Investing for Dummies E-Book

Tony Levene

• Herausgeber: John Wiley & Sons
• Kategorie: Ratgeber
• Sprache: Englisch

Seitenzahl: 601

Veröffentlichungsjahr: 2010

Beschreibung

Build an investment portfolio and watch your returnsmultiply Investing can be one of the quickest ways to make money, but ifyou think investing is only for the super-rich, think again.Whether you want to invest in shares, property, bonds or otherassets, this friendly guide enables you to make sound and sensibleinvestment choices, whatever your budget. So if you're looking to get a first foot on the ladder or wantto add to a brimming portfolio, this updated edition provides youwith the expert advice you need to make successful investments. * Get started - take your first steps on the money trail withsome investment basics * Build your portfolio - follow expert advice on investmentoptions * Invest wisely - find out how to minimise the risk ofinvestment gambles * Look ahead - examine the markets to decide which investmentwill net you a fortune in the year ahead * Broaden your horizons - start looking further afield andget the lowdown on more exotic investments Open the book and find: * How to square off risks with returns * A step-by-step breakdown on how the stock market works * Techniques for examining investment-linked insurance plans * Advice on choosing an independent financial advisor * Why investing in your pension is so important * A guide to banking on bonds * Guidance on coping with the fall-out of the financial crisis * Ways to analyse stock-market-quoted companies

Leseprobe

Investing For Dummies®, 3rd Edition

Table of Contents

Introduction

About This Book

Conventions Used in This Book

Foolish Assumptions

How This Book Is Organised

Part I: Investment Basics

Part II: Shares and Bonds

Part III: Collective Investments

Part IV: Property and Alternatives

Part V: The Part of Tens

Icons Used in This Book

Where to Go from Here

Part I: Investment Basics

Chapter 1: First Steps on the Money Trail

What’s Your Reason for Investing?

What’s Your Personality Type with Money?

Spenders have fun

Savers have cash

Investors build up future funds

Surprise! You’ve Probably Been Investing Already

Investing through your pension fund

Investing through a share in your firm’s fortunes

Five Basic Investment Choices

You can’t go wrong with cash

Property is usually a solid foundation

Bonds are others’ borrowings

Get your share of shares

Alternatives are a hodgepodge to consider

Chapter 2: Checking Your Personal Life Before You Invest

Assessing Your Personal Wealth

Taking Care of Family Before Fortune

Studying How to Save without Sacrificing

Looking After Your Life and Health

Paying into a Pension Plan

Taking Care of Property Before Profits

Setting Up a Rainy-Day Fund

Chapter 3: Recognising What Makes an Investor Tick

Understanding Investor Psychology

The psychology of the marketplace

The psychology of the individual

Looking at the Emotions That Drive Investors

Greed is the accelerator

Fear is the brake

Debunking the ‘Stock Market as a Casino’ Psychology

How things work in gambling

How things work in investing

Two dangers investors share with gamblers

Sound Tips for the Cautious Investor

Chapter 4: Squaring Risks with Returns

Examining Two Investing Principles You Should Never Forget

Determining the Return You Want from Your Money

The likely return from shares

The likely return from bonds

The likely return from property

The likely return from a cash account

The likely return from other assets

Increasing Your Chances of Successful Returns

Plenty of factors affect your chances of success

Diversification is your best friend

Patience is your pal

Chapter 5: Being Aware of Small Print – and of Print that Isn’t There

‘Um, Where Do I Actually Find the Small Print?’

Shares Can Go Down As Well As Up

The Best Bonds Can Go Bust

Great Ideas Don’t Last Forever

Property Investments Can Crumble

Tax-Free Can Be a Dead Loss

Foreign Scam Operations Are Bigger (and Trickier) Than Ever

Beware the boiler rooms

Dealing with boiler-room operatives

Steering clear of onshore boiler rooms

Part II: Shares and Bonds

Chapter 6: Comprehending How Stock Markets Work

Looking at the Evolution of the Stock Market

Understanding Shares

Why raise money through shares?

How companies get to the stock market

Ways to buy shares

The perks you get when buying ordinary shares

Understanding Bonds

Getting Familiar with the Ups and Downs of the Market

Why do prices rise and fall?

Can anyone predict these moves?

Understanding the Mechanics of the Stock Market

Knowing How Companies Leave the Market

Chapter 7: Taking the Catwalk Route to Investment Success

Exploring Common Investor Styles

Looking at performance: Growth investors

Spotting what others have missed: Value investors

Living for the moment: Momentum investors

Opting for slow and steady: Income investors

Mixing and matching your way to investment sophistication with GARP

Taking it from the top, or building it from the bottom

Getting Up Close and Personal with the UK Stock Market

Understanding market cap

The FTSE 100 (the Footsie)

The FTSE 250 (The Mid Caps)

Beyond the FTSE 250: The Tiddlers

Smaller than tiddliest Tiddler: AIM

PLUS market

Assessing How Fund Managers Mark Their Styles

Chapter 8: Investing in Markets

Looking at Where the Stock Market Entry Routes Are

Knowing the Trend Is Your Friend

Identifying Two Top Investment Trade Tricks

The passive versus active path to profits

The advantages of exchange-traded funds

Knowing What to Consider When Buying Individual Shares

Knowing the psychological impact of the economy

Knowing the power of interest rates

Knowing the long-term trend

Enjoying the Payments and Perks of Owning Shares

Getting dividends

Getting discounts and freebies

Chapter 9: Analysing Stock-Market-Quoted Companies

Comparing Apples with Apples: The Gospel According to the Market

Identifying the Basic Building Blocks of Companies: Profits

Looking at profits from an accountant’s point of view

Examining a company’s profit and loss account

Understanding what company profits and losses actually mean

Knowing What to Look at First: Earnings Per Share

What a price/earnings ratio is

What a prospective price/earnings ratio tells you

How to use the price/earnings ratio

Knowing What Dividends Really Mean

Understanding what dividends tell about the company

Deciphering the signs that dividends provide

Deciding Whether Forecasts Are Reliable Sources or a Lot of Hot Air

Looking at Takeovers: Good, Bad, or Ugly?

Discussing Technical Analysis: The Arcane World of Share Price Charts

Chapter 10: Banking on Bonds

Getting Down to the Bottom Line on Bonds

‘Do I need bonds?’

‘Tell me the big differences between bonds and shares’

Looking at UK Government Bonds: All That’s Gilt Isn’t Gold

Identifying What Makes Bond Prices Go Up and Down

The interest-rate gamble

The credit rating conundrum

The redemption calculation

Knowing Which Way to Buy Your Bonds

Chapter 11: Building Your Information Bank

Taking a Look Around You

Going Online

Exploring the company’s website

Exploring other sites for more info on the company

Bookmarking your favourite sites

Examining Tipsheets

Looking at News Coverage

Chapter 12: Choosing a Stockbroker or Financial Adviser

Deciding Whether You’d Like That Service With or Without Advice?

Pinpointing the Levels of Service Available

Advisory service

Discretionary service

Execution-only service

Knowing What You Can Expect to Pay

Commission

Fixed or by the hour

Based on the level of service

Knowing What to Look At When Selecting a Stockbroker

Considerations with discretionary and advisory services

Considerations with execution-only services

Sticking to one broker

Additional considerations

Signing Up with a Stockbroker

Dealing with IFAs

Finding a discount IFA

How to sign up with a financial adviser

Part III: Collective Investments

Chapter 13: Getting Into Unit Trusts

Understanding What Unit Trusts Are

Examining One Big Difference Between Unit Trusts and OEICs

Knowing How Much Unit Trusts Cost

The initial charge

The annual charge

Hidden charges

Selecting the Best Unit Trust for You

Unit-trust sectors

Comparing Active Versus Passive Fund Managers

Taking Ethics into Consideration

Shades of green: Ethical unit trusts

Balancing act: The pros and cons of ethical investing

Going with a Fund of Funds

Examining Monthly Investment Plans

Finding Out More About Unit Trusts

Chapter 14: Looking at Fund Management

Considering Packaged Funds

Understanding How Fund-Management Companies Operate

Calculating their crust

Examining the role of the marketing department

Evaluating the Worth of Performance Tables

The same figures can tell different stories

Tables that use discrete figures

What tables are strongest at showing

Separating the Good Managers from the Bad

Appreciating the Worth of Fund-Manager Fees

Filling Your Financial Trolley at Fund Supermarkets

Understanding Tax and the Investment Package

Income tax

Capital Gains Tax

How to invest tax free: the Individual Savings Account

Chapter 15: Pooling Funds via Investment Trusts

Finding Out about Investment Trusts

Discovering the Discount

Gearing Isn’t Just for Bicycles

Saving Costs Through Savings Schemes

A very bright idea

What to look for in a savings scheme

Paying the Fund Managers

Adventuring into Venture Capital

Binding Yourself into an Insurance Bond

Chapter 16: Taking Control of Your Pension

Seeing How the Pension Situation Has Changed

Knowing When You’ll Retire

Expecting Something from Your Employer

Examining the Investment Deal

Putting Your Marker on the Risk Spectrum

Dealing with the Lifestyle Option

Swallowing the Whole Pensions Glass with a SIPP

Dispelling some common myths

The SIPP shopping list

SIPP suitability – or is it for me?

Deciding what to put into a SIPP

Costing a SIPP

Moving your place of work into a SIPP

Finalising Your Pension with an Annuity

Chapter 17: Hedging Your Fund Bets

Defining Hedge Funds

Choosing Strategies

Relative-value strategies

Event-driven strategies

Opportunistic strategies

Finding an Easy Way In: A Fund of Hedge Funds

Taking Hedging Some Stages Further

Absolute-return funds: Choose your risks and take your rewards

130–30 funds: An answer to the one-way bet

Some Do’s and Don’ts: A Hedge-Fund Checklist

Chapter 18: Investing at Random and with the Intellectuals

Pinning Your Hopes on Chance

Looking at the Worth of Fund Managers

Knowing the Limits of a Random-Choice Portfolio

You need a long time span

Traditionally, you need to select assets

Understanding Modern Portfolio Theory

Exploring the Hybrid Portfolio Theory

The portfolio divisions

Will HPT work?

Part IV: Property and Alternatives

Chapter 19: Investing in Bricks and Mortar

Buying Property to Rent: The Pros and Cons

Considering the Affordability Issue

Looking at the Buy-to-Let Mortgage

How much can you borrow?

How much will you actually get?

Items to consider about the mortgage

The Property Yield: A Comparison Tool

Understanding Location, Location, Location

Matching tenants to the property’s location

Considering properties in poor condition

Getting Savvy with Attracting Tenants

Advertise for them

Contact local employers

Use word of mouth

Use the Internet

Buying Overseas

Being Aware of the Tax Issue

Investing in Commercial Property

What’s good about commercial property?

What’s bad about commercial property?

How to invest in commercial property

Chapter 20: Delving into Exotic Investments

Getting into Gear for a Faster Ride

Optioning Your Bets

What is a stock market option?

Looking at the two sides of the options contract

Protecting your investment with traded options

Trading Good News

What are call prices and put prices?

What is option volatility?

Taking a Gamble with Spread Betting

Limiting Your Betting Losses with Binary Betting

Getting Contracts for Difference – for a Different Kind of Deal

How CFDs work

The benefits and drawbacks of CFDs

Understanding Warrants

Growing an Interest in Commodities

Part V: The Part of Tens

Chapter 21: Ten Tips for Finding a Good Adviser

Know the Difference Between Tied and Independent Advisers

Look at Adviser Listings and Ask Questions

Work Only With Advisers Who’ll Negotiate Their Fees

Examine the Adviser’s Good and Bad Points

Know the Difference Between Junk Mail and Real Advice

Know the Adviser’s Training Qualifications

Define and Limit the Adviser’s Role

Determine Whether the Adviser’s Adding Real Value

Know Whether the Adviser Always Plays It Safe

Know Whether the Adviser Will Be There Tomorrow

Chapter 22: Ten Helpful Hints for You

Define Where You Want to Be

Protect What You Have

Pay Off the Home Loan

Accept Losses

Take Your Time

Do the Groundwork

Get a Handle on the Odds

Know When to Sell

Read the Small Print

Wake Up without Worries

Investing For Dummies®, 3rd Edition

by Tony Levene

Investing For Dummies®, 3rd Edition

Published byJohn Wiley & Sons, LtdThe AtriumSouthern GateChichesterWest SussexPO19 8SQEngland

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About the Author

Tony Levene is a financial journalist with over 35 years’ experience specialising in investment and consumer issues. He was a member of The Guardian Money team for over 11 years. Previously he worked for newspapers including The Sunday Times, Sunday Express, Daily Express, The Sun, Daily Star and Sunday Mirror. He has also published eight other books on investment and financial issues. Tony lives in London with his wife Claudia, ‘grown-up’ children Zoë and Oliver, and cats Plato, Pandora, and Pascal.

Dedication

This book is dedicated to Claudia, for her patience during the book’s gestation; to Oliver for persuading me to write it; and to Zoë for her suggestions and approval of my initial chapter. I would also like to thank my brother Stuart for giving me sanctuary away from phones and other distractions whilst I wrote much of it.

Author’s Acknowledgements

I would like to thank Jason Dunne, Daniel Mersey and Steve Edwards at Wiley for their patience and help during the various stages of this book. And an especial thank you to Sandra Lynn Blackthorn (Sandy), for all her work in turning my manuscript from a book about investment into Investing For Dummies.

But most of all, I would like to acknowledge Peter Shearlock. Peter, whom I first met at school when we were both aged 11, was responsible for starting my career as an investment writer and has helped me invaluably along the way. He gave me my first lessons in the irrationality that often characterises financial markets and introduced me to ‘City characters’ ranging from spivs and chancers to the epitome of blue-blooded respectability. It is this variety that makes investing so fascinating. Thanks, Peter.

Publisher’s Acknowledgements

We’re proud of this book; please send us your comments through our Dummies online registration form located at www.dummies.com/register/.

Some of the people who helped bring this book to market include the following:

Commissioning, Editorial, and Media Development

Project Editor: Steve Edwards

Content Editor: Jo Theedom

Commissioning Editor: David Palmer

Assistant Editor: Ben Kemble

Copy Editor: Charlie Wilson

Technical Editor: Julian Knight

Proofreader: Jamie Brind

Production Manager: Daniel Mersey

Cover Photos: © First Light/Alamy

Cartoons: Ed McLachlan

Composition Services

Project Coordinator: Lynsey Stanford

Layout and Graphics: Carl Byers, Joyce Haughey, Christin Swinford

Proofreader: Jessica Kramer

Indexer: Claudia Bourbeau

Introduction

So much has happened for investors in almost the twinkling of an eye, it’s certainly time for a new edition of Investing For Dummies.

You’d have to be around 100 years old to remember the last time the world was so convulsed by economic and investment markets crises.

Over the past couple of years we’ve watched a run on a small UK bank, the forced nationalisation of two more, the collapse of some of New York’s biggest investment banks, mayhem in the US housing finance market, the bankruptcy of Icelandic banks, the rescue of the Greek and many other smaller European economies in the eurozone, record low interest rates almost everywhere guaranteeing that savers get a bad deal, and the rise of economies such as India and China – and that’s only scratching at the surface of all the recent changes in the world of investing.

On top of all that’s happened in the big bad world, understanding investment has become more crucial than ever thanks to the end of so many guaranteed pensions from employers. Knowing about investments could almost have been a hobby when I wrote the first edition of Investing For Dummies nearly a decade ago. Now, you’re out there on your own with pension investment decisions.

But not everything has changed in the investment world. No matter how chaotic it may seem, or how complex the hedge fund universe appears to all but those with a double degree in investment rocket science, the essentials remain the same.

Investment markets are still a battleground between fear and greed. How else to explain one set of investors bailing out a country’s failing economy only to be replaced with others who hope to profit from what’s left?

And neither Investing For Dummies nor any other source of advice will ever be right all the time. If you can get more than half of your decisions right and beat the averages, then you’re doing as well as you’re likely to. This applies to the so-called experts and professionals as well.

This book gives you the facts upfront and honestly. So you’ll find no magic formula for wealth here. Besides, even if there were a get-rich-quick recipe, I wouldn’t be telling anyone about it; I’d be using it.

No one can predict which shares will do well (although that doesn’t seem to stop people from asking me for sure-fire tips at parties). But what I can provide is guidance to help you make sensible decisions that suit your circumstances.

Investing involves more than understanding an economics textbook or balance sheet. It involves understanding a whole lot about human reactions to the ups and downs of money, plus (really important) understanding how you react. And it’s fascinating because it’s where you find all the drama of human life, because investment values represent nothing other than the combination of the minds of all the people involved in investment markets.

Over the three decades and more that I’ve been writing about money, I’ve continued to find investing a fascinating subject and endeavour, and I’ve become moderately more well off than I would’ve otherwise been. I hope that this book helps you become fascinated with investing too. And I also hope that by reading it, you’ll be better off than you would’ve otherwise been.

About This Book

This book is designed to be read in several ways. It’s a reference book, so you don’t have to read the chapters in chronological order, from front to back, although of course you canread it cover to cover, like a novel, to gain appreciation for the huge variety of investment opportunities that are available. (If you approach the book this way, I suggest doing so with pen and paper at the ready so that you can note areas for further research on the Internet or from publications such as the Financial Times.) Or you can just pick a topic that interests you or go straight to a section that answers a particular question you have.

But my preferred way for you to read this book is to go through Part I and then pick up on the investments that concern or interest you. For example, after reading Part I you may want to go straight to Part III to find out what collective investments are because, say, an advert about collective investments has caught your eye or a financial adviser has suggested one or two of them. Likewise, you may want to skip the chapter on buy-to-let properties because, say, being a do-it-yourself landlord is the last thought on your mind.

Conventions Used in This Book

I’ve tried to avoid jargon as much as I can, but know that the investment world is full of it. Like all professions and occupations, finance and investment have their own insider language that’s intended to mystify outsiders. When I do use the industry’s language in the text, I italicise the term and define it for you in an easy-to-understand way.

Foolish Assumptions

While writing this book, I made some assumptions about you:

You’re either completely new to investing or have limited information about it, and you want someone to help you understand what investing is really about and what types of investments are available.

You don’t want to become an expert investor at this point in your life. You just want the basics – in informal, easy-to-understand language.

You want to make up your own mind while using a guide through the investment jungle. You want enough pointers for you to risk only what you can afford to lose and for you to make a worthwhile return on your hard-earned cash.

How This Book Is Organised

This book has five major parts, or themes. Each part is divided into chapters relating to the theme, and each chapter is subdivided into individual sections relating to the chapter’s topic. In addition, to help you pinpoint your specific area of interest, I include a detailed Table of Contents at the beginning of the book and a detailed Index at the end.

Part I: Investment Basics

This is an essential part for understanding investing in general. I take you through what investment means, explain how to assess what you already have and the sort of returns you can expect, offer some insight on specific emotions that make investors tick, talk about the idea of risk and reward, and get you into the habit of reading the small print in investment situations. Most importantly, though, this part enables you to find out a lot about yourself and how you may face up to finance.

Part II: Shares and Bonds

In this part, I look at how financial markets operate and ways of analysing markets and companies. I explain what makes a market, examine the big companies and world markets, provide tips and titbits for when you begin investing in the stock market, cover what you need to know about stock-market-quoted companies, give you the scoop on investing in bonds, explain how to get pertinent information (because investment markets revolve around information), and tell you what you need to know in order to choose an adviser or stockbroker to best meet your individual needs.

Note that I do mention a few companies by name here, but those name drops aren’t intended as a recommendation either to buy or to sell those securities. I usually mention specific companies to give examples or to provide some context. Note, too, that a lot of this part consists of investment fundamentals. You’ll find some comment as well because you can’t divorce one from the other. Investments don’t live in a theoretical and factual vacuum.

Part III: Collective Investments

This part is where you find out about ready-made investment products. I talk about unit trusts, investment trusts and hedge funds, explaining what they really are and how they work – to help you decide whether investing in them is right for you. And I let you in on the fact that you can actually perform as well as the average fund manager or stockbroker by throwing a dart at a shares price page that’s pinned to your wall.

This part also serves up a crucial chapter about pensions – crucial because everyone, myself included, hopes to have a happy and prosperous retirement. Crucial, too, because no one can rely on the state system for much any more and an increasingly large number of people can no longer rely on their employer to come up with a decent pension. Most people are now out there on their own, so the pensions chapter enables you to devise an investment strategy for your life after work.

Part IV: Property and Alternatives

Many people no longer want to confine investment to trading pieces of paper such as stocks and shares. Instead, they aim to buy and sell real things that they hope will go up in value. So this part covers investing in property, from a second home for renting out to tenants to big commercial buildings. In addition, this part covers alternative investments. I’m not talking about fashioned alternative investments, like art and vintage cars, but investments based on things like stock, commodity and currency markets where you go nowhere near buying the shares, metals or foreign exchange contracts on which they’re based. Be warned up front, though, that these alternatives are not for the faint of heart. Some are really only one step removed from the betting shop or casino. Risky, risky.

Part V: The Part of Tens

This part gives you a taste of For Dummies tradition.Every For Dummies book has this part, which always contains lists of tens. Here, I give you ten tips on how to find a good adviser and ten helpful hints to consider before investing that first penny.

Icons Used in This Book

I’ve highlighted some information in this book with icons:

This icon points out useful titbits or helpful advice on the topic at hand.

I use this icon to highlight important information that you’ll want to keep in mind, so don’t forget this stuff!

This icon points out just that – a warning – so take heed. The investment world is full of sharks and other nasties. I don’t want you to lose your money to crummy schemes and criminals.

You’ll find this icon next to, well, technical stuff that you may want to skip. I’ve been sparing with this stuff because investment can be pretty technical anyway. (Note that even though you may want to skip this material on your first reading, and please feel free to, this info may be worthwhile coming back to later with your greater knowledge of the fundamentals.)

Where to Go from Here

This book is set up so you can dive in wherever you want. Feel free to go straight to Chapter 1 and start reading from the beginning to the end. Or look through the Table of Contents, find your area of interest and flip right to that page. Or better yet, read Part I and then flip right to that page of interest. Your call.

Wherever you go from here, if you find a piece of advice or a warning that you think applies especially to you, copy it down and then fix it to the fridge with a magnet, or pin it on a board.

And as you read through this book, either in part or in whole, why not practise some dry-run investing? Buying a dummy portfolio using pretend money is always a good way of getting familiar with investment without the worry of losing money.

Part I

Investment Basics

In this part . . .

The absolute basics. If that’s what you need, then this part is where you’ll find them.

Here, I tell you what the term investment really means and introduce you to five basic investment choices. In addition, I explain how to assess what you already have and the sort of returns you can expect. I get into a little bit of investor psychology too, letting you know some specific emotions that make investors tick. I also talk about risk and reward – the benefits and drawbacks of various investment possibilities and ways to increase your odds of successful returns. And I discuss the great importance of reading the small print in all investment situations. A lot of info, yes. But I present it in a friendly, easy-to-understand way, especially for beginner investors.

Chapter 1

First Steps on the Money Trail

In This Chapter

Understanding basic investment philosophy

Discovering your own money make-up

Looking at what you may be investing already (whether you know it or not)

Getting familiar with five basic investment choices

This chapter explains the first steps you must take in your investing ventures. But take heed: in this chapter (and throughout the book, for that matter) you need to think deeply about some personal matters, to understand yourself better and know where you’re going in your life and what makes you tick. In other words, you need to wear two hats – that of investor and that of philosopher. So be prepared for some tests that ask just what sort of person you are, what you want for yourself and what you’re prepared to do for it.

And if you don’t see a test, that’s no bar to testing yourself. The decisions you make are down to you and no one else.