How to do investment research

So, you’ve decided to invest, and you’re planning on doing it yourself. You’ll probably see warnings to ‘do your own research’. But what does this mean and where do you begin?

Why do investment research?

Investments are a big commitment so you should treat it like any other big purchase in your life. You wouldn’t sign a mortgage document without understanding what you’re buying, and saving for long-term goals is equally important.

Let’s imagine you’re about to buy a fund or share. If you see the warning ‘do your own research’, it reminds you to check the investment is right for you and that you understand what you want from it. Doing these checks can minimise your risk of losing money and helps you feel more confident in your choice.

Here are some of the checks to make before you click ‘buy’:

• Is the investment right for your long-term goals?
• Are you aware of how you feel about risk, and how does this compare to the share or fund you’re looking at?
• Is the investment credible? For example, is the fund manager regulated and reputable?
• Is it good value? You want to make sure costs won’t eat into your potential returns too much – more on this below...

How NOT to research investments

Confession time! The very first investment I bought was £100 worth of Burberry shares. The thing is, I spent nearly £10 placing that order (dealing fees plus stamp duty). So straight out the gate I was down 10%. Eventually I ended up cutting my losses and sold my stake in the luxury fashion brand at a £20 loss.

Burberry wasn’t necessarily a bad choice, but the question is, why did I choose to make that my first investment? Honestly, it was nearly as simple as ‘I'd heard of it’. I knew it was in the FTSE 100 index of the largest UK companies, which meant it was a big, regulated company, but let's be honest, I probably just liked the quality of their trench coats rather than researching the company’s credentials. Some less-than-savvy decision making went on that day (and even less savvy investment research).

Fortunately this was only a £20 lesson. Since my first misguided step into investing, I've learnt some of the tricks of the trade (pardon the pun) and discovered investment research isn't as burdensome or as boring as you might think.

Know your investment needs

The best place to start with your investment research is yourself. Think carefully about what you’re hoping to achieve and your appetite for risk. Put simply, you want to make sure the investments you choose match the level of risk you’re comfortable with. Knowing your financial goals can also help target your research and narrow down options.

Think about the bigger picture

“Be an investor, not a collector” is a handy reminder from Ryan Hughes, managing director of AJ Bell Investments. Take a step back to determine whether an investment has a place in your wider portfolio. Does it balance well with other investments you hold – or plan to hold? And if it doesn’t or it means you’d hold too much of one sector or geographical area, maybe you need to keep looking. Remember, the key to a successful portfolio is diversification (which is why funds can be a great option, offering diversification in one package).

Researching stocks

Every fund has a key information document and a fund factsheet, which are jam-packed with helpful insights and data to help you make decisions. You’ll usually find both documents on your investment platform’s information page for the fund.

But how do you narrow down the choice of funds out there?

Favourite fund lists can massively help you out here; you can see AJ Bell’s favourite funds. These lists are chosen and monitored by investment experts and include funds which are at the top of their game in different sectors, regions and styles of investing. 

Researching funds

Researching stocks and shares can be a little more labour intensive than funds. But if you’re comfortable with the higher risk of investing in shares, there’s lots of tools out there, like AJ Bell’s share search tool, to help you find the right companies for you.

Once you’ve narrowed down your search, dig a little deeper. Look into the stock’s performance history, the company’s latest news and what financial pundits are saying. And check its current price represents good value for money through available information like its price-to-earnings ratio. It’s also worth noting if the company has previously paid out income in the form of dividends – and whether that’s something you’re looking for.

Investment research in a nutshell

Investment research is important but it shouldn’t put you off investing. There are plenty of tools, guidance and ready-made options out there to help you make the best investment decisions for you. Just don’t get carried away in the moment – and don’t invest £100 in Burberry because you liked the sound of it (not advice, just lived experience)!