Starting an investment portfolio

Question

I am looking to start an investment portfolio with around £1000 of my savings going into the stock market and was wondering how I would go about doing this.

I would like to spread this money across a few moderate to high risk investments with the hope of high returns, I also will be placing around £4000 into an ISA to maximise savings.

My current financial situation is fairly stable, I don't have debt other than a student loan but I also don't own property. I will be setting up a pension plan within a couple of months and my employer will also contribute to that.

My aim is to be able to save using the ISA for the deposit on a house, and if needed have investments I can sell off to contribute to this.

My main questions are:

1. Is this amount an adequate starting amount to begin investing with?
2. Which services should I use to start buying shares? (Currently my bank offers this service but I'm willing to use other sources)
3. I would like to regularly increase the amount invested in shares. Is it worth doing this in say £200 increments?
4. When buying shares should I focus on say two or three companies, or diversify more?

But any other advice would be appreciated Thanks

Answer 1

Is this amount an adequate starting amount to begin investing with?

Yes. You can open an account at a brokerage with this amount.

I'm not sure I would invest in individual stocks at this point.

Which services should I use to start buying shares? (Currently my bank offers this service but I'm willing to use other sources)

I can't make UK-specific recommendations, but I'd compare your bank's fees to those of a discount broker -- as well as the variety and level of service available.

I would like to regularly increase the amount invested in shares. Is it worth doing this in say £200 increments?

Take a look at the fees associated with each investment. Divide the fee by the increment to see what percent you'll lose to fees/commissions. Keep in mind that you have to gain more than that percentage to start earning a positive return on your investment.

If you have access to fee-free automatic mutual fund investments, and you can commit to the £200 amount on a regular basis going forward, then this can be a completely free way of making these incremental investments.

See also this answer on dollar cost averaging, and my comment on the other answer on that question for how fees impact returns.

When buying shares should I focus on say two or three companies, or diversify more?

I would diversify into two or three different index funds. Read up on asset allocation. For example, you might invest 1/3 of your balance into S&P 500 index fund, bond index fund, and MSCI EAFE index fund (but that's just a rough example, and not necessarily good for you). I highly recommend "The Intelligent Asset Allocator" by William Bernstein for excellent info on diversification and asset allocation.