Sometimes clients ask: Shall I buy single company shares? Without sitting on the fence, the answer is it depends. But let’s unpick that in more detail.
What are single company shares?
As the name suggests, this is about the ability to purchase shares in one business only.
If you’re old enough you may remember back to the 1980s when many publicly owned companies were privatised such as British Telecom and British Gas. Ahead of the flotation, it was possible to put your name down and purchase shares. You were then informed how many shares, if any, you would be allowed.
The value of the shares increased and performed quite well, but if you track their performance over time, you will see they have moved up and down quite a bit.
These days, the purchase of single company shares comes up more often when you are given the opportunity of share options in your employer’s business. And we are often asked by clients if they should take those share options.
We don’t offer advice on the purchase of single company shares in terms of FTSE 500 purchases, so you will need to seek out a specialist adviser if you do want to do that.
What to consider before purchase…
However, we would always recommend ensuring you are using all of your tax-free allowances before making this type of investment.
You should ensure you have a well-diversified portfolio, not just relying on your pension. Make sure you are using your investment and cash ISA allowances too.
Look at how your investments are spread – are they all high risk? Is that the right approach for you? We would recommend a mixed portfolio, to spread the risk, for most investors.
The purchase of shares, specifically single company ones, is the most high-risk investment strategy. If you cannot afford to lose the money, or significantly reduce it, then this is not the right strategy for you.
You also need to consider the leadership and management of the business.
Whether that is your employer, or a big PLC, board structures and roles change all the time. Very often, new leaders like to make big changes to show their worth, and those changes can have a big effect on share value.
Equally, the business and ethics you invested in, may change over time. Will they still balance with your values?
So, as you can see, there isn’t a straightforward answer. It can be a very successful investment, with good returns, but you do need to go into it with your eyes wide open, and be able to take a hit, if the value drops.
If you would like more advice on developing a diversified portfolio, please contact us on 01344 875 310.