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DIY investors: top tips to get you started

Tahmina Mannan
Written By:
Tahmina Mannan
Posted:
Updated:
10/06/2013

Read our essential guide before going solo with your investing.

Here are a few tips from the experts at The Share Centre on how to build and manage your investment portfolio.

Investment objectives

Generally, most people look at investments for three reasons; to receive an income in the form of dividends; to hopefully see a growth in the value of their shares and sell them at a profit or for a combination of the both.

Your reasons for investing may change over time. For example, you might want to raise money for a particular purchase such as a house, or for an event like a wedding.

Equally, you may also be looking for an alternative source of income or contribute to a nest egg for your retirement. Whatever your reason for investing it’s important you choose the right investments to suit your goals.

Research

Whether you are thinking of buying or selling, it’s critical to get a good understanding of the investment itself and what will affect its performance. Gut feel is not always your friend – back it up with facts.

Find out exactly what the company does and as much about its sector as you can. While a company’s annual report and balance sheet will provide you with statistics about recent performance, a good understanding of the company’s position in the market will prove far more beneficial.

Remember, the price of shares moves in accordance with supply and demand, not statistics and how a company has performed in the past is not necessarily an indication of how it will perform in the future.

Control

It is worth giving consideration to the amount of control you want over your portfolio, depending on how confident you are about the market. There are a number of degrees of control you can exercise over investments, including discretionary management, investing via a fund manager or managing the investment yourself.

Discretionary management means you pay a manager to invest and manage particular holdings on your behalf. Any investments made are designed to be in line with your investment objectives but the day-to-day control lies with the manager and not you.

Investing via a fund manager, means you control in which funds to invest, and the fund manager carries out your instructions. Self-management allows you to manage and control your own investments as you see fit.

 

Diversification

Another way to spread risk is through diversification. Spreading your money across a range of investments is a good way to reduce your exposure to market risk. This is because you are not relying on the returns of a single investment. With a diversified portfolio, returns from better performing investments can help to offset those which aren’t performing so well.

Asset allocation

Keeping an eye on how you allocate assets within your portfolio is vital. By having a significant amount of your total portfolio allocated to different asset classes it is possible to spread risk. If one investment is underperforming for example, you could benefit from the return on another.

A cautious investor may have a portfolio containing fixed securities such as gilts, bonds and property, for example, while a more adventurous investor is more likely to have a mixture of fixed securities, property, UK equity, emerging markets etc, allowing for a greater spread of risk.

Performance

Don’t fall into the trap of becoming too attached to certain investments. A common mistake is for investors to hold steadfastly on to shares which may have served them well in the past, but no longer represent a sound investment.

You may find it useful to put a formal monitoring process in place by setting price limits and introducing a stop-loss system for example. Keep up to date with company and sector news and make sure to review your portfolio regularly in light of any changes in the market.

Review your portfolio

Remembering to regularly review your investment portfolio can contribute greatly to reducing the risk of loss, especially when market conditions are turbulent. We’d suggest, no matter what the economic climate, you review your portfolio every quarter, if not more.

Your financial goals, your attitude to risk and time horizons may well change over the course of a year and it’s important your portfolio reflects your change in circumstances.

Not only will regularly reviewing your investment portfolio ensure your investments are working as best they can for you, it will also help ensure you don’t get any nasty surprises when it comes to your money.