Taking Your Portfolio To The Next Level

Published in Investing on 24 September 2010

Are you ready to take a giant leap with your investments?

The more money you invest, the more money you stand to make. A simple equation, that unfortunately cuts both ways. The more you invest, the more you stand to lose.

That's one reason many investors struggle to invest big enough sums to build a portfolio fat enough to retire on. It just seems too dangerous.

It is painful enough investing £500, only to see the share price tumble 20% next day, but at least you are only down £100. If you invest £5,000, you are down £1,000. To many people, that is big money. We're not gamblers, and it can take a long time to claw it back.

One lump or two

So how do you make the leap up to investing large sums? That's the question I'm asking myself right now.

I've always invested lump sums, and started off tossing in £500 a pop. When I realised that was getting me nowhere slowly, I upped it to £750, then £1,500, still the maximum I have invested in a single go.

I'm comfortable with that figure, but I'm also aware it won't make me rich. If the stock pays a handsome 5% dividend, I bank just £75. If I'm lucky, and the share rises 20%, I'm only £300 to the good.

Not bad, but it ain't riches.

The big money

I've got several investment trusts that have risen 100% or 200%, a pretty good return by most standards, but since I invested just £500 or £750 in them, they haven't made me rich.

My biggest single direct equity holding is Aviva (LSE: AV), with around £4,000 of stock. When that rebounded recently, I was quickly hundreds of pounds to the good. I felt like I was getting somewhere (and I'm looking forward to the dividend payout as well).

But I built up my Aviva position in increments. I still haven't made a big call, but I want to get myself into the position where it's possible. How do I get from here to there?

Or to put it another way, what would it take for me (and you) to invest, say, £5,000 in a single trade?

1. A big portfolio

If you're a fresh-faced newbie with a few thousand pounds to invest, you don't want to gamble the lot on one stock. Especially if it's a biotech start-up you've seen tipped somewhere. 

To invest big sums, you need relatively big sums behind you, plus a tidy cash back-up. You could set a benchmark, of, say, 5% of your portfolio. So to invest £5,000 in one company, you would first need a diversified spread of investments totalling £100,000. That sounds about right to me.

2. A rock solid stock tip

Yes, I know, there is no such thing. But to part with so much money, you should have carried out due diligence, with knobs on. 

Nobody can account for the unexpected, such as an oil pipeline leak or ill-timed acquisition, but by doing your research first, you won't end up kicking yourself for missing an obvious warning sign in the company's figures. 

This is the big one. When parting with bigger sums, you have to know what you're doing.

3. Ripe market conditions

You can't time the market, but there are times when you might want to clock off. Right now feels one of them. I wouldn't make a big, aggressive move into the market at the moment, with so many economic headwinds. 

If markets tread water or retrench for a while, my courage might rise.

4. It just feels right

Trust your instincts. They will tell you when you are ready to take that big step. 

Personally, I'm not there yet.

Look before you leap

The other question is: do you really need to make a big call? Well, no, you probably don't. Most of us are better off feeding in smaller sums, and building our portfolio over the decades. You can succeed without ever taking a big leap. Even if you come in to an inheritance, you can simply drip that in.

But if you want to accelerate the process, or make real money from a 10 bagger, you will need to be bold. Just take a long run-up, and make sure it isn't a leap in the dark.

More from Harvey Jones:

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AleisterCrowley 24 Sep 2010 , 5:05pm

I don't think small amounts in individual shares is a good idea.
If you're only putting in £500/£1,000 at a time then IMO you're better off feeding it into a very cheap Index Tracker. Messing about increasing holdings in small steps massively increases the 'frictional costs' arising from dealing charges etc .. (cue plug for Motley Fool share dealing service ??!)
My very rough rule of thumb is that the minimum investment I'm prepared to make should swamp the dealing costs by about 100;1 so £1,200 to £1,500 approx.

JeremyBosk 24 Sep 2010 , 10:39pm

Starting with small investments in individual companies is much more fun than any tracker fund which is doomed to mediocrity. The high percentage costs in small deals are the price you pay for being poor. I started out with £500 deals, buying one company every few months when I could save up that sum. When I got to five holdings I started to either add to an existing holding or sell one holding, combine it with the next £500 and cut the percentage going to the broker. Eventually I increased the number of holdings to around twenty and the average value to around £2000. Twenty is too many to properly track so I began to consolidate and now have fifteen. Almost all the benefits of diversification are achieved with ten holdings.

The only justification for doing sub £1250 deals once you have the cash is when dealing with very small caps that have small maximum deal sizes or normal market sizes. Even then, phoning the broker instead of relying on the computer can sometimes get a better size and save on brokerage.

I cut losers quickly and run winners until either something better comes along or I get nervous at having more than 20 per cent of my investments in one company - which last has happened only twice.

jaizan 24 Sep 2010 , 11:12pm

Aleister has it right on minimum deal size, of course with potential exceptions for highly speculative small deals at the margins of a portfolio.

However, if you can contribute several thousand pounds of new money each year, it may be worth starting off small to build experience.

Incidentally, my largest holding is worth about 7.5 months of my pre-tax salary.
I also don't have a problem with concentrating the portfolio on particular sectors, if there is value to be had.

babeshamal 27 Sep 2010 , 2:54pm

My brokers minimum commission , at his percentage rate, equates to about £1900; so I invest in £2K lumps, If the first tranche does well, I'll add another, etc. If it goes south I'll ditch it.

sageofyork 27 Sep 2010 , 5:22pm


You can probably have a few more Aviva up to say 20% of your total portfolio, I think they may have another £1 in them.

Although I buy the occasional share like AV I tend to hold most of my portfolio in Investment Trusts. RIT, Templeton EM and Merchants.

Jonesey12 27 Sep 2010 , 6:29pm

Harvey Jones here.
Hi sageofyork. Aviva has dipped slightly, so I may be tempted. And I'm with you on investment trusts.

AlesiterCrowley: I still think small amounts is a good way to start, if only to see if you can stand the risk. I started that way, and like you, I'm into £1000+ deals now. I'm with JeremyBosk on this one.

Jaizan - you're a braver man than me! At least so far...

Thanks for your thoughts, everyone!


RobinnBanks 29 Sep 2010 , 12:17am

Wait until the share price drops considerably, preferably at a market bottom, then put a meaningful amount into the company or the market:
Buffettology and Fred Schwed. I'm trying to follow them with some success.

AleisterCrowley 29 Sep 2010 , 1:01pm

...preferably at a market bottom

That's the point when they ring the bell presumably "Market bottom, everyone pile in!"

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