I’m looking for somewhere to invest an initial sum of a few thousand pounds and additional monthly sums of up to about £500. I’ve looked at several options, from a managed fund with Prudential, to managed options with Fidelity, Charles Stanley and other large companies as well as robo-investors like Nutmeg.
I feel like I know the options that are available, but am no closer to understanding them. Every comparison site seems to focus on charges without taking into account the need for an introduction for the uninitiated. So my question is twofold: how can I learn more about investing and all of the options available, and in which direction would you steer someone such as me?
Before considering which fund provider or service to invest with, the first thing you need to get straight in your own mind is what your objectives are and how long you expect to be invested.
Jason Hollands, managing director at Tilney, a wealth manager says you need to ask yourself a number of questions such as whether you are looking for income or growth. Do you expect to remain invested for more than 10 years, or will you need to access the money at short notice? This will not only determine the right investment strategy to adopt, it will also help you decide the right tax structure to choose, such as an Individual Savings Account (Isa), Self-Invested Personal Pension (Sipp) or potentially the recently launched Lifetime Isa (if you are under 40 and looking to use the funds to help purchase your first property). All of these wrappers are highly tax-efficient ways to invest.
Whichever tax wrapper is most appropriate, the choice of investment to hold inside it really depends on how long you expect to be invested and your appetite for risk. In the world of investing, there is a relationship between risk and reward. Equities have historically provided the highest long-term returns across the major asset classes, but stock markets can be volatile on a day-to-day basis. Those with a long horizon will have plenty of time to recover from any short term setbacks, but those who might need to use the funds within the next few years should consider blending any exposure to equities with other, less volatile assets such as bonds, absolute return funds or commercial property funds. This can be achieved through a multi-asset fund.
It is important when investing in equity markets for the long term to take a global approach rather than restricting yourself to solely the UK. And while we all like the idea of paying low charges, what really matters is the return after costs because in the investment world, the differences in returns generated by the most successful managers and the also-rans vastly outweighs differences in fee structures.
Most online investment platforms, including our own Bestinvest service, provide free guides and other material to help new investors understand the options available as well as provide ideas on individual fund choices, including both actively managed funds and trackers.
Justin Modray at Candid Financial Advice says those investing in equities need to decide whether to buy shares in individual companies directly, or use funds which combine a number of investments in one pot. Since you are starting out, funds make more sense, as they are simpler and a more practical way to access a wide selection of investments with a modest sum.
If you opt for funds you then need to decide whether to go for low-cost trackers, which simply mirror an index like the FTSE 100, or active managers who charge a higher fee to try and outperform then market. In practice, many active managers do a poor job, so it is tempting to focus solely on trackers. However, there are good active managers and some invest very differently to the Index, so combining the two can make sense. Plus trackers don’t exist for some assets, such as physical commercial property.
Holding investments within Isas or pensions, which you can think of as tax “wrappers”, shields them from the tax authority
Having got this far, decide whether you want to choose funds yourself or let someone else do it. For example, Nutmeg will manage a portfolio of tracker funds for you in return for a fee, and the Vanguard LifeStrategy range of funds offer a cheaper, straightforward off-the-shelf option for combining stock market and fixed interest tracking.
A halfway house is to use suggested portfolios of funds from investment platforms and brokers such as Cavendish Online and Charles Stanley Direct, which should point you in the right direction but ultimately leave the decisions to you. Or you could go the whole hog and choose everything yourself.
Unless you use a management service like Nutmeg or Vanguard that has its own “platform”, you will also need to consider which online platform you will use to hold and manage your investments. This allows you mix funds from various managers in a single account. In addition to those mentioned, Hargreaves Lansdown, Fidelity and TD Direct all are popular and should prove cost effective for the sums you wish to invest. It is easy to set up regular monthly investments on these. But be aware that all of the platforms charge slightly differently for their services.
As you’re still learning, perhaps consider using the simplest option like Nutmeg or Vanguard LifeStrategy initially then, once you feel more confident, move to a service where you can select investments yourself.
Finally, consider tax. Holding investments within Isas or pensions, which you can think of as tax “wrappers”, shields them from the tax authority so avoids tax on income or gains within. Pensions can also get a tax boost when you pay money in, albeit the money you take out is taxable (unlike Isas).
The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.
● Do you have a tricky financial dilemma that you’d like FT Money’s team of professional experts to look into? Email your problem in confidence to firstname.lastname@example.org
Our next question
In 2006 I was diagnosed with a rather severe form of prostate cancer. I transferred my half of the house to our son, to save a task for the beneficiaries. I have continued to live in the house with my wife, rent free. Since then our son has bought his own flat and the nil-rate residential band has been introduced. What are the tax implications, and should we reverse the transfer?
This Article Was Originally From *This Site*
Powered by WPeMatico