Looking to take the plunge into more risky investments

Kua

Hi

I have around £4,000 to my name. I'm looking to invest about £1,000 (money I can afford to lose) initially and then more as I save. I've read the Dummie Guide to Stock investing but rather than buy individual shares initially it seems sensible to go for a more "diversified" investment.

My uncle has very kindly given me some advice. I'm taking him as a reliable source as he works in finance though I've never fully understood what he does. In fact he wrote this book.

He said Unit Trusts command high fees and suggested ETFs, which I understand track anything from indexes, to commodities, to geographical areas...

I've read here that one should expect to lock money away for five to fifteen years. I was looking for something more towards five, though honestly I'm unlikely to *need* this money, so could probably afford to leave it in there.

I was thinking of investing in an ETF that tracks the FTSE-100 but apparently its been experiencing a bit of a surge. This is very noob, but could someone point me at a link that shows the price of the FTSE-100 over time, just so I can see what its up too.

Is there another type of investment that might suit me better? I'm willing to go for high (but not stupid) risk investment. I'm sure all the information I need is already out there but I need a bit of hand-holding through this one .

EDIT: Actually if someone could explain to me the difference between a Unit Trust and an ETF I'd be grateful.

beingjdc

There's no real difference for the investor between a FTSE tracker unit trust and a FTSE ETF, in my book. One is likely to be treated as a share for dealing purposes, and one as an OEIC, so the exact maths depends on the amount you're investing and the time period. Say if you're investing £1000, would you prefer to pay 0.5% a year on the amount, as in a unit trust, or £20 when you buy, £20 when you sell (and possibly stamp duty, not sure if this is levied on ETFs).

Unit Trusts are more flexible usually, so most of them aren't trackers and charge more like 2% a year because you're also paying for the fund manager's expertise. This doesn't always work out, because the extra 1.5% a year requires them to overperform the average by that much, whereas obviously on average most people's performance is... average. But unit trusts offer more diversity for where you put your investment, whereas there's a fairly limited range of ETFs, so you're also paying for your own ability to choose.

Kua

beingjdc wrote: »

There's no real difference for the investor between a FTSE tracker unit trust and a FTSE ETF, in my book. One is likely to be treated as a share for dealing purposes, and one as an OEIC, so the exact maths depends on the amount you're investing and the time period. Say if you're investing £1000, would you prefer to pay 0.5% a year on the amount, as in a unit trust, or £20 when you buy, £20 when you sell (and possibly stamp duty, not sure if this is levied on ETFs).

Unit Trusts are more flexible usually, so most of them aren't trackers and charge more like 2% a year because you're also paying for the fund manager's expertise. This doesn't always work out, because the extra 1.5% a year requires them to overperform the average by that much, whereas obviously on average most people's performance is... average. But unit trusts offer more diversity for where you put your investment, whereas there's a fairly limited range of ETFs, so you're also paying for your own ability to choose.

Its a little while since I read up on all this. But I recall that (as you mention) when you put money into a Unit Trust, a Fund Manager decides what to do with your money, keeping to some sort of specified objective (I'm not sure what these objectives look like). Yet, you suggest I can invest in a Unit Trust that tracks an index... Does this mean there are certain Unit Trusts which are not managed (and therefore do not include that fee)?

A Unit Trust seems a sensible option (though still risky, I know) because you can rest assured that someone in the know is dealing with your money... I guess you have to decide whether that extra 1.5% a year justifies it...

And you're explanation of the variation in fees is really useful. Thank you.

tradetime

ETF's do not carry stamp duty, and £20 to buy and £20 to sell would indicate you need to change your broker since yours has big windows. As to which route is better would depend a lot on individual circumstances, experience, amount to be invested, objectives etc so great advice otherwise.

Reaper

Kua wrote: »

This is very noob, but could someone point me at a link that shows the price of the FTSE-100 over time, just so I can see what its up too.

http://www.google.co.uk/finance?q=INDEXFTSE%3A.FTSE

Drag the bars at the bottom to alter the time period. It goes back to 1984.
Most shares and Unit Trust funds can also be displayed on that page.

Reaper

Kua wrote: »

Does this mean there are certain Unit Trusts which are not managed (and therefore do not include that fee)?

Yes, tracker unit trusts do normally have lower fees than actively managed ones.

Incidentally, in case you are not aware, most or all of the upfront fees for Unit Trusts can be refunded by going through a discount broker. However the annual fee is another matter.

Kua

tradetime wrote: »

ETF's do not carry stamp duty, and £20 to buy and £20 to sell would indicate you need to change your broker since yours has big windows.

Big windows? Anyway I get the impression I can expect to pay less than £20 per transaction. Though surely its a % of the amount of "shares" I'm buying - I understand an ETF is treated much like any other stock...

tradetime wrote: »

As to which route is better would depend a lot on individual circumstances, experience, amount to be invested, objectives etc so great advice otherwise.

Well I'm 24, hopefully starting uni this October and will therefore graduate into a better paying job in three years time (I'm on just over minmum now - so anything will be better). I intend to work part time the whole time and live at home and I should be able to save up another couple grand by the start of the course. I'll also be taking out the full student loan and as much interest free debt as possible.

As for experience...nil.

As for amount to be invested. £1,000 initially. Probably with another couple grand to follow shortly...

As for objectives. I'd like to built up a diverse portfolio over time and gain experience. Ultimately I want enough to pay a deposit on a mortgage. Let's say that's a six year goal.

Reaper wrote: »

Yes, tracker unit trusts do normally have lower fees than actively managed ones.

Incidentally, in case you are not aware, most or all of the upfront fees for Unit Trusts can be refunded by going through a discount broker. However the annual fee is another matter.

Thanks Reaper. I've had that link open in another tab all day, with the intention of looking through it properly. In fact I think I will print it off and give it a proper read! And thank you so much for the google link - that's just the job.

tradetime

Most equity markets are up 30% or more from the lows. Here is a chart of the FTSE 100 iShares ETF expressed as %
http://finance.yahoo.com/q/ta?t=1y&s=ISF.L&l=on&z=l&q=l&c=isf.l

Historical prices can be found here
http://finance.yahoo.com/q/hp?s=ISF.L

I'd wait for a pullback before putting money into the market, possibly under way now, though I think a lot of people have been waiting for that, so I'm not sure we will get the pullback we deserve yet.

Kua

tradetime wrote: »

I'd wait for a pullback before putting money into the market, possibly under way now, though I think a lot of people have been waiting for that, so I'm not sure we will get the pullback we deserve yet.

Yes, I was thinking of doing exactly that. I just need to decide what broker to use etc. Well I've got quite a bit of research to do actually .

Cheers for the useful links.

EDIT: Why is it that the ETF you linked diverges from the actual FTSE-100 so much?

I expect there's something I'm misunderstanding here.

tradetime

Kua wrote: »

Big windows? Anyway I get the impression I can expect to pay less than £20 per transaction. Though surely its a % of the amount of "shares" I'm buying - I understand an ETF is treated much like any other stock....

Sorry, if something has "big windows" it refers to the fact that they "see you coming" £20 per side of a trade is a tad excessive, you should be paying £15 tops, and I think that's excessive, but that's another story, shop around. Transaction fee is a flat per ticket fee with most "discount brokers" so no the fee is the fee with the exception perhaps of very large trades, always read broker fee disclosures carefully.

Kua wrote: »

Well I'm 24, hopefully starting uni this October and will therefore graduate into a better paying job in three years time (I'm on just over minmum now - so anything will be better). I intend to work part time the whole time and live at home and I should be able to save up another couple grand by the start of the course. I'll also be taking out the full student loan and as much interest free debt as possible.

As for experience...nil.

As for amount to be invested. £1,000 initially. Probably with another couple grand to follow shortly...

As for objectives. I'd like to built up a diverse portfolio over time and gain experience. Ultimately I want enough to pay a deposit on a mortgage. Let's say that's a six year goal..

Your uncle may be the best resource you can have readily available, haven't read his book, so can't draw any conclusions from that. My personal opinion is that I would not rush to put a lot of money into this market, investment wise, all at once, the crisis that sparked the selloff is far from over, and if I were an investor, I'd look to slowly accumulate positions. The problem was a long time in the making and will take a long time to fix, likely with many setbacks along the way.

tradetime

Kua wrote: »

Yes, I was thinking of doing exactly that. I just need to decide what broker to use etc. Well I've got quite a bit of research to do actually .

Cheers for the useful links.

There are quite a few brokers on offer and most are mentioned throughout this site. Your choice would probably depend on which investment route you choose, shares / etf's or the fund route UT, OEIC's etc as some brokers are better for those. try to avoid brokers charging yearly admin fees or inactivity fees, unless on balance this is paid for by lower commissions or other refunds etc