Suggestions: make up of a savings / investment portfolio?

orangeshoes

Apologies in advance for the long post. I hope it makes sense. I was hoping that you kind folk could give me some advice on how best to go about setting up a bit of a savings / investment portfolio, either with regard to specifics or just generally.

A bit of background. My wife and I are early thirties and earn 60k between us (although I’m a higher rate tax payer, whilst she isn’t). Due to work and other circumstances we had two properties until fairly recently, but have sold one which has enabled us to be mortgage free on the property we currently live in and we have no other debts.

We have a total of 65k in savings. 50k is tied up in a 2-year 6% bond with Nationwide which will expire in October 2010, which plan to keep there. My main question is around what to do with the other 15k. We will also be looking to save / invest around £1,250 each month from August onwards, so the same question applies as to what to do with the money?

I believe a lot of people decide certain percentages for ‘pots’ of their investments, and this is what we were thinking of doing (70% cash, 30% investments maybe?). We’re in a fortunate position where we can risk a bit of our money, so would maybe want around 5% in something high risk, 25% in something medium / high, then keep the rest in cash.

I know what I’m asking is a bit vague, but what would people advise? Would we be best to see an IFA? Or is there a good guide to funds out there? I don’t know more than the average person about shares, so building our own portfolio would be nothing more than picking company names we both like. Are there any good websites with access to a variety of funds / bonds etc. that people could advise on? Actually, what is a bond?! Too many questions, sorry!

Lokolo

Saying "I want 5% highrisk" is very subjective (either that or objective, English isn't a forte of mine!).

You want to say how much you could lose. So would you be prepared to take a 50% loss or whatever.

Do this:

https://www.fidelity.co.uk/investor/guidance-planning/plan-portfolio/myplan-portfolio-quickstart.page?

It will give you some sort of an idea.

orangeshoes

Thanks Lokolo.

I guess I meant that if 5% of our money was in something 'high risk', I would be prepared for it to completely dissapear or double in value. I guess I would class 'medium risk' as being something like the FTSE, where 25%+ losses long term could be a possibility.

I would to keep the majority in cash, which I would see as risk free.

Would this be the right way to go about having a balanced portfolio? And thanks for the link.

jon3001

orangeshoes wrote: »

I guess I meant that if 5% of our money was in something 'high risk', I would be prepared for it to completely dissapear or double in value.

Your casino will have options available in red or black.

Lokolo

http://forums.moneysavingexpert.com/showpost.html?p=15615839&postcount=15

Theres a list of fund sectors.

Assuming you know what funds are, do you know which ones are based higher risk than others? Do you know difference between Acc and Inc?

orangeshoes

Lokolo wrote: »

Theres a list of fund sectors.

Assuming you know what funds are, do you know which ones are based higher risk than others? Do you know difference between Acc and Inc?

I think I understand what a fund is: basically a pool of money managed by someone / company that invests in a certain type of equity / asset (property, asian stocks, ethical stocks etc.).

No idea of the difference between Acc and Inc, sorry!

orangeshoes

jon3001 wrote: »

Your casino will have options available in red or black.

A fair point.

I guess what I meant by high risk is that if you invest cash in stock, my view would be that you should understand that there is a chance that that stock could be worth 95% less in the short term. So throwing your money at shares would be high risk. Or am I seeing this wrong?

Lokolo

Haha ok yes thats basically what they are.

Ok normal shares give out dividends usually. Inc (Income) funds do the same, give out dividends and such.

Acc (i.e. accumulation), instead of dividends, the money goes into the fund pot and the overall unit price will be higher (because the fund pot is bigger).

If you find a fund with both Acc and Inc, then Acc will have a higher unit price than Inc.

Investors usually pick one or the other, depending on the situation (so if you need income you pick Inc funds and vice versa).

Usually people pick a % portfolio. So mine is 25% UK, 5% Bonds and 60% World (20% Global growth, 10% euro ex uk, 10% emerging markets, 10% asia and 10% US). I haven't yet picked all funds out as I don't have enough money to invest fully yet but once you have picked %s you can pick the funds to go with it.

Different areas have different risks.

jon3001

orangeshoes wrote: »

I guess what I meant by high risk is that if you invest cash in stock, my view would be that you should understand that there is a chance that that stock could be worth 95% less in the short term. So throwing your money at shares would be high risk. Or am I seeing this wrong?

I'd say what your talking about is going beyond high risk and into the extremely speculative. Certainly if you invest in individual stocks those are the sorts of risks you have to accept (especially with 'penny shares', but blue-chips too as we've seen with banks and in the past the likes of Marconi).

If you invest in a diversified fund you're unlikely to go broke but will still have to accept a range of swings.

• Concentrated portfolios (fewer than 40 stocks) would have larger swings than more diversifed portfolios (more than 60 stocks).
• Small company funds would have larger swings than a portfolio of blue-chip dividend payers.
• Emerging markets would have larger swings than developed markets.
• Specialist sectors (e.g. Biotech) would have larger swings than funds containing a range of sectors.
• And so on...

EdInvestor

orangeshoes wrote: »

We have a total of 65k in savings. 50k is tied up in a 2-year 6% bond with Nationwide which will expire in October 2010, which plan to keep there. My main question is around what to do with the other 15k. We will also be looking to save / invest around £1,250 each month from August onwards, so the same question applies as to what to do with the money?

I suggest you both open a self select stocks and shares ISA at a discount broker such as www.h-l.co.uk.You can put up to £7,200 each in these, going up to £10,200 from next April.

You can then choose funds to buy with the cash. Since the vast majority of your money is in cash, you can afford to put all the ISA money into various equity funds, as overall you will still be in the low risk area.

There is a huge selection of different equity funds, both UK and foreign.Have a look at HL's list of most popular funds to see what it's investors are going for now, they tend to be fairly experienced.

It might take you a while to get familiar with all these funds, but be patient.

http://www.citywire.co.uk/adviser/investments.aspx

This site is also very useful for comparing the performance of funds in each category.

orangeshoes

EdInvestor wrote: »

I suggest you both open a self select stocks and shares ISA at a discount broker such as can put up to £7,200 each in these, going up to £10,200 from next April.

You can then choose funds to buy with the cash. Since the vast majority of your money is in cash, you can afford to put all the ISA money into various equity funds, as overall you will still be in the low risk area.

There is a huge selection of different equity funds, both UK and foreign.Have a look at HL's list of most popular funds to see what it's investors are going for now, they tend to be fairly experienced.

It might take you a while to get familiar with all these funds, but be patient.


This site is also very useful for comparing the performance of funds in each category.

Thanks to the three people giving me advice on this - all really useful.

Ed - I have registered with Fidelity this afternoon, is that much the same as H&L?