A family member asked me recently how to get into investing, and then quickly machine gunned a few more questions; ‘isn’t Amazon expensive? What about Lloyds? Won’t there be a market crash? How do I buy shares? How do I buy American stocks? Should I spread bet? Is India a good bet? Moreover, there is this fund manager, should I give my money to him?’
Okay, clearly we need a simple, transparent process. Here was my advice to a complete beginner:
- You are too busy to look at the market daily. In fact, if you do, you will be gambling. So if this is you then look for stocks, you will be happy to hold for ten years, or at least five years. For me, these are stocks like Amazon and Visa.
- If there is a crash, they have lots of cash anyway. If you are anxious, then you can buy in small instalments, i.e. average in. If you are petrified, then wait for the crash. Good luck with that strategy.
- If you want to learn about stock selection, then you need to learn about things such as PEG, CROCI, Sharpe Ratio. Yeah, you do not want to do that do you?
- So instead you may want to diversify by having index trackers. Even Warren Buffett recommends these. They track a basket of stocks, e.g. Dow, NIFTY (India).
- Avoid fund managers. Ample research shows they track indices anyway or are just lucky in any one year. They are good at advertising and selling stories. So for you – Index trackers – ETFs.
- Brokers? Well, you are a beginner, so avoid spread bets and always avoid binary options. Check for inactivity charges. I like Halifax, else look at MoneySavingExpert.
Now there is a heck of much research from my 200 columns in the Financial Times which are the basis of the above information. Your basic enemy is stories. Stories that XYZ company or fund manager has a very good idea. They may do or may not. However, the hidden risk will kill you most likely in the pocket.
An investment expert like me feels like a doctor whose patient has self-diagnosed off the internet. They are so sure and do not know the research that goes into discovering the actual truth, as opposed to the 1 minute that goes into an advert on the internet.
If you would like more free education, try www.trading-champions.com (there is a free course there on 12 things the rich do right in investing).