Q&A Dominic Coyle
Any advice for a novice stock market investor?
I have €20,000 that I want to invest in some shares. I am thinking of buying maybe four different stocks. This is money that I won’t need access to in the near future and I am willing to take a calculated risk with it. Where would be the best place to start the process. What is the easiest way to do it? Through my bank, a stockbroking firm or are there online facilities? Where can I get good independent advice on the best types of companies to invest in? Any advice towards taking the first steps would be appreciated.
Mr H.O’M., email
While it is always good to hear that, in these times of austerity, someone has a sum of €20,000 to invest, I would instinctively advise caution.
The economy may have been a basket case over the last few years – and still is in many regards – but global stock markets have been thriving. Our own backwater – the Irish Stock Exchange – is over 23 per cent ahead so far this year. In the last two years, it has advanced by almost 64 per cent.
And while the Irish market has been one of the best-performing over that period by dint of being in the doghouse before then, the FTSE 100 (+18.67 per cent) and the Dow Jones Industrial Average (+30.85 per cent) have also been rattling along at a furious pace over the past couple of years.
As any regular reader of the Stocktake column on these pages will know, the investment community seems convinced that despite the current frothy levels, stock markets have further to go: of course, as readers of that same column and others will realise, the investment community as a whole has a dismal record in predicting future performance.
Calculated risk is one thing but – assuming this is your entire “investment portfolio” – putting it all into just four stocks amounts to an almost reckless concentration of risk.
I know investment professionals suggest you need a realistic sum to play the markets but even a seasoned stock-picker would be wary of putting all their chips on just four stocks in the current environment.
If you really are interested in “playing the market”, it might be better to diversify your risk by buying into an equity fund – and not one confined to Ireland.
But, even if there are further gains to be made by stock markets, you might ask yourself whether it might not be better to look elsewhere.
Despite our recent experience with property, international interest here (and some other places in Europe) might indicate that there are rather better pickings in that sector at present – again ideally through funds – than in equities.
You might also be advised away from that other major asset class – fixed income or government bonds – which have, in general been trading at record low yields (interest rates) in recent times. The consensus is that yields are likely to rise from there over the foreseeable future, which means they will become less attractive for investors because bond prices move inversely to yields – as yields rise bond prices fall.