Stocks and Shares for Absolute Beginners
When it comes to the stock market it’s clear that many people are not in the know, confused, or just concerned that it’s too risky. With stock market values currently looking more like a profile of a big dipper than an upward slope, the people who aren’t involved are probably glad of it. Certainly, there can be pitfalls if you’re an inexperienced investor, and it’s no secret that some shares do lose their value - some quite dramatically. However, judging from the statistics of history, the stock market is actually one of the best places to place money in the long term. Over five years, for instance, in 80% of occasions the stock market has outperformed traditional savings accounts as an investment. Even more reassuring is the fact that in 98% of occasions, stocks have outperformed cash over a period of twenty years.
There’s a clear pattern for stock markets then – it’s for the long term. If you’re grabbing at all of your cash and thinking of slinging it into a company in order to make a fast buck, then you’re playing a very dangerous game. Warren Buffett, who is perhaps the most successful investor of all time with a net worth of some $56 billion in 2007, notes that anyone who tries to play the markets by speculation is effectively gambling. In the long term, he adds, the only person who makes money out of such a strategy will be your broker, who you will pay to execute a trade.
Instead of speculating on short term markets, investors should look towards their long term goals. By making informed decisions on what will get you the best long term returns, it is unlikely that you will get worried about market conditions, because you should be confident that your investment will ultimately give you a good return on what you paid for it.
The problem that confronts people who have never invested before is that they don’t know where to start. You may have a sum of money that you want to invest – but with which company should you invest in? Unless you are prepared to put a substantial amount of time aside for investing, almost to the extent that it will become a second job, then deciding which companies to invest in might not be a good idea. To make informed decisions, you will need to know much about market conditions, long term potential of a given industry and a company’s long term plans. To the average layman, this may seem like a daunting task.
Instead of doing this, it’s a good idea to invest in something like an investment fund. Jupiter Investments are one of many companies who allow you to invest in a fund, and you’ll have your own fund manager. Effectively, you’ll pass your money over to a professional fund manager to invest for you for a set fee. Along with the advantage of having the job done by a professional, your money can easily be spread over a range of companies, and therefore you’ll be less susceptible to jitters in confidence of a particular company or industry. You can select to be more specific if you like, but this is again only advisable if you are prepared to devote time to your own strategy.
One of the easiest ways to invest at the moment is to set up a stock and shares ISA. You can currently invest up to £7000 a year in one of these, completely tax free, which means you won’t pay capital gains tax if you make a substantial profit. Because of this, they’re ideal for people who want to put away instalments of money for the long term. Like in an investment fund, most companies offering stocks and shares ISAs allow you to invest in a range of companies, markets and indexes. As an example, take a look at Alliance and Leicester’s ISA pages.