Investment diversifaction

D

docker

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Hello,

I am new to investing having purchased shares in an Irish Bank at their yr low price in December. I am planning to invest 10K every year in the stock markets with lump sums I receive. I hope to do this every year long term.

For my next invesment I was looking at a leading UK Insurer, life and pensions provider. This company has been recommended and is favoured as a "buy" by 17/19 brokers.

My question is as I am already invested in a European financial services company....should I diversify into a different sector...or as I am planning on keeping these long term and adding to these investments do I need to consider diversification now.

If yes, any tips for me how to acheive this?


Thanks!,
Docker
 
Hi,

Diversification isn't buying two shares in two different companies. Just as it isn't buying a house in Ireland and another in Spain and calling it diversified.

The best way to get the kind of diversification you need, at the levels you are talking, you should buy an ETF that tracks a whole market like the MSCI European index.

Yes, you might pick the best company to buy but what if that one company turns out to be an Elan or Marconi, British Telecom, Energis, Nothern Rock, BCCI, Johnson Mathy, Barings..........do you see my point?

The best way to invest.....track the market..Warren Buffet.
 
hi, as previous person,, new to invetsments also.. but can you explain and ETF?? and also what is the best means by which to invest?i.e. davies or going through a bank, etc

cheers
johnson 32
 
Thanks yes suppose its hard to argue with Buffet. I plan to invest in general ETFs in the future. My investments are for the long term and its an area that I am interested in, so I would like to continue to learn as I go, as opposed to investing in general ETFs and then cashing in when I need it (like my pension). However are there any specialist EFT's than anyone recommends...for examaple commodity or energy ETF, etc.
 
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docker said:
...should I diversify into a different sector...
Click to expand...


Yes. Don't keep all your eggs in the same basket.
As you are probably aware, Financial Services/Banking stocks are being hit heavily at the moment. If you've all your equties in this sector, you're having a bad time of it.

Similarly a few months ago when oil was reaching $100 a barrel, transport stocks were going south.

Diversity to protect yourself from sector-specific fluctuations.
 

Sorry, some background to Exchange Traded Funds.........

Exchange Traded Funds
Hybrid of a share and a pooled index fund.
Trades on a stock exchange like a single share throughout the day.
Provides instant diversification like a fund by tracking an index.
Performance of ETFs closely match the performance of the relevant underlying index.
Clearing and settlement of ETFs is just like any other share.
Dividends accumulate and are paid out at regular intervals.
Management fees are deducted directly from the dividend yield.
ETFs can only be bought and sold through any stockbroker.
ETFs are simple low cost, diversified investments with no hidden charges.


No hidden charges
Unlike other collective investment schemes, Exchange Traded Funds DO NOT incorporate charges within their secondary market pricing mechanism. The share price will reflect the underlying value of stocks and market movement.

Low internal costs
The costs involved within an ETF are exceptionally low. The costs of passive management is small and the administration/custodial charges are available to large funds at very competitive rates.

Trading costs are external to the fund
Much of the expense of the investment process is external to the fund - i.e. broker commission, savings plan costs etc
Pure exposure to equities
A fund whose assets comprise equities in the ratios determined by an index, offers a simple and transparent means to equity ownership. Since the fund is identified by the relevant index the nature of the equities owned within the fund are self evident. So a country index will reflect the equities of the relevant country and a sector the direct holdings as indicated by the chosen benchmark.
 
docker said:
Thanks yes suppose its hard to argue with Buffet. I plan to invest in general ETFs in the future. My investments are for the long term and its an area that I am interested in, so I would like to continue to learn as I go, as opposed to investing in general ETFs and then cashing in when I need it (like my pension). However are there any specialist EFT's than anyone recommends...for examaple commodity or energy ETF, etc.
Click to expand...

Again, I would be inclined to use a core/peripheral approach.

I was researching a Uranium ETF the other day.....very interesting it was too..... and for someone with hundreds of millions to invest I'd say go for it........

My advice if you are stating out, build a core of very boring investments. Track major markets like USA, Japan, Eurozone etc.

Once you have a core in place, add Far East and Emerging markets but keep it at the country level to start with.

All this assumes that you have adequate short term cash and you have no short term loans by the way....

Once you have all that in place, then we can talk about Uranium ETFs and shorting the Nasdaq...........

don't try to put the cart before the horse
 
Marc, tks for advise, this sound like a good approach. Just startng out I think I was trying to be too imaginative, instead of having a sound core plan as you said. I'll probably go with the market tracking ETF....I'll have to leave the exciting (riskier) investments till another day!
 
shanegl said:
You have to pay deemed disposal tax every 8 years from every purchase of an ETF.
Click to expand...

Can you tell me what this is, and how it would effect me holding ETF long term?

Also was looking at IShares Japanese ETF. These are listed on NYSE priced in dollars. Does currency flucations of yen/dollar/euro make this option alot riskier! Any tips to overcome this?
 
Chris said:
All the info you need on diversification should be in here: http://www.askaboutmoney.com/guide/index.htm
Click to expand...

[FONT=Verdana, Arial, Helvetica, sans-serif]I had a quick look at the link. Firstly, let me say, I admire anyone who sets out their stall as a consumer champion. There is a journalist in the UK called Martin Lewis (moneysavingexpert.com) who has a fantastic approach.

However, I feel that we need to open up the debate a little.

Remember, a rising tide lifts all boats. Anyone who said 10 years ago, and I quote:

"A diversified stockmarket investment provides the best return and the lowest risk in the long term
Buy about 10 of the top Irish shares and forget about them."

Would have got away with it.

But the Irish Market makes up only 0.97% of the MSCI European Index and t[/FONT]hat only started to matter last year. With the ISEQ now off, what 30%?
Buy 4 of the top Irish Stocks and you own 52% of the ISEQ and 3 of them are banks! Credit crunch anyone?

The Irish market is capitalised at some 88Bn Euro. IBM, one company, is what, some 90Bn Euro.

That is not, and never has been a diversified portfolio.
Anyone with more than 1% of their portfolio in Irish Equity is taking an overweight position in Irish Equity with reference to the domestic market which is, of course, the Eurozone.
 
docker said:
Can you tell me what this is, and how it would effect me holding ETF long term?

Also was looking at IShares Japanese ETF. These are listed on NYSE priced in dollars. Does currency flucations of yen/dollar/euro make this option alot riskier! Any tips to overcome this?
Click to expand...

"You have to pay deemed disposal tax every 8 years from every purchase of an ETF."

But the gain are not subject to marginal rate tax. In other words, you will not pay 41% tax on the profit, just standard rate plus 3%.

Taxation of returns
Collective investment schemes are taxed on a ‘gross roll up’ system, i.e. investment returns accumulate tax free within the fund
but an exit tax is levied by the fund manager on chargeable gains realised on chargeable
events, e.g. on encashment of units/shares or on receipt of regular income distributions from
the fund, and on ‘deemed encashments’ every 8th anniversary of the investment.

Income distributions
The exit tax rate on income distributions from income/distributing type funds is standard rate
income tax only, and not (standard rate +3%) as generally applies under the Gross Roll Up system.
Income distributions are income payments made at least annually that do not involve the
surrender or cancellation of units, i.e. the investor receives a regular dividend or income
payment and retains the same number of units as before.
 
Yorky said:
As per this request, which is the best way to invest in an ETF?
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sorry.

Ok since an ETF is bought and sold in much the same way as a quoted stock, you need to use a stockbroker to do it.

WARNING

Don't wander into your local stockbroker and expect the best deal.

A representative cost might be for an online trade:

Minimum deal charge €25
plus 0.75% to 1% of the amount invested.

However, I have had dealing charges as low as 0.15% quoted to me.
 
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