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How to Start Investing in the Stock Market

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									RH Investment Services
Autumn Edition




                         RH Investment Services welcomes you to the latest edition of Investment Bulletin, our
                         update on developments in the world's finance sector.

                         We hope you find the contents of interest. If you have any questions, or would like to
                         discuss any of the points raised, please give us a call.




                         Investing for beginners
                         Many investors are happy to earn a return from their money simply by sticking it in a
                         savings account. For those who want their money to work harder, the stock market can
                         offer greater potential, although the reward is dependent on the amount of risk you are
                         willing to take.

                         By investing in the stock market, you’re buying shares (or equity) in a company in the
                         hope the company will perform well and the share price will go up. Of course, it can go
                         down as well, which is the extra risk you take on. Stock market investments should be
                         viewed over the medium to long-term and most professionals will advise you to keep
                         them for at least three to five years.

                         If you’re looking to invest directly into a company’s shares, then you should concentrate
                         on companies whose businesses you understand. It helps if you can keep on top of
                         market news and have some knowledge of the way in which the stock market operates.
                         This is difficult for many investors who don’t have the time, experience or capital to
                         invest directly. As an alternative you can invest in equities by putting your money into a
                         collective investment scheme, such as a unit trust or an OEIC (Open Ended Investment
                         Company). Your money will be pooled with that of other investors and the fund manager
                         will select which companies to invest in. You will pay a fee for this service.

                         Some funds aim to provide you with an income, while others are designed to deliver
                         capital growth. Some funds simply track a stock-market index and have no element of
                         stock-picking. Other funds are actively managed and target a particular sector of the
                         stock market, or geographical region. These funds tend to carry higher fees as a result.
                         The advantage of the collective investment route is that with a smaller amount of
                         investment capital, you can achieve a more diversified portfolio. With a professional
                         stock-picker at the helm, you would expect your money to outperform the returns of a
Contact Us:              savings account. However, to ensure that’s the case, it’s worth doing some research
                         into a number of products to see which one best matches your own financial
RH Investment            requirements.
Services Ltd
KIC Millennium Way
Thanet Reach             There are many products on the market and if you’re looking at investing in equities, you
Business Park            should consider how much risk you’re willing to take and whether you feel confident
Broadstairs              enough to pick your own stocks – or would prefer a professional to make your choices
Kent                     for you.
CT10 2QQ
Tel:01843 609261
Building a portfolio
Portfolio is the term for a range of investments which is owned by a single person
or organisation. It is generally spread across a variety of assets, including
shares, bonds, property and cash, the allocation of which has been determined
in relation to that investor's objectives.

Ultimately, a portfolio’s success is dependent on its performance – but one
investor’s idea is never the same as the next. Your attitude to risk is highly
personal and the solution you choose must reflect that.

Risk is key to helping determine which asset classes you select, and in what
proportion. For example, cash is virtually risk free and the interest that it earns
provides you with a regular income. However, because there is no risk attached,
the income payments are generally quite low and change in line with Bank of           What is a
England base rates. There is also zero opportunity for capital growth.
                                                                                      portfolio?
At the other end of the scale we have equities, ie: shares which allows you to        A portfolio is the collective term
participate in company profits. Equities generally offer greater long term income
and capital growth opportunities as a successful company will increase not only       for the total of all your
dividends but also reinvest in itself, increasing its value. However, unlike cash,    investments, which might
equity prices are highly volatile as they react to changes in market sentiment. In
                                                                                      include a range of asset
addition, if things go wrong for a company, you may end up getting back less
than you originally invested.                                                         classes, such as equities,
                                                                                      bonds, property and/or cash. Its
Making this decision, ie: how much of your portfolio goes into each asset class,
                                                                                      success is dependent on the
is known as asset allocation. Combined together, asset classes can actually
complement each other, helping to smooth out some of the peaks and troughs of         way it performs, although one
investment performance. Perhaps surprisingly, different asset classes tend to         investor’s definition of
perform in different ways, and this lack of correlation between them means that
one will often compensate when another is having a difficult time.                    performance may differ from
                                                                                      another as we all have a
A good portfolio should generate the maximum possible return for you for your
                                                                                      different outlook. Hence, there
given level of risk. Of course, you should always remember that investment is for
the long term and performance is not guaranteed. Indeed, you may not get back         is no catch-all solution to fit
what you invested, particularly if you withdraw after only a couple of years.         everyone’s investment needs. A
However, if you have allocated your portfolio in the right way, you are in a much
                                                                                      good portfolio should generate
better position to maximise your opportunity and lower your long term risk.
                                                                                      decent returns while keeping
                                                                                      within your risk profile. This is
Common mistakes
We are all human and in all walks of life, we make mistakes - which for investors,    done by selecting an
costs money. Therefore, if you know the most common ones, you can avoid losing        appropriate mixture of different
out where others have lost before. For example, don't follow the herd – remember
when people piled into dotcoms in the late 1990s? Don't sell out on a downturn        assets, bearing in mind not just
without serious reason - you are crystallising your loss and may miss out on a        risk but also your age, your
rebound. And never chase a quick profit, thinking you can time the market – this is
                                                                                      needs, your timelines and your
no different to gambling on horses. Investment should be planned and should be
for the long term. Any other approach makes it a highly risky business.               financial position.
Building the core
A core investment is a series of holdings around which you can construct the
rest of your portfolio. The theory is you will keep this investment for the longer
term, while tailoring other parts of your investment portfolio to follow more short-
term gains or higher risk strategies. Although dependent on your specific attitude
to risk, the principle of a core investment is that the majority of your portfolio is
invested in mainstream funds which can offer a diversified mix of assets and can
provide stable low-risk returns.

This can be supplemented by a satellite strategy comprising a smaller
percentage of your portfolio, focusing on more specialised areas designed to
increase overall returns. For example, you could target a specific industrial
sector, such as commodities, or a type of overseas stock such as emerging               A long term view
markets equities. It is important to remember that portfolio risk is a highly
personal element which varies from investor to investor and you should be               Over the long term, the stock
comfortable with the overall level of risk you are taking. Core funds are designed      market has tended to
to act as a central focus around which others parts of the portfolio can be
                                                                                        outperform cash. However, it is
planned. Whichever type of core holding you select, it is worth ensuring you
remain invested for the longer-term and choose a provider that will be able to          also volatile, which has a
keep your investments on track even if your requirements change.                        tendency to scare investors -
                                                                                        perhaps even tempting them to
                                                                                        sell. However, selling after a
                                                                                        sharp fall can be a knee jerk
                                                                                        reaction. Falls can often be
                                                                                        followed by upward movements
                                                                                        and, over the long term, short-
                                                                                        term corrections should have no
                                                                                        serious impact on your
                                                                                        objectives. The nature of share
                                                                                        prices means they do go down
                                                                                        as well as up, but think before
                                                                                        you act. Have your needs
                                                                                        changed? Has your attitude to
                                                                                        risk changed? Has your overall
                                                                                        view of the market changed? If
                                                                                        your portfolio is structured to fit
                                                                                        your aims, time should be all it
                                                                                        needs.
Pensions and ISAs                                                                              What is a
With longer life expectancies many investors’ are concerned about their retirement             PEP?
income. Some are now looking to boost their pension funds, either by topping up                PEPs were the
company schemes, or using alternative vehicles. One such vehicle is the Individual             predecesors to ISAs.
Savings Account (ISA) which can also help to ensure your retirement income is as               Introduced in 1987,
healthy as possible.                                                                           PEPs (Personal Equity
                                                                                               Plans) were tax-
ISAs and pension plans are both seen as tax efficient investment vehicles. however,            efficient vehicles and
there are big differences between the two. For example, when you put money into your           there were two main
pension plan, the contribution qualifies for a tax rebate up to your highest rate which, for   types: the single
a higher rate taxpayer can add a significant amount to their investment. However, in           company PEP; and
exchange for this benefit, you must keep your money invested until at least age 50, and        the general PEP
on retirement, the income you receive is taxable, and counts towards your personal             allowing a selection of
allowances.                                                                                    investments. Although
                                                                                               you cannot take out a
With an ISA, the money you invest comes from taxed income and no rebate will be                new PEP, any you
given. However, ISAs have no minimum term - so you can withdraw the proceeds, or an            have can continue to
income before you reach 50. In addition, any income you do withdraw will be tax free and       exist with similar levels
will not count towards any personal allowances. Which approach is best for you                 of tax-efficiency to
depends entirely on your personal situation. Call us if you would like to find out more.       ISAs - and the ruling
                                                                                               dividing the two types
                                                                                               of PEP has been
                                                                                               abolished. If you own
                                                                                               any PEPs it’s certainly
                                                                                               worth ensuring they
                                                                                               work as hard as
                                                                                               possible and, using the
                                                                                               robust PEP transfer
                                                                                               market, you can
                                                                                               search investment
                                                                                               managers to provide
                                                                                               competitive
                                                                                               performance in the
                                     What is an ISA?                                           same way as ISA
                                                                                               investors.
                                     An Individual Savings Account (ISA) is basically a
                                     tax efficient wrapper which you can place around a
                                                                                               Issued by RH
                                     wide array of assets or investment funds to protect       investment Services
                                     them from Capital Gains Tax on growth and any             which is authorised
                                     additional liability to Income Tax on income. There       and regulated by the
                                                                                               Financial Services
                                     are two types – the mini and the maxi – and in this       Authority. The
                                     tax year (2007/08), you can invest a total of up to       contents of this
                                     £7,000. A maxi ISA allows you to invest all £7,000        newsletter do not
                                                                                               constitute advice and
                                     into stocks and shares – either directly or via           should not be taken
                                     collective investments. Using mini ISAs, however,         as a recommendation
                                     you can split your £7,000 across assets, with up to       to purchase or invest
                                                                                               in any of the products
                                     £3,000 going into deposit based savings accounts          mentioned. Before
                                     and up to £4,000 being available for investment in        taking any decisions,
                                     stocks and shares.                                        we suggest you seek
                                                                                               advice from a
                                                                                               professional financial
                                                                                               adviser. All figures
                                                                                               and data contained
                                                                                               within this document
                                                                                               were correct at time
                                                                                               of writing.

								
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