According to financial website Moneyfacts.co.uk, the best interest rate currently offered on an easy-access cash ISA is just 0.65%. With UK consumer price inflation standing at 3.1% for September this year, this means savers are continuing to see negative, real rates of return on their hard-earned money. What’s more, it could get even worse in the not-so-distant future, with new Bank of England chief economist Huw Pill recently predicting that inflation is likely to rise “close to or even slightly above 5%” early next year.
With such low rates of return on offer from cash, and inflation biting, it’s no surprise that the number of UK investors putting their money into higher-risk assets like shares and investment trusts has soared in recent years. Hargreaves Lansdown, for example, had 1.645 million active clients at the end of June this year, adding 233,000 in the previous 12 months alone. As well as the potential for higher rates of return, the retail-investor trend has been driven by a rise in the number of online brokers, low commission rates and hype about more ‘exotic’ assets like cryptocurrencies.
For those new to shares, bonds, commodities and the like, investment analyst Rik Tipton has just published his first book, A Guide to Getting Started with Investment. The book aims to provide those new to investing or those thinking about getting involved, with a plain-English guide on how to get started. Tipton reckons that an average return of 7% per annum over the long term could be a reasonable target for many stock-market investors, so if you’re tired of earning less than 1% on your ISA, this book is definitely for you.
Through 15 chapters, Tipton takes readers on a journey through the investment world, starting with the basics, moving to the types of assets available and finishing with a number of interesting sections on topics such as asset allocation and behavioural finance.
Chapter one kicks off with some preparatory remarks on what to expect from investing and the importance of making sure you’re in a financially stable position to begin with. After all, there’s no point trying to target a 7% per annum return from shares if you can’t pay your bills or have a credit card charging huge rates of interest. If you’re all set, you’ll need a broker, so Tipton gives some good advice on what to look out for when opening a share-dealing account.
The vast majority of the book, 10 chapters altogether, looks at the various asset classes and investment vehicles which are freely available for the typical retail investor to put their money into. Given their popularity, it’s no surprise that four of these chapters look at the world of shares. The author covers the basics of equity investment, including exactly what shares are and what they entitle you to.
The real ‘meat’ of the analysis comes over the next two chapters, which cover how to use a range of techniques to value how much a company is worth. Those who don’t have an accounting background shouldn’t fear, as while there are a lot of numbers and financial statements involved, Tipton explains each valuation concept step-by-step. For those who might like to look at charts when making an investment decision, there is also a section dedicated to technical analysis.
Those new to investment might not want to risk their money in individual shares at an early stage. After all, their value can go down as well as up and risk can be concentrated if you only have a few holdings. Considered less risky are bonds and collective investment schemes, the two asset classes covered in the next few chapters. Bonds might be more suitable for those looking for a fixed income over a period of time, with Tipton again covering all the main financial and non-financial information you need. Meanwhile, investors with a lower tolerance for risk might be interested in spreading their wealth via an investment trust or exchange-traded funds, types of vehicles which typically hold many assets depending on their own unique strategies.
The final three chapters on financial assets cover those at the higher end of the risk continuum, firstly looking at commodities such as gold, copper and oil. Tipton suggests that commodities can be a good portfolio diversifier as they don’t tend to move in Iine with stock and bond markets. Pertinent to the current market conditions, he also points out that commodities can provide a degree of protection against inflation. Next, currencies (or foreign exchange) are flagged as a good hedging device, with a warning given on the dangers of investing through contracts for difference and spread betting. Finally, we get a chapter on new asset class on the block, cryptocurrencies, with excellent primers on the main two crypto coins, Bitcoin and Ether. While pointing out their benefits, Tipton advises that cryptocurrencies should be viewed as a highly speculative endeavour.
The final few chapters provide further nuggets of advice on how to succeed at investing. In chapter 12, the author writes on asset allocation and how holding a mix of different asset classes within your portfolio prevents overexposure to any one particular economic outcome. There is also an introduction to the important subject of behavioural finance and how emotions can affect your investment returns. Finally, there is a range of top investment tips to help you succeed, including the wisdom of legendary investors such as Benjamin Graham, Peter Lynch and Warren Buffett.
Rik Tipton’s first book is a joy to read, providing those new to investment with an informative, entertaining and insightful overview on how to get involved and be successful in the markets. The information given is detailed yet concise, all written in plain English and jargon-free. If you’ve not yet decided to start putting your money in the markets, reading A Guide to Getting Started with Investment might just give you that initial spark.
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