It's getting easier to invest in the stock market

Stock market jargon is enough to make most people's eyes glaze over. But if price/earnings ratios, market capitalisation and dividend yields mean little to the layman, the returns of more than 30 per cent per annum recorded in recent years most certainly do.

Historic comparisons consistently show that equities are the best performing asset class over the long-term, doing better than property, bonds or cash. The high profile examples such as Coca Cola and Microsoft are well known but thousands of other companies worldwide deliver solid, if less dramatic, returns to shareholders on a regular basis.

But for many, shares remain exotic financial instruments for the rich and daring rather than a means for the ordinary punter to make his money grow. For the traditional saver, the most daunting task is how to go about investing in the stock market in the first place but like many things, it's not as hard as it seems and it's getting easier by the day.

"Investing in the stock market is a relatively straightforward process," says Mr John Keilthy, head of the private client division at NCB Stockbrokers. "But people are put off by the jargon and public image of it."

However, advice is readily available to those who know little about the world of finance, both from those with a vested interest but also from the impartial, at a price. Most of the banks or larger stockbrokers will provide advice and research to those who do business with them but independent financial advice is also available to those who are less certain about what they want to invest in.

Independent advisers tend to charge an upfront fee to devise and put in place a portfolio. They also seek an annual management charge. The costs vary depending on the number of investments in the portfolio but the investor who has sought such advice should have the peace of mind of knowing that he has been presented with all the options open to him.

Those with bigger sums can avail of the portfolio management services offered by the private client divisions of the leading stockbrokers. Generally, however, the brokers are not interested in managing portfolios worth less than £50,000 and this figure is slowly creeping higher.

The key question facing would-be equity investors - once the fundamental issues facing all investors such as risk tolerance and the time frame of the investment are decided - is whether to invest directly in the market or to opt for some form of pooled investment such as unit trusts or the with-profit products offered by life assurance companies.

These investment products pool together funds from many investors to employ a professional investment manager and establish a diversified portfolio of investments. Investors purchase units in the fund and their value rises or falls depending on the performance of the fund's underlying assets.

Picking your own stocks and deciding when to buy or sell provides investors with the choice of which individual shares to invest in and tends to suit people who are really interested in the stock market and like to follow the fortunes of their favourite companies.

Pooled investments are better suited to those who want to invest in shares but who are not prepared to devote a lot of time and energy to managing it themselves, says Mr Paul Coghlan, managing director of Financial Planning Strategies, a firm of independent financial planners.

Among the other advantages of pooled investment is the fact that all administration is taken care of - the investor does not incur transaction charges nor does he have to handle the tax requirements as all this is managed centrally.

Most importantly, perhaps, they provide the investor with a diversified portfolio of stocks rather than concentration in just a handful of shares, says Mr David Conway of Ulster Bank Investment Managers (UBIM).

Any of the banks or life assurance companies will provide information on the pooled investment products they offer while information on the full range of funds on offer is available from independent financial advisers or independent stockbrokers like BCP.

But for those who opt to invest directly, buying and selling shares is a process that is becoming less costly all the time. Those buying for the first time will have to open an account with a stockbroker which involves producing evidence of identity to comply with new money laundering legislation. Investors buying equities face two main charges - stamp duty of 1 per cent is charged on the value of any bloc of Irish shares purchased while stamp duty on British shares is charged at 0.5 per cent.

On top of this, investors have to pay commission to the stockbroker acting on their behalf. But wide variations are increasingly appearing in these costs, depending on the services being offered.

The larger stockbroking houses, which provide advice and research to prospective clients, tend to charge more than non-advisory brokers which offer a simple transaction service.

Those dealing through NCB, for example, will pay a minimum commission of £40 for sums of up to £3,000. After that, they face a rate that tapers down depending on the sum invested. For sums of up to £10,000, the charge is 1.65 per cent, falling to 1.25 per cent for sums between £10,000 and £20,000 and 0.75 per cent above £20,000. In addition to the dealing service, however, clients are provided with equity research produced by NCB's team of dedicated analysts.

By contrast, Fexco describes itself as a low cost, low commission broker. "We are not a research-based house," says senior dealer Mr Stephen Elliott.

As a result, the company faces fewer overheads and can charge significantly less. For sums of up to £1,250, it charges a minimum commission of £12.50 with a 1 per cent charge on amounts up to £5,000 and 0.35 per cent above that level. The service is proving increasingly popular not only with those dealing in small amounts but with larger clients who already know which shares they want to buy. The firm currently has 8,500 to 9,000 private clients and expects this to increase to 11,000 by year-end as the First Active launch comes on stream.

For those who decide to take the plunge and buy shares, the million-dollar questions remain: what to buy and when. Most brokers believe there is good value in the market at the present time but are urging private clients to stick to the quality blue-chip stocks with a proven track record.

"The old adage is buy into weakness, sell into strength, so in theory it is a good time to go into the market," says Mr Keilthy. But he warns that it may be a while before the market fully recovers the ground lost in recent weeks.

"Dips like these in the past have been Vshaped and the recovery has come quickly but I think this one could be U-shaped. We could trundle along at these levels for a bit before we see a sustained recovery." Whatever about getting the timing right, Irish investors will not be spoiled for choice. From next year, the number of blue-chip stocks which the Irish investor can buy without assuming any currency risk will dramatically increase following the introduction of the single currency.

Until the euro is launched, however, direct investment in European shares will remain difficult and many believe that the way stocks are dealt in Continental Europe will mean that the cost of investing will remain higher than in Britain and Ireland for some time to come.

Consequently, those who like the look of Deutsche Bank or Pernod Ricard might consider looking at some of the unit funds invested in Continental European shares instead. Although more are expected to come on stream, Hibernian Investment Managers are the only ones to offer a specialised euro equity fund at present. It has delivered 10.8 per cent in the year to date, compared with an average in the category of 2.27 per cent.