Making the most from your 'long term' shares

ISA's

As with our advice on 'savings and borrowings' you might want re-evaluate whether the growth you hope to get from the shares outweighs the interest you could save by having less debt. That's completely your decision to make, but if you decide you have shares that you want to hold (or even trade) you should, for tax reasons, put them in an Individual Savings Account.

ISAs are not investments in themselves, but are a kind of tax-free ‘wrapper’ to put your investments in.
 

Hedging strategies

The example below is theoretical and is not recommended by us. We cannot emphasize enough that if you did something similar it would require your own research and is done at your own risk. Commission costs would also have to be factored in.

Example of hedging:

Assume you have 1000 shares in a company with the price at £10.00 (ie shares worth £10,000) and you are worried that the price will fall but you don't really want to sell them. What you could do is sell the equivalent amount through a spread betting company*. If the shares go down say £1 in the next month you would make £1,000 'profit' in your money with the betting firm (£1 x 1,000 shares) but the actual value of the shares will also have fallen 10%. You still have shares and 'cash' worth £10,000 whereas if you had done nothing the value of you holding would now be £9,000. You've effectively saved yourself £1,000.

But what happens if you are wrong and the shares go up £10% - you will then have a £1,000 loss with the spread betting account but you now own shares worth £11,000. You could either keep the bet going ('rolling it over' as it is known) or you could sell 10% of the shares and pay that back to fund the bet.

You might therefore ask 'what is the point of hedging'. Well you are really hoping the shares will go down - you were never going to sell them and if they go down you basically have cash to do what you like with. A similar 'hedging' strategy would be to buy a 'put option' (again where you are betting on the price going down) but it is way beyond the remit of the site to discuss options theory - seek advice from a stock stockbroker and/or suitably qualified expert

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*(you will have to open an account and probably deposit some money with them, but they will pay interest on it)