4 tips for investing in shares

Peter Lynch gives us four sound tips for investing in shares.

  1. Understand the company you are going to invest in. If you do not know anything about their products or services or the industry, don’t invest. Lynch reckons we all have a unique advantage when it comes to choosing shares from our daily lives and experiences.
  2. There are millions of companies, you only need a few winners to obtain great returns on your investments.
  3. Buy at a discount, if at all possible; check the price/earnings ratio.
  4. Don’t try to predict the future-nobody can. Focus on long term investments, not short-term price rises.

If you know nothing about shares, and do not want to try to pick individual shares, a good choice is to invest in an index fund.

An index fund is a basket of shares which contains all, or nearly all, the shares in a particular market index.

An index fund is an investment that tracks a market index, typically made up of stocks or bonds. Index funds typically invest in all the components that are included in the index they track, and they have fund managers whose job it is to make sure that the index fund performs the same as the index does.

Popular indices include the S&P 500, the Dow Jones Industrial Average, the FTSE100. You can invest in an index fund which will invest in one of these indices, or elsewhere in the world-for example shares listed on the German Bourse.

The easiest and cheapest way to invest in such a fund is to buy shares in an ETF.

What is an ETF?

An ETF, also known as a tracker, is a financial product that follows an index, commodity, bond or composition of products. For example, an ETF that tracks the S&P 500 will be composed of shares of companies within this index. ETFs enable you to diversify your portfolio at an affordable price.

Here is a useful article on DeGiro about ETFs.

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