Thinking of setting up your own portfolio? Private investors, start here

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The Independent Online
Unit trusts, investment trusts, PEPs and privatisation issues have made it very easy for investors to acquire a stake in the stock market. And there are plenty of private client stockbrokers happy to build and manage a portfolio of direct holdings for the idle investor who still wants direct exposure.

But there is still room for the private investor. Starting a portfolio can be quite straightforward as long as you stick to some golden rules.

Your goals will depend on your circumstances according to age, personal life and wishes. I would write down a list of three. Firstly, how much do I want to achieve by way of income or growth.

Secondly, by when do I wish to achieve this, and lastly, what level of risk I am willing to take.

Risk is a vital issue to consider. For example, I could not sleep at night knowing that all my investments could disappear overnight, but if you felt that you wanted that level of risk then so be it. Risk is a balance of comfort and fear.

Before starting up a portfolio I feel it is vital that potential investors ensure that their home base is covered first - that, for instance, home, pension and suitable insurance are already in place. Often, long-term savings and investment plans should be allowed to continue, but only when you are happy with your level of security in your family nest should you embark on your own portfolio.

One of the best ways to start building up a portfolio is with friends in an investment club. Here a group of up to 20 people can pool say pounds 25 each month into an account and start investing as a group. Once you have built up some experience you can then use the knowledge gained in the club to start your own portfolio.

When starting to invest directly yourself, for starters I would consider at least pounds 6,000.

Each investment should be no lower than pounds 1,000, and so this would give you the chance initially to spread your money over six companies.

Learning about the market can be done in several ways. There are legions of books on investment form the basic to the most sophisticated.

There has been a growth in the number of magazines aimed directly at the private investor.

Other points of knowledge include Proshare, a body set up especially to help investors who can provide a wealth of information.

You will need to find a stockbroker who provides you with the right level of service for your needs. Here you behave like any other consumer and shop around. There are all sorts of combinations of advisory and execution- only brokers who have differing services for you.

Some will have nominee services where they can handle the certificates for you and others also offer a range of personal equity plans (PEPs).

As many of us are tax-payers it is worth considering setting up a self- select PEP for your portfolio. This will allow you to shelter your investments from both income and capital gains tax.

Consider your own needs when choosing a broker. Are you happy using the phone? You will probably want some help and information at some stage, as well as opinions on companies and even advice from time to time. You may want 24-hour access to your portfolio.

If you want your portfolio to grow and develop, it is vital to set aside time regularly so that you can monitor and adjust as necessary. This must, in my view, mean at least a weekly review but the important issue is to ensure that it fits into your schedule well so that you can commit the time.

Before embarking on any investments I believe that it is essential that you have a set of guidelines to work to. For example, you can set yourself a limit of 20 per cent rise on a share after which you will sell it and bank the profits.

Equally, if the share goes down by 10 per cent you could automatically sell out.

Consider the types of investments you want to have, by geography, industry type, size and spread. With so much choice, it is important to focus on these key points to avoid over or under investing.

Never fall in love with a particular investment - it doesn't love you. If you have made a mistake, then out it. Good luck.

Justin Urquhart Stewart is Business Planning Director at Barclays Stockbrokers

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