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FOOL SCHOOL
Rather than plunging straight in, why not practice first. Many people set up notional portfolios before actually investing. Pick a handful of shares that you like and track their performance over several months, or even longer. How did you do? See how you feel when you make money. More importantly, see how you feel when you lose money. Could you cope if it was real rather than pretend money?
The principles of selecting a notional portfolio are the same as choosing a real one. You should be under no illusion that the business of selecting a portfolio can be done in half an hour after a nice Sunday lunch before falling asleep with the paper over your face. Well, it could be, but don't be surprised if the results are dozy.
Track your shares online
Having made your stock selections it is a simple matter to put them into a portfolio system. This way you can let our system do all the hard work for you and see can instantly see how you're doing at any time. Click on the My Portfolio tab that appears at the top of every page on this site. You'll need to register before you can set up a portfolio as we have to know who you are to show you your details.
You will need to find out the company's EPIC code to enter it into your portfolio. An EPIC is a unique three or four letter code used to quickly access company information - you can find out more about them here. Put an equal cash amount into each of your selections, say £1000 each. So you will need to work out how many shares £1000 will buy you. Add a little for charges as well, say £20 to cover commission and stamp duty.
Sit back and see how your shares perform. See how they react to news. Are you comfortable with how they react? Do they react how you expect? You might want to set up a couple of portfolios to try out some different strategies. We'll look at some strageties in a later article. Our system provides a benchmark figure for the FTSE AllShare, the most widely used indicator of the UK stock market, so that you can assess your performance. Remember this is what we're trying to beat, otherwise we might as well just get an index tracker.
Neither the FTSE AllShare or our portfolio system takes account of dividends. So although you comparing like with like you will also need to take dividends into account to assess your overall return. The average dividend rate per year for the UK market over the last few years has been 2% to 2.5%.
However, looking at your performance over just a few months can be highly misleading. Depending on your investment strategy it can take several years to know whether you have selected a gem or a dud. You need to assess why your shares moved as they did. Did you just get lucky and ride a wave of optimism? But the most important thing to learn from running a notional portfolio is the mechanics of how the stock market works and to find out how you, as an individual investor, cope with it.
My Portfolio Help Guide | Broker Centre