What is the minimum investment required to build a decent share portfolio?

Question

I received a bonus from work and have £3000 available to invest. Rather than just putting it into a cash ISA I am considering opening an online sharedealing account and investing in shares.

However, even the cheapest online brokers charge a flat fee of around £8-10 per trade.

I don't mind a moderate degree of risk, but I get the feeling that after trading fees are deducted I will struggle to beat the performance of a tracker fund or even a normal savings account even if I make good stock selections (and this is by no means guaranteed!)

Is there a general rule of thumb for the mimimum amount of money that a private investor should have before they consider investing directly in the stock market? Should I just stick with a cash savings account, or possibly tracker / mutual funds?

Answer 1

I'm not sure about this myself so I am playing with msn virtual shares and seeing what happens maybe this will help you if you practised first
http://secure.digitallook.com/cgi-bin/digitalcorporate/msn/login.cgi?

Answer 2

I trade in shares a few times a year and normally don't invest less than £1000. As you mentioned trading costs around £10 a trade. So this is equivilent to 1%. Add this to the stamp duty and it comes to 1.5%. I try to keep any costs of trading at this or below and think this is reasonable.

With your £3000 you could do this but you could only buy 3 companies. This would lead you to be overexposed to these companies and not give you a propererly diversified portfolio.

I think your best bet would be to start an ISA tracker fund. If this (plus other savings) gets to about £10K you could begin to look at individual shares as a balanced portfolio should contain 10 stocks as a minimum.

Answer 3

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Answer 4

You can trade much more cheaply than £8 via halifax sharebuilder or motleyfool sharebuilder.
3K is enough for 3 holdings. Most people want a portfolio of around 15 holdings, personaly I would go for 7, 5 companies and 2 ETFs.
You could try CFDs or spread bets, this would enable you to place more £s worth of trades than you have money for and by placing stop losses you can insure yourself against getting into debt, also commissions are cheaper and there is no tax.
3K is definatly enough to invest but don't spread it too thinly - definatly 1k a share or if thats too risky for you 1K per ETF or fund.
Over time shares tend to rise in price and to rise dividend payments and buybacks so even if you make a mistake it should work out in the end.
Go for medium or large companies with proven dividend records and buy for the long term, reinvesting dividends.

Answer 5

A great way to start is with a simple, diversified mutual fund. Usually Mutual Fund Families will send you alot of information with your quarterly statement, giving you an opportunity not only to learn about what you own, but also some of the other products they offer. If you are just start out I would say 2 things help alot- 1. start simple- explained below 2. Try to use the auto invest-- which moves some money from your checking over to your investment. you can usually do this for as little as $50 and it makes a HUGE Difference over time, especially if you try to increase it as you make more money and get comfortable. so for keeping it simple- try starting off with one of the following "type" of funds which has a good track record of being stable, and also making money- a. Try a simple "blue chip" or "Large Cap Value" fund- these are the bigger companies out there that are stable and pay nice dividends b. Try a "Balanced Fund" which is usually 60-70% stock and 30-40% bonds it is a bit more moderate than all stocks. c. Try an "Asset Allocation Fund"- this is probably my favorite as the fund will sometimes have some in US stocks, some in international, some in bonds, some in small cap stocks, etc- and you can usually choose them by your own risk tolerance. I hope this helps, i think you will be happy no matter which way to start, but the important thing is just to start and accumulate assets, you can always adjust the investments later on as you learn more. Some people are happy using the above mentioned ideas over thier lifetime. have fun!

Answer 6

The 'rule of thumb' is to purchase in 'lots' of at least £1000.

HOWEVER, now might not be the best time to invest ... the FTSE is at an all-time high and Inflation & Interest rates are going up.

I recommend you consider all forms of saving (see 'fool' below) -

If you want to take advantage of this years ISA allowance I suggest you find a 'stocks & shares ISA' that also pays a decent rate of Interest on the cash.

You also need to start reading up on how the Stock Market 'works' ... (and one word of warning = stear well clear of 'Penny Shares' and anything that is 'recommended' via junk email).

Answer 7

I would agree with "5yellowchips" I think you can buy up to £1500 worth of shares with Halifax sharebuilder but you only deal once a week which isn't a problem if your a medium to long term investor. I checked this out a few months ago & I think you can get away with as little as £600 approx. per deal anything lower than this & you got to pick a good share to make a profit. I also think you'd be better with 5 x £600 worth of shares instead of 3 x £1000 & try diversifying across different sectors & then run your profit's & stop your losses.

Answer 8

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Answer 9

Use your tax free allowance in ISA to the maximum before you even think of this. £3000 seemed a fortune to me a few years ago. We subsequently bought and sold property (real estate) with perfect timing, so as you may well imagine there is a "little" bit more floating around these days. Would I invest in the Stock Market? Emphatically NO! Nor would I advise anyone to invest in a Personal Pension Fund after the "Norwich Union" experience! The substantial amount of money we piled into this as self employed over many years I could have invested with greater accuracy myself.

UK Interest Rates have just gone up again. Savings Rates are a bit slow to respond, but it will only take one Bank or Provider to break ranks and the rest will have no alternative. Constantly look online for the best deals. Beware of short term offers that will revert to zippo after a few months.

As Spock would say: "may you live long and prosper".

Answer 10

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Answer 11

I'm not sure what the conversion is but in the US a fully diversified portfolio can range from $40,000 - 80,000