Picking What's Right For You

With around 2500 shares listed on the main UK markets, making the right choice can be complicated. So, how do you find the shares that float your boat?

Start by Sticking to your Investment Objectives

The companies that fit with your investment objectives and your risk profile will be the ones to take a closer look at. (Don't have a clue what we're on about? Take a look at the previous sections for clarification). Don't get sidetracked by fads, the 'latest thing', or what your mates down the pub are saying. Run everything past your objectives before you do anything. If they don't fit, think twice.

Pick Shares from a Range of Sectors

Companies are categorised by what products or services they provide. To get a truly diversified portfolio, you'll need to include a range of sectors. That way you may reduce your risk.

Tobacco, Utilities and Pharmaceuticals have traditionally been defensive sectors, particularly when general economic conditions are bad. In other words, they tend to bear up better in tough times because there's a steady demand for their products.

Having said that, those of you who are interested in ethical investing probably won't be keen on buying shares in tabacco companies. Even if it does meet your objectives on risk and volatility there's some great big moral reasons why supporting the tobacco sector might not be such a great idea for you.

Of course, not everyone's into playing it safe. If you're into taking a bit of risk, take a look at the Telecoms, Media and Technology sectors.

Finding the right number of sectors for you depends on your objectives, attitude to risk and most importantly on how many sectors you think you can manage. And remember - keeping track of your sectors' performance and assessing their future prospects is all down to you.

So. Now you know which sectors fit your investment criteria. All that's left to do is to pick

the right companies to buy shares in.

Pick Around 10 Different Shares so you get Diversity

It's common sense that the more companies you own shares in, the less exposed to risk you'll be. For example, an equity portfolio containing only 5 different shares could suffer more than one that contains 15, should the price of one of those shares plummet.

On the whole, investment experts reckon your portfolio should contain a minimum of around 10 different shares.

Pick Shares from Different Sized Companies

Companies of different sizes behave differently and offer different levels of risk (stands to reason, really).

So a top way to diversify is to pick up shares in a range of different sized companies. The smaller you go the riskier it gets. On the other hand, big companies have deeper pockets and more diversified operations so they can cope with economic cycles better.

The best way to check the size of a company is to see which Index they are listed on:

An index such as the FTSE is simply a method of tracking how well a stock market is performing. It enables you to see how your own performance compares against the market as a whole. (FTSE Stands for Financial Times Stock Exchange).

FTSE 100 – the hundred biggest

This is the big daddy of UK indices. It's got the 100 biggest companies on the London stock market, in proportion to their market value. It's the one on the news when they go on about 'the FTSE being up or down.' It's got about 82% of the total London stock market value.

FTSE 250 – the next 250

The 101st to 350th largest companies (often referred to as the mid caps). This index often includes long established companies or up and comers trying to get into the FTSE 100.

FTSE All-Share – all FTSE listed companies

Despite its name, this one only includes 719 of the 1,600 or so UK companies listed on the London stock market. But these 719 represent 98% of the overall market value. If a tadpole company outside this index started doing well, and got bigger, then it would get added to the index.

FTSE4Good

FTSE4Good is an index series for socially responsible investment (SRI) set up by FTSE, the leading global index providers. If you want to check who's trying to be ethical and who's not, FTSE4Good is a benchmark to consider. Independently defined and researched, FTSE4Good aims to set an objective global standard for socially responsible investments.

AIM – Alternative Investment Market

A market created for small companies to raise capital. This is a junior stock market run by the London Stock Exchange. It usually has smaller, younger companies than the Full List. It's also less regulated. Companies in this index have a lot of potential for growth but could just as easily go bust.

Pick the companies themselves

There are lots of criteria you could look at depending on your investment objectives, for example:

1. If its growth you want, you could look at the company's performance and prospects.
2. If its income you want, you could look at the dividends a company pays and its future prospects
3. If you're an ethical investor, you could look at what the company does and how it behaves.

At the end of the day, it all boils down to whether the shares in the company you're looking at are at the right price and will help you achieve your investment objectives. Whatever you want from a company, find out as much as you can about them.