One of the most searched for personal finance queries online is how to buy shares. The idea of buying individual shares has a romanticised image of finding the next Netflix and making large amounts of money, but we know it isn’t really that straightforward.
If it was that simple everyone would be doing it, and there’s a reason people talk about “losing their shirt” on the stock market.
So, is buying shares best left to the professionals?
The actual act of buying shares is relatively straightforward. These days you can buy shares quite easily through an online broker or trading app.
This has led to an influx of people promoting things like share dealing and forex trading as a way to get rich quick – but the reality can be very different.
It may not seem as exciting, but we believe setting up a direct debit into a properly diversified investment portfolio remains the best way to increase your wealth over time.
While it’s easy to buy a share, identifying a future performer is difficult. It’s easy to think in retrospect you could have invested in Amazon twenty years ago and made a fantastic return, but for every Silicon Valley company that makes it there are thousands that go out of business entirely.
As an individual investor, you probably don’t have access to the information you need to properly understand a business – things like its revenue, profits, future projections and the wider context of the industry it’s operating in.
At True Potential we use thousands of experts, spread around the world, to gather that type of information so we can make our investment decisions – and we use over 200,000 holdings across our portfolios which would be difficult for an individual investor to replicate.
The risk of individual investors buying shares in a DIY sense is laden with risk. With investing, your capital is at risk. The value of your investments will rise and fall at times and you could get back less than you invest, and past performance is not a reliable indicator of future performance. Before investing in shares an investor needs to do their research and understand the companies they select, investing in a set of investments concentrated to one area could be problematic.
For example, if you were to invest in Facebook, Amazon, Apple and Google, they’re all technology companies. So, if there’s a change in regulation or the economy that hurts the tech industry, the value of investments in technology companies as a whole could fall.
At True Potential we believe in diversification – the strategy of spreading your investment across a range of industries, asset types and geographic areas. This still gives you exposure to a range of shares but crucially looks at factors that could keep your investment growing even when parts of the market fall.
We’ve gone one further in our approach, using what we call Advanced Diversification to also diversify our portfolios by fund manager.
Rather than following a single strategy, we blend multi-asset strategies from a range of fund managers into what we believe is the best position for our clients’ money.
The Funds may also invest in other types of asset including bonds and collective investment schemes, which diversifies your investment further. We look at a huge range of data points every single day to make our decisions, all fed into our team from over 200 worldwide locations. You are buying shares, guided by an expert, diversifying your investment in a way where you could do more with your money.
You may wonder if all that expertise make it more expensive to own a diversified portfolio compared to individual share investments? Not at all. In fact, share dealing accounts often have a cost per trade whereas a portfolio usually as an annual fee that’s a small percentage of your investment – for our True Potential Portfolios that’s around 0.8% per year.
Plus, you can get started from just £1 so there’s really no financial barrier to entry.
If you’re thinking about buying shares, it might be worth talking to a financial adviser about your goals first. If you’re trying to build long-term wealth, putting your eggs into one basket is never a wise idea.
As we’ve said before, we believe setting up a monthly direct debit into a diversified portfolio is the best way to reach your long-term money goals.
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