Investing - A beginners Questions

langtoft_lad

I'm a beginner at this 'investing' lark - and would like some guidance on how to do it properly & sensibly.

I seem to have acquired an ISA fund of approx £15k currently in Nationwide's Tracker funds, now administered by L&G.

Via these pages, I've learned I could do better on annual charges. So will be doing that shortly.

I've also learned that whilst a FTSE All Share tracker probably achieves mid table performance within the sector, it might be wise to diversify my holding to different sectors to achieve a better balanced portfolio - to better guard against the different cycles & fluctuations of the markets. The Zig Zag.

So far so good!
I even understand the principle of balancing a riskier fund/sector against a more cautious one.
So if 1-5 is the risk factor, low to high (or at different places in the economic cycle). I guess the lowest risk would be fixed interest, and my tracker would be #3 ???
It is logical to me that every '5' fund should be balanced by a '1'.
A '2' balanced by a '4' ?

Any arguments?

Now the difficult bit - it dawned on me that I didn't actually know what the definition of a "sector" was. :eek:

Is it a geographical market - US, UK, Europe, Asia, Pacific ?
Is it the business grouping - Engineering, Transport, Manufacturing, Finance etc ?
Is it the strategy - Emerging Markets, Growth, Ethical, Income ???

Anyone care to explain?

And can anyone suggest which pairs of sectors I should/could look at to consider diversifying from my Tracker to maintain the balance?

Thanks

EdInvestor

langtoft_lad wrote: »

So if 1-5 is the risk factor, low to high (or at different places in the economic cycle). I guess the lowest risk would b e fixed interest, and my tracker would be #3 ???

Lowest risk is cash. UK FTSE trackers are 100% equities and not very diversified, they are not a 'safe 'option, fall in cat 4.Small caps in cat 5.

It is logical to me that every '5' fund should be balanced by a '1'.
A '2' balanced by a '4' ?

This depends on your risk profile.

Now the difficult bit - it dawned on me that I didn't actually know what the definition of a "sector" was. :eek:

IFA types take a different view from stockmarket investors on this.To the latter, a sector is a business grouping (eg oils,media,property).IFAs will include all the fund categories you mention as sectors.It gets a bit meaningless when you see what's in some of the categories, eg Specialist.:rolleyes:

And can anyone suggest which pairs of sectors I should/could look at to consider diversifying from my Tracker to maintain the balance?

Thanks

Perhaps you should look at asset allocation?How much % of your total investable funds should be in

Equities
Fixed interest/bonds
Property(commercial,funds, not resi)
Cash

...for you to feel that you have the correct balance?

Note that each of the above 4 categories is further split into higher and lower risk types of investments within, so you can tweak them quite extensively.

(Some would these days also add commodities, but ofren we find that is covered under the Emerging Markets category (eg Russian equities tend to be very oily.).

langtoft_lad

Aha so there's no clear definition of "sector" - excuses my confusion.

Would your judgment be:
Equities = 4
Fixed interest/bonds = 2
Property(commercial,funds, not resi) =3
Cash = 1

on my rough risk scale?

For me absolute safety = savings so this is not about being risk free, indeed currently my total investment being in a single fund of UK equities which you (and others) judge to medium to high risk is actually very risky.

I'd be better off/safer to diversify my current accumulated holding into some less risky sectors.
So I'd ignore cash (that element is in vanilla savings accounts).

I think I might look at 30% each into a Fixed Interest/bond fund, & into a Property fund to 'anchor' a portfolio - safe if not spectacular.
Leave 30% in my Tracker fund - I've lived comfortably with this for a few years.
And the remaining 10% into something more speculative but inherently risky.

Any particular funds or fund managers you think might be worth a look?
I keep hearing "Invesco Perpetual Income" as being popular - presumably that's equities, slanted to providing income rather than growth.so if I'm staying with four funds, my equity is my tracker (appreciate I could sub divide but I don't want to run before I walk)
I've also read about Newton Real Return - being a "cautious fund", again equities I guess.

So I guess I need pointers who has a reliable & reputable property fund and who is a safe pair of hands in a fixed interest/bond fund. I'm looking for basic 'bog standard' unit funds, no clever 'vehicles' at this stage.

My 10% would be a pure punt probably based on a media/hearsay whim (so I wouldn't dream of asking advice)

Appreciate that specific recommendations are not de-rigeur but with thousands to consider, a little guidance to narrow down the field would be appreciated.

Rollinghome

langtoft_lad wrote: »

Now the difficult bit - it dawned on me that I didn't actually know what the definition of a "sector" was. :eek:

Is it a geographical market - US, UK, Europe, Asia, Pacific ?
Is it the business grouping - Engineering, Transport, Manufacturing, Finance etc ?
Is it the strategy - Emerging Markets, Growth, Ethical, Income ???

All of those, depending whether you're referring to shares or unit trusts.

For shares the sector refers to the nature of the business, e.g. retail, chemicals, banks, etc. and in the UK normally means as defined by the Financial Times.

The term is used completely differently for unit trusts. The sectors then refer to the type of asset and even the style of management. These would include for example Absolute Return, Cautious Managed, Sterling Corp Bonds, Japan Smaller Companies etc.

EdInvestor

langtoft_lad wrote: »

Would your judgment be:
Equities = 4
Fixed interest/bonds = 2
Property(commercial,funds, not resi) =3
Cash = 1

on my rough risk scale?

Yes

So if your total assets are X, how do you want to split them
Cash
Fixed interest
Property
Equities

Don't ignore the cash or separate it out.It's a key factor in the risk profile.For instance if you have total 65k, 50k in cash and 15k in equities, this is not a high risk approach, though it would appear to be if you ignored the cash!

I think I might look at 30% each into a Fixed Interest/bond fund, & into a Property fund to 'anchor' a portfolio - safe if not spectacular.

Traditionally, 15% is deemed appropriate for property.It can be illiquid, depending on the type of fund.I'd tend to max out at 20%.If you have loads in cash seems little point in having further loads in bonds.

I keep hearing "Invesco Perpetual Income" as being popular - presumably that's equities, slanted to providing income rather than growth.

Good fund, not terribly income orientated these days. Equity income funds as a class are IMHO a better bet than trackers or growth funds because you must bear in mind that one third of the long term return on equities is the reinvested dividends.

My 10% would be a pure punt

Oil/gas, UK small caps, some of the more outrageous emerging markets are good areas for something a bit more speculative.

This site is excellent for checking out the track records of funds and their managers:

http://www.citywire.co.uk/adviser/fund-and-fund-manager-performance/home.aspx?CitywireSuperClassScheme=Unit-Trusts

langtoft_lad

Thank you for that - definite food for thought.
Where does one learn or read up to discover things like "Traditionally, 15% is deemed appropriate for property." ?? I appreciate opinions are not definitive & someone else might say 10%

What are thoughts on something like Hargreaves Lansdown's HL Multi-Manager?
For someone like me who's been blithely stuffing a few quid each month into a Tracker without really paying too much attention - it seems like a common sense logical idea to have "an expert" balance your investment across a range of funds.

What is the disadvantage - bearing in mind my alternative is basically throwing a dart at a list of funds?

Rollinghome

If you're interested in Invesco Pert Inc you could peak at Chelsea Financial Services. http://www.chelseafs.co.uk/ where there's a video with Neil Woodford, manager of that fund, giving his views of the markets and see if it corresponds with your view.

While you're there you could look at what they think are "balanced portfolios" with specific fund recommendations. That's in the PDF copy of their magazine though it might well be elsewhere.

If you want an "expert" balancing your investments you could look at global investment trusts which invest across a vast array of assets. You could also do far worse than tracker funds. The Perpetual fund you mentioned has well underperformed trackers recently. That's the way of it. I haven't looked at the H-L fund of fund offering but would be surprised if it gave good value.

langtoft_lad

"I haven't looked at the H-L fund of fund offering but would be surprised if it gave good value."

Why?
In what way "good value"

Please remember I'm a novice so would appreciate the reasoning behind such an opinion.
And also the target is to have a better & more balanced investment than my existing single tracker equities fund.