Braving the stock market

For the untrained eye, the stock market may appear too volatile an ocean for novice investors to dip their toes into these days. Of course, the rewards that smart investing can bring are often astounding but for those of us who cannot swim, the losses are equally as impressive. However, with astute investing advice from experts, dentists should be able to reap the financial rewards of playing the stock market, even in the wake of the economic downturn.

In layman’s terms, investing involves buying and selling shares in a company. The shares are small stakes of the company, so the shareholder becomes a joint-owner, along with all the other shareholders.

The value of shares tends to rise and fall in line with the successes and failures of the business. If the company does well the shareholder may be able to sell their shares for a profit at a later date. The business may also pay the shareholder dividends during times of financial confidence. On the other hand, if the company does not perform, shares may fall in value or even lose their value altogether. The key is to invest in something for less than it is actually worth, which is of course much easier said than done.

One good way of spreading the risk of investment is to buy shares in a ‘pooled investment’ or unit trust. This involves a fund manager buying shares in a range of different companies and pooling them into a fund from which the investor then buys ‘units’. One positive aspect of unit funds is that each unit trust has a stated investment strategy, enabling the investor to take as much or as little risk as they like. For braver investors, smaller companies or emerging markets potentially offer better rewards but carry with them a much greater risk than large, UK businesses.

With this in mind, it would be wise to invest in a sector that you can understand and analyse rather than to hedge your bets on unfamiliar turf.

When considering investing in the stock market, the planning, structuring and timing of investments can be a very complex procedure. This is when financial advisers really come into their own. Some investments allow us to invest according to our principles, avoiding arms or gambling for example.
Independent financial advisers will find an investment that is right for your personal situation, taking into account the dentists’ personal attitude towards risk.

In terms of our investment strategy the basic principles for investing are as follows:

1. Diversify – invest across a broad range of investments
2. Invest for the long term – equities “work” over 5 or longer investment periods
3. Avoid investing emotionally – this is likely to lead to a reduction in your average annual returns
4. Invest regularly either on a monthly, quarterly or even yearly basis
5. Avoid trying to time the markets as it’s unlikely you’ll get it right year on year for the rest of your investing career
6. Rebalance – review your investments regularly so your mix of investments remain in line with your expectations