Should I invest some money in a equity fund?

Faz · 23 March 2007 at 9:09PM

Hi

My situation is.. I'm a full time university student, 2nd year, and my sources of income are a saturday job, my student loan and I start a 12 month industrial paid placement commencing in July.

I have some money lying around in a mixture of ISA (2k) and current accounts (2k).

I'm looking into investing some of it, wanting to get better returns than leaving it in a bank account.

I've thought about investing £1500 into an Abbey Multi Manager Equity Fund

The link for this is http://www.trustnet.com/ut/funds/?fund=5070

I work as a cashier for Abbey, and the investment guy recommended this.

Does anyone have any advice regarding this? From my understanding I pay an initial charge of 4.5% and an annual charge of 1.15%

I'm looking at investing around £1500.

Thanks in advance.

SeanW · 23 March 2007 at 9:39PM

Only invest if you are doing so for five years at least, and have enough cash for your needs saved up.

Don't invest through your bank! Even if that fund is great, buy it through a fund supermarket / discount broker like Hargreaves Lansdown, who will not charge you 4.5%, and will refund a trivial amount of the 1.15%

Consider monthly saving(investing) say £50, rather than invest it all, or better, £50 in two funds.

Faz · 23 March 2007 at 10:03PM

Thanks for the post. Are you saying that I can buy the exact same fund, but through someone like Hargreaves Lansdown and not get charged the initial charge? Why do the banks charge this then?

I've found the fund on Hargreaves Lansdown

http://www.h-l.co.uk/fund_research/security_details/sedol/3345656.hl

Initial charge 4.50%
Initial saving 4.50%

Is that basically saying that i won't get charged the 4.5%

Also, why do you say invest for at least 5 years?

SeanW · 23 March 2007 at 10:31PM

That charge usually includes some or all as commission to a Financial Advisor. Hargreaves Lansdown wont be taking that, so you get more initial investment (i.e. in this case, all of it). The bank are keeping it for themselves when somebody goes direct.

I don't know anything about that particular fund, other than as the title says its a multi manager, so its investing in different funds of other managers, rather than shares etc... directly, so it might have a higher Total Expense Ratio. Trustnet also puts it in the second quartile based on past performance.

Five to Ten years because its stock market, it can go up and down, and the longer its there, the better the chance it will go up (i.e. if it drops 20% the day after you bought it, its got a better chance of being up 5 years later, than 6 months later).

dunstonh · 23 March 2007 at 10:46PM

Bank advisers are insurance salesman. They are relatively low skilled advisers with limitation on the products they sell. Bank products are notoriously expensive and of lower quality than whole of market products through IFAs.

Even those banks that have tie ups with companies like L&G, NU and Scot Widows charge more for those products than the whole of market version. The bank product often has reduced features as well.

jamesd · 23 March 2007 at 11:54PM

Faz, banks charge it because they can. The general rule is never to buy a financial product from a bank. Exceptions for bank employees and some special deals offered to them.

So, you've seen that that multi-manager fund tracks global growth. Now look at the rest of the global growth funds sorted by three year return and you'll find that this one ranks 48th.

Multimanager funds which did better over the last three years include:

You need the long term to allow time to recover from a drop if you have to take the money out at a specific time. The global growth sector can be quite volatile, though a multimanager fund will even that out a bit. Global growth looks like a decent long term option.

I don't see any reason to choose that particular fund compared to others that are available. It may simply have been suggested because multimanager funds are a good choice for new investors who don't want to adjust fund choices. And because that's the one the bank happens to sell, but that's not a good enough reason for you to buy it.

You might also want to search here for sector allocation and asset allocation to read a bit more about how you can improve your likely results.

cheerfulcat · 24 March 2007 at 7:56AM

Faz wrote: »

I've thought about investing £1500 into an Abbey Multi Manager Equity Fund

The link for this is http://www.trustnet.com/ut/funds/?fund=5070

I work as a cashier for Abbey, and the investment guy recommended this.

Does anyone have any advice regarding this? From my understanding I pay an initial charge of 4.5% and an annual charge of 1.15%

It's a duff bank product, and it's expensive. You would pay 4.5% of your initial investment for the dubious privilege of being sold the product and another 1.15% for assorted management expenses ( including more commission for the salesperson ). You have to make up those costs before you even start making a profit.

Also, why do you say invest for at least 5 years?

A few reasons -

While stock markets are usually quite volatile ( move around a lot ) over the shorter term, the long term trend is upwards.

It takes a while to recover expenses ( see above ) - even with the cheapest form of investing, i.e. buying individual shares, there are costs.

The long term return from equities owes a lot to the re-investment of dividends. The benefit from this compounding takes a few years to set in.

Jake'sGran · 24 March 2007 at 7:54PM

I have just put £2000 in Invesco Perpetual Income with Hargreaves Lansdown. They rebate the initial charge of 5% by giving extra units in the fund. There is an annual charge (1.5% I think) but I do get some of that back too, but only a small amount. As I don't need the income it will be used to buy more units in the fund. This is a very popular fund and the manager has a great reputation, but there are others. Have a look at some of the websites like Morningstar, Digital Look, Standard and Poors and do some reading. I have not found anyone better than Hargreaves Lansdown for my fund investments in view of the rebate of the inital charge. Other people do rebates but often it's not all of it (look at Chelsea Fiunancial Services). Also, I put the money in with an ISA wrapper and can still invest £2000 in something else for this tax year - when I make my mind up. For Global Growth as mentioned by Jamesd I have gone for M & G Global Basics. You can check how these funds have done by looking at the sites mentioned above.

thewizz2009 · 24 March 2007 at 11:23PM

I was in a similar situation to you Faz last year, doing my year in industry and thinking what to do with my savings. Went to a meeting at my HSBC about investments, they made some suggestions, can’t remember what now, but I looked around on the internet, newspapers and here, and made my own decisions.

If you want to make the long term choice, you will be probably be pleased with the results, as I have been so far, it gave me a good understanding and put me in a good position for my future finances.

jamesd · 25 March 2007 at 12:00AM

albertross, that Abbey fund the poster mentioned is a fairly good example of a fund barely beating a tracker for global growth, at full fees. Meanwhile, the four I mentioned have all significantly outperformed it and there's no reason to believe that they will suddenly stop doing that.

dunstonh · 25 March 2007 at 12:53AM

The reality is, they don't, and many under-perform. It's pot luck which one you get.

You can reduce the odds though.

For example, more UK All company managed funds beat UK FTSE all share trackers than dont. If you eliminate the passive trackers, then remove the bank and insurance companies funds you then have a smaller list to look at, more of which will be above sector average than below.

If you look at the start of that article, it says "The evidence is fairly clearcut however, and it shows index trackers beat the vast majority of managed funds over the long term". That is quite misleading. It suggests most managed funds fail to beat the index but doesnt mention the majority of managed funds in existence over the last 20 years were actually lower risk than than the stockmarket (all share).

The availability of funds and the areas they invest in has changed a lot over the last 10 years but none of those are included in their figures.

A better headline comment would be that most tracker funds would beat managed funds following the same or similar investment aims. However, that doesnt play as well to the pro tracker brigade.

There are pros and cons to trackers/managed funds and you shouldnt eliminate one or the other on the basis of charges alone. If you ignore managed funds, you will not be able to build a balanced portfolio and that will do more damage to your long term return.

Should I invest some money in a equity fund?

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