The Daily Telegraph - Saturday - Money
How to invest wisely and be quids in
Are you risk-averse or happy to dabble on the stock market? Emma Wall explains the best way to make £1,000 work
Got a lump sum? First thing to ask yourself is: what is it for? If you’re looking to fund a holiday, an engagement ring, any kind of bill – take a step back from the stock market.
Any fixed price or high stakes purchase needs to be in the lowest possible risk asset – cash.
Though rates have come down over the past six months, you can still get a decent yield on a cash savings product – an extra bonus is if you pop it in an Isa so you don’t have to pay any tax on those gains.
However, if you want to use it for the long term – buying a house in a few years, funding your retirement, or just to start off an investment fund, then the stock market could be for you. Regardless of whether you’ve got
How much the S&P 500 lost in one day in the 1987 crash
Meta dropped this amount in one day after a bad earnings report, wiping $232bn off value of company
GOING THE DISTANCE
Consider the term and your risk appetite when deciding how to spread investments £ 1,000 or £ 100,000 to invest, you’ll want to consider your options carefully.
HOW TO MATCH YOUR INVESTMENT TO YOUR APPETITE FOR RISK
Next thing to consider is how much risk you want to take. Most of us like to think of ourselves as risk takers – but when it comes to investing, safety is a key factor to think about.
You really don’t want to be in a position where your risk appetite and your investment volatility are mis-matched. In cases where investments drop, it can lead to panic selling – crystallising losses you didn’t have to bank.
It could be that this £ 1,000 is just play money, or this could be the first lump sum deposit of your long and illustrious investment journey. Its significance might well affect your risk appetite. You can gauge it by asking yourself: what is your capacity for loss? How would you feel if your investments dropped significantly in value? Devastated or apathetic?
Of course, all investments have the potential to lose money, and in a crash even “good” (that is less risky) investments take a hit. But you should consider the averages – for example, the major US stock market, the S&P 500, lost more than 20pc in one day in the 1987 crash, but the average daily move of the S&P 500 is between -1pc and 1pc.
You should expect a few daily moves of between 5pc to 10pc a year, but on the whole an index should offer a smoother ride than single equities. This
If you already have a well-diversified portfolio with a good mix of geographies and sectors, blended to achieve your goals in line with your risk appetite, this £1,000 is about expressing your values in your portfolio, or taking a punt on a more esoteric theme.
Impact funds invest in companies that have a clear positive impact on the environment and society. Fund managers using this approach will measure and report on the positive impact that their funds achieve. We like WHEB Sustainability, which invests based on nine sustainable investment themes. These range from resource efficiency and sustainable transport to education and wellbeing.
Or, for an established way to tap into the technology sector, Polar Capital Technology Trust invests in technology companies in developed and emerging markets. These satellite holdings should only make up a small part of your total investments. The tilts add diversification and the potential for uplift with the right tailwind. is because – as the name suggests – there are 500 companies in the index, offering diversification across different sectors and, therefore, market forces. Individual stocks, on the other hand, can move about far more. Meta, Facebook’s parent company, may be riding high at the moment, but the company holds the undesirable crown of the biggest single- day losses of all time for the S&P 500.
After a bad earnings report in February 2022, Meta dropped 26pc in just one day – wiping $232bn (£183bn) off the value of the company. While that is the most acute drop, it was nearly matched by another plunge just eight months later when it fell 24pc in a day after another missed earnings target.
I don’t mean to pick on Mark Zuckerberg, but this illustrates how even the largest, most established and successful companies carry more risk than investing in than a large index. Hence my preferences for collectives for most retail investors – ETFs, investment trusts and funds.
Of course, daily moves are manageable if it’s a case of a single trough being followed by a single peak – but