The Cheap And Cheerful Way To Invest In Shares

By Ed Bowsher | 14 March 2008
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This article first appeared in our 'The Good, The Bad and The Ugly' email series.
I'm continuing ‘The Good, The Bad and The Ugly' series with a look at a great vehicle for investing in shares as well as resources such as oil and gold.
Shares have been having a rotten time in the last few months. London's famous FTSE 100 index has fallen by almost 10% over the last year. And it looks like these share price falls have scared some private investors away from the stock market - net sales of investment funds have fallen dramatically.
Now I can understand why some people might give up on the stock market, but I believe that the time to buy things is when prices have been cut. And that's exactly the situation we have now with the stock market.
Of course, share prices may well have further to fall - maybe a lot further to fall - but now has to be a better time to buy shares than a year ago. And even if share prices do fall in the short term, history suggests that shares will probably prove to be a good investment in the long-term i.e. for at least five years and preferably longer.
How to invest

If you want to invest in the stock market, The Motley Fool has often recommended tracker funds. And I agree with that recommendation. Trackers are great!
But I'd like to highlight another investment vehicle, the Exchange Traded Fund (ETF), which is another cheap and cheerful way to invest in shares.
Just like trackers, ETFs follow the movement of a particular market or index. Perhaps the best known ETF is the iShares FTSE 100  (LSE: ISF) , which tracks the movement of the FTSE 100 index. If the FTSE rises 10%, the FTSE 100 ETF should rise by around 10% too.
However, ETFs differ from trackers because - in spite of their name - they are in some ways more akin to shares than funds. When you want to sell a tracker, you sell it back to the provider, such as Legal and General. With ETFs, you sell on the stock market just like shares.
That means the prices of ETFs move throughout the day whereas the prices of funds are normally set once a day.
Low cost

ETFs are also low cost vehicles with TERs (Total Expense Ratio) normally less than 0.75% a year. Although you will also have to pay a commission to a broker when you buy or sell.
Lots of variety

ETFs are particularly attractive because they allow you to invest in a wide range of markets and commodities. So if you want to bias your portfolio towards shares that pay above average dividends, you could invest in ishares FTSE UK Dividend Plus  (LSE: IUKD) , which comprises the 50 companies with the highest forecast yield in the FTSE 350 index.
Or you could invest in China or Brazil for example.
If you want to move away from shares, you can invest in a wide range of commodities and resources such as gold and silver through ETCs (exchange traded commodities.) And if you think the commodities boom is coming to an end you can even bet that prices will fall via ‘short' ETCs such as ETFS Short Copper  (LSE: SCOP) .
The Fool can help

If you're tempted to invest in ETFs you could do so cheaply via The Motley Fool Share Dealing Service. You can buy and sell for £10 a trade. Even better, you could pay just £1.50 per trade if you use our Motley Fool Sharebuilder service*. We're able to keep the costs low at Sharebuilder because it invests on four set days a month.
So go on, give it a go! Visit The Motley Fool Share Dealing Service now!
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More: My Family's Largest Investment

Source: http://www.fool.co.uk/news/investing...in-shares.aspx