I posted this question on Yahoo and The Fool to see what feedback I'd get there. You can view the replies at:
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Another advantage of the strategy is the avoidance of the new "8 year rule" which I hate considering I plan to be a longterm (15+ years) investor. I avoided mentioning the 8 year rule on the above websites as they are UK based and the rule doesn't apply there. A copy of the original post is below:
I am interested in starting investing in European shares. It will be my first time investing in any shares. However, I have been reading up alot this past long time and would like advice on my proposed strategy.
Basically, I will be starting with a single lump sum that I've in the bank of £12,000 which equates to about €16,000.
I don't like the idea of index trackers - they're usually to overweight in the sector of the moment. For example, most indexes were very overweight in Financials prior to the recent turmoil.
I guess what I'm trying to say is that, with a basket of shares as opposed to an index tracker, you control your exposure to any particular sector and, had you thought banking was overvalued, you may have limited your exposure to bank stocks and, therefore, most of the declines of the past 6 months.
I think this, in particular, is a very good time to get started in the stock market as I'm young and I like the idea of starting accumulating my shares on a down market so that, when it turns, I'm in front of the tide.
My basic idea is to join Interactive Brokers. They have a minimum charge of $10 per month which is about £5 or €6.50. However, the cost of your trades are taken out of this. Therefore, as European shares cost €4 per trade (up to €4,000), I can do 1 trade of European shares per month for €6.50 or 2 trades of European shares per month for €8.
My plan is to do split the €16,000 lump sum into 8 batchs of €2,000 and invest in €1,000 in each of 2 shares per month for 8 months. As it'll cost €8 per month, my initial commissions will cost 0.4%. After the 8 months, I plan to reduce my trades to 1 per month and invest €500 per month from my salary. The commissions here will cost €6.50 per month (or 1.3% per trade).
However, another way to look at it is as a fund with a value of €16,000 with an annual charge of €78 (less than 0.5%) and one free trade per month. This annual percentage charge will reduce as my fund grows.
To pick the shares, my strategy is to sort the Eurostoxx 50 by either market capitalisation or dividend yield. I will then pick shares from the top down until I have 15 shares whilst selecting a maximum of 2 shares in any sector. This will result in a portfolio which is far more diversified than the index itself as I will have less than 15% of my porfolio in any sector.
Then, once I have my 15 shares, I will start buying US shares. As these only cost $1 per hundred to buy, I'll be able to select 10 US shares and buy an equal amount of each every month whilst keeping my commissions at only £5.
With regards to selling, I plan to sell the share(s) that have appreciated the most each year and buy the next share on the list as ordered by market capitalisation or dividend yield - this allows me to use my CGT tax free allowance and take advantage of the buy-low, sell-high theory.
Also, when I've accumulated my desired proportion of Eurostoxx to US shares (as well as possibly some Emerging Market ETFs'), I'll start buying more of my original 15 Eurostoxx shares starting with the one that has depreciated the most (or risen the least) - again to take advantage of the buy low-sell high theory.
Is this a relatively sensible strategy???
[broken link removed]
[broken link removed]
Another advantage of the strategy is the avoidance of the new "8 year rule" which I hate considering I plan to be a longterm (15+ years) investor. I avoided mentioning the 8 year rule on the above websites as they are UK based and the rule doesn't apply there. A copy of the original post is below:
I am interested in starting investing in European shares. It will be my first time investing in any shares. However, I have been reading up alot this past long time and would like advice on my proposed strategy.
Basically, I will be starting with a single lump sum that I've in the bank of £12,000 which equates to about €16,000.
I don't like the idea of index trackers - they're usually to overweight in the sector of the moment. For example, most indexes were very overweight in Financials prior to the recent turmoil.
I guess what I'm trying to say is that, with a basket of shares as opposed to an index tracker, you control your exposure to any particular sector and, had you thought banking was overvalued, you may have limited your exposure to bank stocks and, therefore, most of the declines of the past 6 months.
I think this, in particular, is a very good time to get started in the stock market as I'm young and I like the idea of starting accumulating my shares on a down market so that, when it turns, I'm in front of the tide.
My basic idea is to join Interactive Brokers. They have a minimum charge of $10 per month which is about £5 or €6.50. However, the cost of your trades are taken out of this. Therefore, as European shares cost €4 per trade (up to €4,000), I can do 1 trade of European shares per month for €6.50 or 2 trades of European shares per month for €8.
My plan is to do split the €16,000 lump sum into 8 batchs of €2,000 and invest in €1,000 in each of 2 shares per month for 8 months. As it'll cost €8 per month, my initial commissions will cost 0.4%. After the 8 months, I plan to reduce my trades to 1 per month and invest €500 per month from my salary. The commissions here will cost €6.50 per month (or 1.3% per trade).
However, another way to look at it is as a fund with a value of €16,000 with an annual charge of €78 (less than 0.5%) and one free trade per month. This annual percentage charge will reduce as my fund grows.
To pick the shares, my strategy is to sort the Eurostoxx 50 by either market capitalisation or dividend yield. I will then pick shares from the top down until I have 15 shares whilst selecting a maximum of 2 shares in any sector. This will result in a portfolio which is far more diversified than the index itself as I will have less than 15% of my porfolio in any sector.
Then, once I have my 15 shares, I will start buying US shares. As these only cost $1 per hundred to buy, I'll be able to select 10 US shares and buy an equal amount of each every month whilst keeping my commissions at only £5.
With regards to selling, I plan to sell the share(s) that have appreciated the most each year and buy the next share on the list as ordered by market capitalisation or dividend yield - this allows me to use my CGT tax free allowance and take advantage of the buy-low, sell-high theory.
Also, when I've accumulated my desired proportion of Eurostoxx to US shares (as well as possibly some Emerging Market ETFs'), I'll start buying more of my original 15 Eurostoxx shares starting with the one that has depreciated the most (or risen the least) - again to take advantage of the buy low-sell high theory.
Is this a relatively sensible strategy???