

    We have arranged for Lloyds TSB Registrars to offer a share dealing service, which will be available until 12th August. the charges for the service will be 20 p for each share you sell, with a maximum charge of £30. In addition, stamp duty reserve tax is also payable on purchases currently at the rate of 0.5% of the transaction value.

    I don't have any other shares and it's something I know little about.
    Last year the "Indicative value of the shares was £1,426 and this year it is £1,632" I think this means they went up by some 14%??
    The current estimated value of the shares is £1,566. I really haven't a clue whether their postal share dealing service means it is a good deal for selling. Is it something that is likely to be repeated? I don't need the money as such. I feel happier chasing high interest savings accounts, stoozing from credit cards and being in more "personal control" of my money.
    So, should I just sell it and add it to my savings pot?

    Any advice welcome.
  • I'd like to emphasise to anyone starting out buying shares not to overlook the importance of dividends.Most of the returns on stockmarket investing over the years come from reinvested divis, not changes in the share price.

    i have to confesss tto knowing nothing about shares however i do recall reading something a while back about 2 sons who received an inheritance from their father.

    father gave both something like £10,000 (i think) with one proviso - that they invest the £10,000 in shares and can spend only the dividends not the original £10k

    one son withdrew his dividends every year and spend them while the other reinvested the dividends in more shares.

    30 years later son 2 was something like 500 times better off just because of the reinvestment.

    ill try to find a link because it pretty backs up your quote perfectly editor.

    DC
  • Hi Mary
    mary wrote:
    I usually receive about £50 a year in dividends from it.I don't have any other shares and it's something I know little about.
    Last year the "Indicative value of the shares was £1,426 and this year it is £1,632" I think this means they went up by some 14%??

    So last year your Aviva shares returned you 18% - 14% in capital growth and 4% in dividends :)

    Can you give me a good reason why you should get rid of this investment?
    Can you think of any other investment that returns 18%?

    I would hold onto these shares and buy some more similar (perhaps from the list above - but not Legal and General, as you already have an assurer with Aviva).

    I suggest you move them to Halifax Sharebuilder, which is extremely cheap on charges. Don't use that expensive offer.

    Then I'd consider putting more money in and buying some more shares with divis as you can afford it.
    Trying to keep it simple...;)
  • paylesspayless Forumite
    7K Posts
    Part of the Furniture 1,000 Posts Name Dropper Combo Breaker
    Forumite
    Was under the impression this thread was to discuss the different providers of share dealing services, and not actual shares or investment theories/ methods. ( as these discussions were not allowed on this site - or has it changed ?)

    ( edit ... the title and links seem now to refer to another article as well)
    Any posts on here are for information and discussion purposes only and shouldn't be seen as (financial) advice.
  • Just to confirm what Payless has said here - Please keep conversation limited to the discussion of providers and services. This forum cannot be used to offer advice about specific share dealings.

    Regards
  • marymary Forumite
    1.6K Posts
    Part of the Furniture 1,000 Posts Combo Breaker
    I appreciate what you are saying and didn't think I was doing anything wrong. It is an area I know little about and was genuinely seeking advice. I have been on MSE daily for over a year now and frequently visit the Credit Card, Savings and Current account boards, where people are asking for advice as to which move next and I didn't really see my enquiry as being any different.
  • WARNING: This site is not a regulated investment site, please do not discuss any individual shares, investment or stock picking. In the article linked to above a range of sites which do welcome those kind of discussions are linked to.


    Just as a point of information Moderators, it's not a requirement to be regulated to discuss shares and investments. The Motley Fool is definitely not regulated and AFAIK neither is ADVFN.

    It will be a bit difficult to talk about pensions or ISAs or SIPPs if you can't discuss investments, which include all funds, and gilts, and even property, of course.;)

    The only real problem websites like this need to watch out for is share ramping, but that usually only applies to obscure small stocks that nobody has ever heard of. And if it happens, it's the ramper that gets it in the neck, not the site. You can check this easily with the FSA.
    Trying to keep it simple...;)
This discussion has been closed.
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