Play the markets your way
Article Date: Jul 12 2006Growing your own business involves vision, determination, relentless concentration and single-mindedness and can, if you overcome the myriad obstacles, be a good earner. While you’re reaping the rewards, at some point you’d be well advised to set aside some of what you’ve accumulated to invest elsewhere.
This is a prudent way to take some of your eggs out of one basket to spread your risk and is also a means to gain more immediate rewards than are yielded by the long-term process of building up a business. And there’s no shortage of investment types from which to choose.
You can buy conventional quoted company shares, government stock or fixed interest securities. Property, investment trusts, tax-efficient vehicles such as limited partnerships, film finance, forestry and Enterprise Investment Schemes are also on the menu, points out Ben Yearsley of broker Hargreaves Lansdown, which runs discretionary accounts for individual clients committing £100,000 or more.
Alternatively, if you want to take a more active role yourself, you can play the markets, either by buying shares directly, or indirectly through derivatives, such as Contracts For Difference or spread bets, handled by firms such as IG Index. These instruments can cover market indices, interest rates and commodities as well as traditional gambling contracts on racing and other sports.
Patrick Latchford, business development director at IFX Markets, one of the specialist providers of derivative trading services, says budding and established entrepreneurs are among the company’s most enthusiastic clients, along with ‘retired fund managers’. Spread betting attracts punters of all shapes and sizes, ‘from dustbin men to millionaires’ and they can make handsome short-term gains – as well as daunting losses, particularly in current market conditions.
If you know exactly what you want to do, dealing in securities and derivatives can now be done online or by more conventional means through ‘execution-only’ firms at competitive commission rates. But if you want advice and informed suggestions and tips (and have a large enough investment portfolio), building up a relationship with your broker may make more sense, though it does not come cheap.
Be realistic
Entrepreneurs may have grown accustomed to doubling their own young businesses every year or at least squeezing annual returns of 40 per cent or more out of them. Most advisers warn that it’s important to adjust to the very different world of portfolio investing. Investment markets can fluctuate, sometimes widely, in short spaces of time and, unless you are a magnate of George Soros proportions (or a high-risk chancer such as derivatives player Paul ‘The Plumber’ Davidson), you are not going to be able to influence what happens in the way you can with your own business.
Individual investments can move dramatically, sometimes from a few pence to many pounds or vice versa, as the dotcom bubble and recent resources boom have shown. You could either be lucky or well informed enough to pick tomorrow’s Microsoft before it hits the headlines, or unlucky enough to buy the next Marconi at the top of the market. Most experienced market professionals suggest an annual average return of five to ten per cent over the long term is a more realistic target, however.
Stuart Fraser, head of investment allocation at broker Brewin Dolphin, says, ‘A common feature of first-generation money people is that, having grown their wealth 100 per cent themselves, they don’t want to hand it over to some idiot to lose it. But they need to moderate their expectations and accept a lower return on portfolio investment, as it’s the price they pay for the advantages of reducing their risk by spreading their exposure.’
