It’s a question most investors will have addressed at some point. Should you build a balanced portfolio of individual stocks and shares or stick to passive index trackers instead?
Always on track There’s plenty of evidence to suggest that trackers are the way to do it. Research shows time and again that three quarters of active fund managers are unable to beat the index, despite their huge resources, and private investors also struggle. Trackers guarantee you’ll never underperform, although you won’t outperform either.
It’s a lot easier to take out an exchange traded fund (ETF) such as the iShares Core FTSE 100, or a dirt-cheap unit trust tracker such as HSBC FTSE All-Share, and passively watch them deliver the rewards of stock market investment.
Single stocks You can hold them for years, decades, quietly reinvesting your dividends for growth, virtually ignoring them until retirement looms. You will also pay minimal charges, with both these two funds charging a meagre 0.07% a year. That way you get to keep more of the growth and income yourself.
By and large, that’s what I do. However, I think you have to inject a little bit of risk into your portfolio as well by picking out a few stocks that you admire. Index trackers give you ballast, but the individual company equities can help you build a real head of steam.
Full-steam ahead Which is exactly what FTSE 100 fixture Lloyds Banking Group (LSE: LON:LLOY) has been doing lately. Becalmed for years, its share price is now going at rate of knots, up 17% in the last three months. What a pity I didn’t tell you it was a screaming buy three months ago. Actually, I did!
On 27 January, I wrote: Hurry! The Lloyds share price opportunity is closing fast. Admittedly, I had been claiming the same thing for the previous year, to little avail. Tipping a stock to perform is the easy part, the tricky bit is saying when.
Screamer Lloyds looked an unmissable bargain in January, trading at a dirt-cheap valuation of just 7.7 times forward earnings and with a forecast yield of 6.1%. Its share price was held back by a bumpy 2018 and fears over the impact of Brexit on the UK economy
We’re still worrying about both those nasties, but sentiment on the first has undoubtedly improved, with stock markets around the world roaring on hopes that the US Federal Reserve will pull back on its recent tightening.
Safe as houses Lloyds got a further boost in February after posting a 24% rise in full-year after-tax profits to £4.4bn, with revenue up 2% to £17.8bn. Alongside improving margins, that was enough to encourage Roland Head to say that Lloyds is probably the safest buy in British banking right now.
This £47bn giant remains incredibly cheap, trading at just eight times forward earnings, with a forecast yield of 5.2%, covered 2.2 times by earnings. Lloyds still looks a long-term buy-and-hold to me, despite Brexit clouds. As does the FTSE 100.
Harvey Jones holds iShares Core FTSE 100 but has no position in any other shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019