Investors urged to consider the risks of single stock exposure

By Corporate FE Research and Opinions, FE Tips

Updated on Monday, 24 August, 2015

With the latest research highlighting that over a third of over 50s are turning to the stock market to grow their retirement pots, FE Trustnet would like to urge investors to take stock of the risks associated with holding individual company shares.

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The latest research from Saga Share Direct has found that one in three over 50s have bought shares in a company to help fund their retirement, with a fifth turning to stock picking for a regular source of income.

While it is encouraging that an increasing number of over 50s are feeling more confident in turning to the stock markets, and have the freedom to do so, FE Trustnet would like to stress the importance of thorough research before buying single stocks. Investors should also note the higher risks associated with buying individual company shares. 

FE Trustnet’s Tahmina Mannan says: “The abundance of online/DIY platforms on the internet has allowed easier access to the stock markets than ever before – which in itself is a good thing. However, investors should be cautious in rushing in without doing the proper research leg-work.

“We have all heard of the fortunate few who strike investment success from a single stock’s performance – but these lucky strikes are few and far between. Most investors are unlikely to be so lucky and need to be aware of the risks of single stock exposure.

“Investors need to be aware of the potential for industry risk brought on by economic factors, management risks which could impact the stock price and event risks – such as natural disaster which could hugely impact the company despite management’s best efforts.”

For those who are less confident or with a lower risk-tolerance - an income investment fund is a good place to start.

There are more than 80 equity income funds in the Investment Association, according to FE Trustnet data, giving the investor ample choice.

When picking a fund investors should consider the different investment strategies that different managers will employ, as well as where the fund falls in the risk/return scale. 

Ratings alongside Risk Scores – such as FE Crown Ratings and FE Risk Scores are helpful when assessing a fund, but investors who are still unsure should seek the advice of an independent financial adviser. Investors should also note that a fund should typically be held for at least five years minimum to counter-act the effects of short-term market volatility. 

 

The top 10 equity income funds in the IA UK Equity Income sector this August.

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Source FE Trustnet data. All information correct as of 18/08/2015

FE Risk Scores – the risk scores work on the basis that cash is zero and the FTSE is 100, to give advisers and investors an idea of how much risk is associated with a particular fund.