Q&A Dominic Coyle

I have €20,000 that I want to invest in some shares. I am thinking of buying maybe four different stocks. This is money that I won’t need access to in the near future and I am willing to take a calculated risk with it. Where would be the best place to start the process. What is the easiest way to do it? Through my bank, a stockbroking firm or are there online facilities? Where can I get good independent advice on the best types of companies to invest in? Any advice towards taking the first steps would be appreciated.

Mr H.O’M., email

While it is always good to hear that, in these times of austerity, someone has a sum of €20,000 to invest, I would instinctively advise caution.

The economy may have been a basket case over the last few years – and still is in many regards – but global stock markets have been thriving. Our own backwater – the Irish Stock Exchange – is over 23 per cent ahead so far this year. In the last two years, it has advanced by almost 64 per cent.

And while the Irish market has been one of the best-performing over that period by dint of being in the doghouse before then, the FTSE 100 (+18.67 per cent) and the Dow Jones Industrial Average (+30.85 per cent) have also been rattling along at a furious pace over the past couple of years.

As any regular reader of the Stocktake column on these pages will know, the investment community seems convinced that despite the current frothy levels, stock markets have further to go: of course, as readers of that same column and others will realise, the investment community as a whole has a dismal record in predicting future performance.

Calculated risk is one thing but – assuming this is your entire “investment portfolio” – putting it all into just four stocks amounts to an almost reckless concentration of risk.

I know investment professionals suggest you need a realistic sum to play the markets but even a seasoned stock-picker would be wary of putting all their chips on just four stocks in the current environment.

If you really are interested in “playing the market”, it might be better to diversify your risk by buying into an equity fund – and not one confined to Ireland.

But, even if there are further gains to be made by stock markets, you might ask yourself whether it might not be better to look elsewhere.

Despite our recent experience with property, international interest here (and some other places in Europe) might indicate that there are rather better pickings in that sector at present – again ideally through funds – than in equities.

You might also be advised away from that other major asset class – fixed income or government bonds – which have, in general been trading at record low yields (interest rates) in recent times. The consensus is that yields are likely to rise from there over the foreseeable future, which means they will become less attractive for investors because bond prices move inversely to yields – as yields rise bond prices fall.

If you do proceed, there are no shortage of people looking to take your money from you. Stockbrokers would be the most direct route into shares while many banks also offer a stockbroking service – and yes, there are a range of online options.

On the issue of independent advice, I would ask independent of what? If you mean in the sense of an adviser who has not personally bought into the stock they would direct you towards, that should be possible.

But, if you can find an adviser capable of picking the four stocks for the future – or even four that will definitely make money – then I would suggest he or she would be better playing the market themselves than advising others to do so.

Kidding aside, my advice would be to read as much as you can on the subject before parting with your money. And then, initially anyway, look to invest some of your savings into funds in whichever area you choose.

Pennies mixed with pounds

Have you done what I have done many times and mixed the pennies with the pounds in relation to your reply to the owner of 4,270 Guinness shares last week?

Mr W,B., email

Indeed I did, and embarrassingly so. The reader had asked for advice on selling costs and tax on 4,270 shares in Guinness/Diageo she inherited in 1998 when the share price was 783p.

As the stock was trading at 1935½p at the time I answered the query, I stated that she had a gain of 1152½p per share. So far so good. However, having forgotten to allow for the fact that we were talking pence rather than pounds, I then stated that her capital gain was £49.2 million – rather than the still rewarding £49,211 gain she has actually made on the shareholding.

Compounding my error, I then estimated that the reader would face charges of more than £40,000 in selling her stake when the figure should have read “more than £400”.

Understandably, the reply excited considerable comment. One reader suggested the gremlins had been at work: unfortunately, it would be unfair to blame gremlins.

Whether for the irrational exuberance of my reply, or otherwise, Diageo shares have continued to rise, adding more than 30 pence in the past week.

This column is a reader service and is not intended to replace professional advice. Please send your questions to Q&A, c/o Dominic Coyle, The Irish Times, 24-28 Tara Street, Dublin 2, or to dcoyle@irishtimes.com