Starting out with investments

[Chris Hinds]

This year is the first year there are no huge expenditures on the horizon now our wedding has taken place and the car is all paid off. I feel it's time to start making some of my spare income work for me and am looking for advice on how to get started - I've never had a financial advisor and wonder if this might be benefical?


I've read a number of pages online about starting out in investments and understand the basics of how Stocks & Shares work. I also recognise that I can loose money as well as gain it so I don't expect to "bet the farm" and risk losing everything. I don't expect to invest at an amateur level and end up with £100k in a year, what I'm looking to do is make a better return than I currently make in a standard savings account in the hope of being able to help buy a larger home in the future.

Some things I'm already doing to invest:

• Company runs bi-annual "Share-save" schemes and I've got two policies that mature in 2013 and 2017. Currently stand to make 93% ROI on the 2013 scheme and about 15% currently on the scheme that I will start this month.
• Overpaying Mortgage by £330/month (max allowable without penalty)
• Also own a number of shares in a large currently nationalised bank that are worth about the same as toilet paper. I'm ignoring these for a while.

Questions:
1. What is a sensible ROI that an amateur investor should look to make doing basic trading? i.e. I won't have the chance to watch the markets day and night to see what happens
2. I have skills in Computer Technology, Large Enterprise systems and operations, Engineering and Management - can I use these skills to help with investments?
3. Are the commercial investment funds from organisations like Nationwide worth considering?
4. What's a good online share trading tool?
5. What other investment opportunities could I look at?

I expect to start off with small money (low 4 figures) and then learn from there.

Standard Disclaimer: I am the antithesis of a PH regular, I am not a company director, I don't own/aspire to own an MX-5/Chipped 335d and I'm not powerfully built either.

Many thanks

Chris

[jeff m2]

You used the word trading, but I shall answer as if that was intended to be investing.
I would identify a number of moderately well know companies that all have a good record of paying dividends.
Discard the ones where the earnings per share aren't double the dividend.
Get to know those shares, do they have diversified interests ? Print out their price graphs over the past year.

Now the difficult bit...decide what price you want to pay for each share. Only ever buy a share at YOUR price. Any company will dip with the market, wait for the market dip to buy.
Why pay 20 for something you can get for 18. (it's the same company)
If you liked it at 20 etc etc

With regard to ROA, well many seasoned investers would stop investing if someone offered them 10% pa. (every year)
There are a lot of great results bandied about funds making 45% pa, those funds almost always lost big the previous year.
Look at 2008/2009

My personal targets are to get a 5% income (known as a draw down) from a mixture of shares, equity funds and Bond funds and maintain principal growth.
(For the more technical I have just switched out of US to Developing Country bonds.)
That should mean that the draw down will stay ahead of inflation.

Setting your own targets can really help.

I'm sure the next post will be stick it under the mattress....... who knows, maybe that is the correct answer in these uncertain times.

[Chris Hinds]

jeff m2 said:

With regard to ROA, well many seasoned investers would stop investing if someone offered them 10% pa. (every year)
There are a lot of great results bandied about funds making 45% pa, those funds almost always lost big the previous year.
Look at 2008/2009

Hi Jeff,

Thanks for your opinion - it's a good starting point for sure. I will make sure to set my targets and also to look for companies as you describe.

I take it from your comment about 10% per annum continuous that you mean a company that continually promises to grow 10% a year is likely to be a risky bet? Or do you mean anything less than that is not worth investing the time? I can see how easy it would be to make any investment look good provided it tanked previously.

Many thanks

Chris

[jeff m2]

Chris Hinds said:

Hi Jeff,

I take it from your comment about 10% per annum continuous that you mean a company that continually promises to grow 10% a year is likely to be a risky bet? Or do you mean anything less than that is not worth investing the time? I can see how easy it would be to make any investment look good provided it tanked previously.

Many thanks

Chris

The 10% per annum might be a figure that investors who already have a decent lump and whose object is to provide themselves with an inflation proof income would be satisfied with.
eg 4 to 5% used as income. 5 to 6% used as cap growth, with inflation 2 to 4% all is hunky dorey.

In reality most strive to net 15% overall. It doesn't allways happen
One lump of money might make 20%, one will be flat one will lose 15% etc

With regard to an individual share. The reason for choosing a dividend paying company with a good history is that its price will usually follow its dividend. As the dividend increases so will its appeal. It is the clasic basis for choosing good shares as your main holdings. So yes, 10% would be a good target, but whatever happens you will still have a 2 to 4% dividend.

There are other ways to pick up 3 to 5% in a day or two but these demand a good grasp of the market and constant attention. Even with those you can still crap out as I did in August. I had six months of day trade gains wiped in one day.

OK some homework
Regions and Sectors.
Learn about companies with moats.

[1point7bar]

You are leveraged and exposed to the real estate market.
Are you really sure monetary policy can guarantee cheap capital in line with your strategy?