Stock Market made simple
Investing in a broad range of companies reduces the risks associated with buying shares, for those that do well will, one hopes, make up for those that do not. However, it is important to remember that it does not eliminate the risk. If the stock market generally falls so does the value of a portfolio.

Because of minimum charges for buying and selling, small individual shareholdings are not an economic proposition. The minimum investment should ideally be pounds 2,000. However, there is a way of securing an instant portfolio: a unit trust.

The concept is simple. Investors' funds are pooled and divided into a number of units, each investor receiving a number of units in proportion to their investment. Typically, an equity-based trust will invest in the shares of 50 to 100 companies with no single holding exceeding 10 per cent of the fund.

Professional investment managers decide which shares to sell and which to add to the shareholding, with the aim of achieving the trust's objective. This may be to maximise income, the growth in value of the units, or a combination of the two. The investments are held in the name of an independent trustee (hence the name unit trust) who is responsible for ensuring there is no foul play.

Unit trust managers generally cover their expenses and make their profits in two ways. The "initial charge" is added to the price at which investors buy units from the unit trust managers. There is also an annual management charge, up to 1.5 per cent of the total value.

There are over 1,500 unit trusts in the UK. They are divided into a number of categories according to their aims and the geographic area in which the funds are invested. For example, there are trusts which just invest in the UK with a view to achieving growth, income or a combination of the two aims. Others invest internationally. Some trusts are far riskier than others.

For this reason, first-time investors should only consider more general unit trusts such as "balanced" or "managed" funds which invest in bonds and cash as well as shares. Alternatively, consideration should be given to "tracker" funds which invest in the 100 largest companies in the UK.

As Anne McMeehan of the Association of Unit Trusts and Investment Funds (Autif) states: "Unit trusts are absolutely ideal for the novice investor." However, do remember that not all unit trusts perform the same. Past performance tables are found in Money Management and What Investment?, available monthly from the larger newsagents.

The tables show how much an initial investment of pounds 1,000, made at different periods in the past, is worth today if its net income has been reinvested. Ideally pick a fund which shows a consistent performance over all periods - and the longer the better. Do not pay too much attention to those which have done well in the past year as this may be a fluke.

Also, do not be influenced by the excellent performance of a trust in a different category to the one at which you were originally looking, as it could be a riskier investment and not meet your requirements. Never forget that past performance is no guarantee of the future.

The previous day's buying and selling prices, as well as yields - which is the pre-tax income expressed as a percentage of the previous day's buying price - are published in The Independent. Most trusts have a minimum investment of pounds 500 or pounds 1,000. It is often possible to invest a regular sum each month. Payments start from pounds 30 to pounds 50. Spreading the acquisition in this way is an excellent way of making a first step into the stock market.

A pack on unit trust investment is available from Autif. It includes the 'User's Handbook', giving guidance on how investors should select a trust and also contains a glossary of terms. Call 0181-207 1361.