Unit Trust

sebbie_c

recently received 3k to do what i want with. Didnt know i was going to get it so im happy to put it away for 5 years and am considering a unit trust. I am aware that it is risky because of market fluctuations, but am happy to take the risk. Does anyone have any advice on what sort of unit trust i should look at and what extremes of profit/loss i would be looking at potentially?

carnet

If you're going to invest into Unit Trusts/OEICS you should ensure you have a diversified portfolio by sector and geographically.

With £3K you can buy up to 6 funds here;

http://www.bestinvest.co.uk/

where you can also obtain their recommendations if you're not sure which funds to go for.

Put them into a Stocks & Shares ISA if you don't already have one for this financial year.

Potential gains could be anything up to say 80% per annum.

But potential losses could be anything up to 100%.

dunstonh

With £3K you can buy up to 6 funds here;

http://www.bestinvest.co.uk/

Or 20 or so funds elsewhere. Although others will limit you to just 3.

But potential losses could be anything up to 100%.

If you ended up with that, we would all be in a sorry state.

Risk is sliding scale as well. It isn't an on or off situation. Every fund is risk rated (on various scales). You could pick all low risk or all high risk or a spread across the risk areas. A diversified portfolio as carnet suggests is considered to be the most sensible option nowadays.

Depending on the portfolio you choose, the likely gain and loss spread would vary.

carnet

dunstonh wrote:

Or 20 or so funds elsewhere.

Would that really be sensible ?

If you ended up with that, we would all be in a sorry state.

Just wanted to make a point for all inexperienced investors thinking of diving in for the first time. The word potential was used and the statement remains valid, however unlikely.

I once lost 99.96 % on an investment, albeit not a fund.

dunstonh

Would that really be sensible ?

A half decent sector spread would include at least 8 funds. If you then split it across sub-sectors (UK Equity as total split into UK smaller cos, UK equity income etc) you could easily end up with 20 funds. Although around 12 would be closer to the norm.

I dont see why £3000 should be considered any different to £30000 as far as diversification is concerned.

carnet

Think it would prove extremely difficult for a novice fund investor to pick 6 "good" funds on their own, never mind 20 - or even 12.

Or are you saying that you, as an IFA, would recommend 12 to 20 funds for one of your clients with £3K to invest (especially one who has no previous fund investment experience) ?

dunstonh

Or are you saying that you, as an IFA, would recommend 12 to 20 funds for one of your clients with £3K to invest (especially one who has no previous fund investment experience) ?

To be fair, it's not often that I get asked to do £3k. However, I don't see why someone with 3k should be treated any worse than someone with £30k or £300k. They come to an IFA for advice and that is what they should get. Not some fobbed off 1 fund solution. The smallest amount recently for me was a 6k MAXI ISA and I used 15 funds for that.

I have never made a secret of my belief that you should spread the investments as far wide across the sectors and sub sectors as you can and is reasonable. To turn round and say its only 3k, its novice and one not taking advice so ignore all that diversification stuff wouldn't be fair. The information is there for the novice to read and learn at most fund supermarkets. It's all to easy to pick one of the top 10 which is usually the worst way to invest.

To clarify a point though, I wasnt saying 20 would be or should be used. I was pointing out that there are others that do not have restrictions of £500 per fund whilst others will have more restrictions and only allow 3.