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Monday, June 7, 2010

Basic Question: When is a Good Time to Buy Shares?

wning shares has, historically been an effective way of investing money for profit. The risks have always been greater than merely putting the money in the bank, but with a broad portfolio, the risks have been minimized. However during the first decade of the 20th century, share markets have proved much more volatile and owning shares has to be seen as a riskier business.

Profits from shares are earned in two ways - from dividends based on the profits of the company and from selling shares when they rise in value. Historically, share prices have risen and so profits in trading shares has also risen. Share prices can go down as well as up. As a short term investment, the potential gains and potential losses are likely to be greater. It's best to see buying and selling shares as a steady long term investment.

Its usually best when buying shares to spread the risk by holding a diverse portfolio of shares, ideally spread across different sectors. If you have all your shares in the pharmaceutical sector and the sector rockets, all well and good. However if there is a slump, in that sector you could be in real trouble.

Which shares should I buy?

It is probably best to start trading in blue chip companies in the FTSE 100, although you may want to dabble in the FTSE 250. Shares in the Alternative Investment Market (AIM) are likely to be much more risky as there is less regulation of companies in that market. Research is essential - few people are successful when they buy shares on a whim. Check out the recent trend in share prices and follow the news. There are plenty of sites such as Reuters where you can get up to date share prices as well as share price history.

When Is the best time to buy and sell Shares?

No one can predict the right time to buy shares - either the right time in the market generally or the right time for one particular stock. Many people want to choose the right time to sell shares in privatized companies and building society conversions such as Standard Life Inevitably, the bottom of the market is the best time to buy. Obviously no one can predict with certainty when the top or bottom of the market will be reached.

What does a stockbroker do?

To buy shares you need a broker. A traditional stockbroker service offers you advice and you have to pay extra for this service. Most small investors however use an online share dealing service. Here you're left to your own decisions, with no advice but prices for dealing are very low - usually £10 - £15 for smallish trades. One of the cheapest ways to get started is the Halifax Sharebuilder Account where you can buy for just £1.50 per trade.

Selling shares is potentially much less risky than buying, particularly if you use an instant online share dealing service. This will mean that you are pretty well guaranteed what price you will get for your shares

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