‘So, how much money will I make…?’ Revealed: The top five questions asked by share investors, answered by a stockbroking expert
Rachel Winter: What books should you read to learn about markets? Find her recommendations below
What questions are asked most often by share investors?
Rachel Winter, associate investment director at stockbroker Killik & Co, tells us and provides the answers.
1. How much money will I make?
If only it was possible to give an exact answer to this question.
The answer depends on three things: the level of risk you are taking, the performance of the overall market, and the performance of the investments in your portfolio.
The more risk you take, the more return you can expect to make over long time periods.
Many people consider cash to be the safest investment and shares to be one of the riskiest.
Over the last 100 years, cash has barely kept pace with inflation whereas the stock market has generated an average annual return of 5 per cent over and above inflation.
Other asset classes such as bonds have been somewhere in between.
It’s worth noting that the performance of the stock market has been particularly strong over the last decade, fuelled by low interest rates and the growth of the technology sector.
2. How do I know if my portfolio is performing well?
It’s important to use a suitable benchmark for your portfolio.
If you’ve got a medium risk portfolio containing a mixture of bonds and shares, then you can’t expect it to keep up with the stock market, and if you have a portfolio of shares then you should pick a relevant index to compare it to.
Many investors use the FTSE 100 as a benchmark, but this is a UK-focused index that’s heavily focused on oil stocks and banking stocks.
Although FTSE companies have historically paid decent dividends, the index itself has gone nowhere since 2015 and its poor performance will flatter most portfolios!
If you have an international portfolio then it would be best to use an index such as the MSCI World, which is publicly available on many websites.
You could also use the ARC (Asset Risk Consultants) indices. ARC collects performance data from lots of different investment management companies and collates it into a set of benchmarks for different risk levels.
These are not freely available to the public, but you could ask your financial adviser, broker or investing platform whether they use them and make them available to clients.
How do I know if my portfolio is performing well? Pick a relevant index as a benchmark, but be wary of using the FTSE 100, says Rachel Winter
3. What books should I read to learn about markets?
The options are endless. If you’re new to investing, I’d recommend a light-hearted read rather than a weighty volume of technical analysis.
Scott Galloway writes in a witty and amusing way, and he has just published a book called Post Corona: From Crisis to Opportunity, which does a great job of summarising the stock market winners and losers of the last year.
How I Invest My Money, compiled by Joshua Brown and Brian Portnoy, is a series of bitesize chapters, each one written by a different investment professional about their approach to investing their own personal finances.
There are also some great books about individual companies.
Examples include Hit Refresh by Satya Nadella (boss of Microsoft), The Ride Of A Lifetime by Bob Iger (boss of Disney) and Shoe Dog by Phil Knight (founder of Nike).
4. Is now a good time to invest?
As the old saying goes, there is no time like the present.
It’s impossible to predict what the market will do in the short term, and if you hang around waiting for a ‘good’ entry point you might get left behind if the market moves higher.
If you’re investing a large amount you could consider drip-feeding the money into the market over a three-month period.
Building a portfolio gradually by investing on a monthly basis is also a good idea.
How much money will I make? ‘It’s worth noting that the performance of the stock market has been particularly strong over the last decade,’ says Winter
5. How do I buy shares?
So you’ve decided you want to take the plunge and start investing, but how do you actually go about doing it?
The first decision is to decide what sort of investment service you’d like. Do you want to do your own research and make all your own investment decisions?
If so, a low-cost online brokerage platform would be a good place to start.
Do you want to make your own investment decisions but feel that you would like some guidance on what to invest in and how to put a portfolio together?
In that case, an advisory investment manager would be worth a look.
Finally, are you too busy to manage your own investments, or frankly just not interested? If so, either a discretionary investment manager or a robo-investment platform
>>>How to choose the best (and cheapest) DIY investing platform to suit you