colin wrote:Hello TJH
how many shares should be held in the portfolio and how much would it cost to buy those shares?
How do you suggest the portfolio is managed? as simple buy and hold or some element of active management? What should be done as shares rise or fall in value? and how would dividends best be reinvested ? How should money be withdrawn , by selling a portion of each share so the portfolio balance remains the same or would it be better to use some other method? How might one choose suitable shares for such a portfolio and would they remain suitable as the child grows up? Any opinion you might have would be greatly appreciated I am sure.
That's a matter of personal choice. With £20,000 to invest 15 shares would be feasible, but 10 if you felt that more would be too many. Back when PEPs were introduced, you could only invest £2,400 in the first year. I chose 3 shares and a fund.
Strategy is again personal choice. You might plan to add £20,000 each year, in which case maybe 4 in the first year and 4 in subsequent years. Once the total has got to 20, say, then start building up underweight holdings, or adding to those with the better dividend record. In general, ignore fluctuations in share price, but if a share goes on a runaway rise, trimming back at some stage may be advisable. Back in 1997, when I had 18 holdings, Lloyds-TSB and Zeneca both shot up above 10% of the total, so I decided that 10% was a sensible limit and trimmed them back. Later, when I had over 20 holdings, I worked on twice the median holding value and now, with 30-plus holdings, I work on 1.5 times the median. The value of holdings does affect what you do, of course. Say you started at £5,000 per share, one rises to £12,000 so you decide to trim back. You could trim by £5,000 and buy an extra holding, or spread it around lower valued holdings.
If a share ceases paying dividends, with little prospect of resumption, then dumping them may be a good move.Not always, as the market can be perverse. Myobjective is dividend income, so if a share rises so much that the yield falls significantly below about half that of the market, then it may be time to wave it goodbye and reinvest the procees in a new share with a yiled 3 or 4 times higher. At the moment I have Pearson and Tesco, both of which have yields below 2%. I also have Indivior, which does not pay dividends, and which is my first likely candidate for the chop. I'm in no hurry, as the share price has kept on rising.
If you look in the Financial Software forum, you should find links to spreadsheets which help select candidates for adding to a portfolio and which may need topping up.
For a child you are looking at Total Return, of course. As long as that is satisfactory, there is little need to do much, other than adding to the portfolio in whichever way you choose.