It's all yours, a big risk

Windfalls: Still wondering whether to sell or hang on? Rachel Fixsen has some suggestions

Investment wisdom has it that there is no point in owning shares unless you have enough money to hold a wide variety. Some say this the only way you can spread your risk broadly enough to make equities a sensible investment rather than an out-and-out gamble. If this is the case, what makes Halifax shares, or those from any other demutualisation, so different?

Privatisations and, more recently, building society demutualisations, have encouraged people who normally stick to the safety of deposit accounts to throw caution to the wind and put their assets at the mercy of the stock market.

Yet the risk of holding shares in only one company can be enormous, says Tim Cockerill, investment director at Whitechurch Securities, a firm of independent financial advisers in Bristol. "You only need a profit warning for the share price to get hammered very badly, and you've lost, say, 15-20 per cent.

"The general feeling that you need a large portfolio to be well diversified is pretty well-founded," Mr Cockerill stresses.

It is often reckoned that you need a minimum of 11 holdings for a reasonable spread of risk. But the government drive to widen share ownership through waves of privatisations of state-owned enterprises in the 1980s, and subsequent building society demutualisations has created many new share-owners who have little or no diversification to shelter them - only 8 per cent held shares in more than one company, according to a 1996 survey.

ProShare, an independent body that promotes share-ownership, says 16 to 17 million people are expected to be in the club at the end of this year, against 4 million in 1983.

Buying units in an investment fund, such as a unit trust or investment trust, is one way to own equities on a smaller scale with a broad spread of risk. So if they are the only shares you possess, should you sell your windfall shares in and invest the money in another type of vehicle?

Not necessarily. Another school of investment thought advocates keeping no more than a minimal variety of stock. The reasoning goes, according to Bill McNamara of stockbrokers Durlacher, that if you hold 10 different shares the one you have the best hopes for is likely to be far better than the one you give the worst rating, so you should therefore stick to two or three of the best bets.

But if you are going to follow that strategy, the choice of stocks you include in your few is critical. "If you are going to hold one stock in a sector, you have to ascertain it's the best," Mr McNamara says. And Halifax is not, he says. "It is too narrowly based ... totally dependent on the UK mortgage market."

Whether it is wise to hold shares in just one enterprise, privatisation and demutualisation stocks are an exception. "They were sold off cheaply and the businesses have subsequently been run well, so people have done very well out of them," says Mr Cockerill.

The cheap launch price of demutualisation shares puts them on a springboard and gives them good chances of growth initially. Once in the market, the new Halifax and Alliance & Leicester shares enjoy strong demand from institutional investors, such as investment funds, which have obligations to own all shares which are part of the FTSE 100 index.

So far, Halifax shares have risen to around pounds 7.73 from the initial auction price of pounds 7.32, and Alliance & Leicester shares are trading at pounds 5.99, up from their auction price of pounds 5.33. But this does not mean above-average growth prospects will last. Unless you plan to keep Alliance & Leicester or Halifax shares long-term, just when should you sell?

Mr McNamara says this depends on your view of the stock market as a whole. "Banking shares in particular ... tend to follow the FTSE quite closely."

One analyst adds: "Most brokers would tend to be cautious about A&L stock, which may well be heading for weakness, having been artificially buoyed by strong initial demand from institutional investors."

Many people end up with holdings of single-company shares as a result of share saving schemes at work. The discount, often 20-30 per cent, offered on the purchase price of their company's shares means employees usually do very well out of such schemes.

But in many cases, you should soon sell the shares you get, take the money and run. Mr Cockerill says you need professional advice on whether to hold on to such equity stakes long-term.

Even if a couple of privatisation or demutualisation stock holdings are not enough to constitute a well-balanced equities portfolio, they could well be the start of one.

Such a fledgling portfolio is often best wrapped as a general self-select PEP, where windfalls, subsequent individual stock purchases and unit trust holdings can be held tax-free up to the limit of your allowance, Mr Cockerill says.

"It's down to personal choice and appreciating that in the early days the risk is higher."

More than 90 years of car history are coming to an end with the abolition of the paper car-tax disc
newsThis and other facts you never knew about the paper circle - completely obsolete today
people'I’d rather have Fred and Rose West quote my characters on childcare'
Life and Style
The new Windows 10 Start Menu
Arts and Entertainment
There has been a boom in ticket sales for female comics, according to an industry survey
comedyFirst national survey reveals Britain’s comedic tastes
Have you tried new the Independent Digital Edition apps?
Bruce Chatwin's novel 'On the Black Hill' was set at The Vision Farm
travelOne of the finest one-day walks you could hope for - in Britain
footballManchester City 1 Roma 1: Result leaves Premier League champions in danger of not progressing
Arts and Entertainment
Gay and OK: a scene from 'Pride'
filmsUS film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
Life and Style
Magic roundabouts: the gyratory system that has excited enthusiasts in Swindon
motoringJust who are the Roundabout Appreciation Society?
Arts and Entertainment
Hilary North's 'How My Life Has Changed', 2001
booksWell it was good enough for Ancient Egyptians and Picasso...
Finacial products from our partners
Property search

Simon Read: The timeshare battle intensifies with Macdonald Resorts

An action group of disaffected Macdonald owners are now readying for their own legal battle with the company

Debt problems: How you can nip your money problems in the bud and sleep easy at night

Money worries are keeping more than 7 million of us awake at night

Venture Capital Trusts: You will love the tax-free income

To encourage investment in this higher-risk area, the Government offers generous tax relief to those who invest in new issues of VCT shares

Runaway debt: It's the new norm for university students now

StepChange, the debt charity, has revealed that students who called its helpline in 2013 had racked up average debts of £7,818

Michael's crisis could have 'dragged on for a long time', says CPA adviser Ruth Millward, right

More than 300,000 adults are too deeply in debt to apply for bankruptcy

Charities are urging the Government to offer a cheaper alternative for people in financial difficulty

Scottish independence: How will kilt-edged stocks fare?

Scottish companies were caned when the separatists surged in the polls. Is this the future, asks Simon Read, and would they be any better together?

Two million first-time buyers are locked out

The drought in lending to people with low deposits has created legions of frustrated buyers, writes Emma Lunn

Leaving money to charity in your will could help reduce the tax bill for your loved ones

Next week has been designated "remember a charity in your will week", to put the focus squarely on the subject
Money is slipping through our fingers: the UK is falling behind other countries in the amount we put away

How to save money: UK is crashing down the European league table for putting money away

The UK has slipped to 11th in the latest European league table of savers. Rob Griffin checks out the best options

Energy firms found guilty of bad practice could have licences revoked under Labour government

Caroline Flint, the shadow energy secretary, says a Labour government would create a new energy regulator

A student's guide to financial survival: You don't have to drown in debt at university

Fresh from A-level delight, the moment does not have to be soured by students resigning themselves to thousands of pounds worth of debt in three years' time. Rob Griffin sees how to pass the university challenge

'Dismal' eurozone data sparks concerns

European Central Bank chief Mario Draghi is under pressure to launch promised stimulus before the EU slides further
Love but not marriage: property is one area where cohabiting couples are in danger of losing out

How couples can protect their financial interests when cohabiting

People who simply live together cannot assume they have the same rights to each other's assets as spouses or civil partners. Michelle McGagh sees how they can protect their financial interests
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Trainee Recruitment Consultant - Birmingham - Real Staffing

    £18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

    Trust Accountant - Kent

    NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...

    Graduate Recruitment Consultant - 2013/14 Grads - No Exp Needed

    £18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...

    Law Costs

    Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...

    Day In a Page

    Ebola outbreak: The children orphaned by the virus – then rejected by surviving relatives over fear of infection

    The children orphaned by Ebola...

    ... then rejected by surviving relatives over fear of infection
    Pride: Are censors pandering to homophobia?

    Are censors pandering to homophobia?

    US film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
    The magic of roundabouts

    Lords of the rings

    Just who are the Roundabout Appreciation Society?
    Why do we like making lists?

    Notes to self: Why do we like making lists?

    Well it was good enough for Ancient Egyptians and Picasso...
    Hong Kong protests: A good time to open a new restaurant?

    A good time to open a new restaurant in Hong Kong?

    As pro-democracy demonstrators hold firm, chef Rowley Leigh, who's in the city to open a new restaurant, says you couldn't hope to meet a nicer bunch
    Paris Fashion Week: Karl Lagerfeld leads a feminist riot on 'Boulevard Chanel'

    Paris Fashion Week

    Lagerfeld leads a feminist riot on 'Boulevard Chanel'
    Bruce Chatwin's Wales: One of the finest one-day walks in Britain

    Simon Calder discovers Bruce Chatwin's Wales

    One of the finest one-day walks you could hope for - in Britain
    10 best children's nightwear

    10 best children's nightwear

    Make sure the kids stay cosy on cooler autumn nights in this selection of pjs, onesies and nighties
    Manchester City vs Roma: Five things we learnt from City’s draw at the Etihad

    Manchester City vs Roma

    Five things we learnt from City’s Champions League draw at the Etihad
    Martin Hardy: Mike Ashley must act now and end the Alan Pardew reign

    Trouble on the Tyne

    Ashley must act now and end Pardew's reign at Newcastle, says Martin Hardy
    Isis is an hour from Baghdad, the Iraq army has little chance against it, and air strikes won't help

    Isis an hour away from Baghdad -

    and with no sign of Iraq army being able to make a successful counter-attack
    Turner Prize 2014 is frustratingly timid

    Turner Prize 2014 is frustratingly timid

    The exhibition nods to rich and potentially brilliant ideas, but steps back
    Last chance to see: Half the world’s animals have disappeared over the last 40 years

    Last chance to see...

    The Earth’s animal wildlife population has halved in 40 years
    So here's why teenagers are always grumpy - and it's not what you think

    Truth behind teens' grumpiness

    Early school hours mess with their biological clocks
    Why can no one stop hackers putting celebrities' private photos online?

    Hacked photos: the third wave

    Why can no one stop hackers putting celebrities' private photos online?