A few simple investment rules
As you read more about investing, you will come up with your own strategies. Below are the basics:
Spread the risk
Buy shares in different companies and different sectors. This may be impossible if you only have £500 to invest.
Robbie Burns in The Naked Trader has come up with a way of spreading the risk for those investors on a very modest budget.
The message - don't put all your eggs in one basket. You can limit risk by buying shares in 'blue chip' companies.
These are large, well established firms with a good reputation and therefore should maintain their value over the longer term.
However, there are always exceptions to the rule! The stats show that by holding an investment for five to seven years it smoothes out the wilder excesses of the market.
What if you can't do this?
Well, if you are investing for weeks or months, rather than years, then it may be worth setting setting a stop-loss (link), to ensure that you minimise the downside.
Equally, you may set a price target at which you will sell out (link).
Limit your broker charges
As a rule of thumb they should be 1.5pc to 2pc of the total value of your order. If they are higher than this, then your investment has to grow by a significant amount to cover these costs and put you into profit!
Remember, this is now a very competitive business area. Charges are under pressure and online internet trading facilities have increased the pressure and further reduced your likely dealing costs.
Reinvest your dividends
Compounding the size of your investment in this way will significantly increase the value of your portfolio.