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Published on: Thursday, April 01, 2010

One of the weekend newspapers gave a list of 20 shares that five different experts recommended. So I was thinking about using these as the basis of putting together my first portfolio of shares. I have $40,000 saved up and I want to buy $2,000 of each share. What do you think about my strategy?

There are good and bad aspects of your do-it-yourself strategy. Generally when brokers or fund managers are asked by newspapers to offer five or so stocks, they will go for companies that have a lot of blue chip qualities about them such as BHP Billiton, QBE or CBA. They often will go for shares that pay good dividends, as around 50% of the total return from the stock market comes via dividends. However, these experts can also give smaller cap companies that might have a lot of potential and these often can be mining stocks or businesses linked to mining as service providers. This could be trouble with a collective approach from five different experts. If one broker was given the task, he or she would have thought about the diversity in the portfolio and the balance between the various sectors that your shares might cover. Often you find there will be too many finance and resources stocks included in a DIY/blue chip portfolio and it means important sectors such as retail, healthcare, IT and building can be left out. This means you are not diversified enough and it could mean you don’t have sufficient defensive stocks for when the stock market tumbles. This is the value of a broker or a financial adviser — they should be able to create a well-balanced and diversified range of shares for your portfolio. One problem with a broker is that he might put you into shares only when other investments such as bonds, fixed deposits and property could give better diversification. This is what a good financial planner should be able to help with.

By the way, some people go into investment funds on the basis that the fund manager will pick the shares, get the diversification right and regularly rebalance the portfolio, but you have to be careful of their fees.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice. 


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