£70,000 to go in fixed rate, ISAs, trackers, funds and anything else?

tresco851

I inherited £70,000 quite a few years ago and it has sat in a nothing pit of a Post Office savings account for too long to bear thinking about.

I'm still young-ish (24) and have finally seen that this is unbearable wastage.

I have moved everything to the Ulster easy access and have then distributed £20,000 to a 2 year fixed rate, £3,600 to a cash ISA, and the remainder is waiting patiently.

I understand what people say about having an amount readily available so would be looking to keep around £25,000 accessible but this leaves me with around £20,000 to go into other options.

I'm on the ball financially and willing to put in the effort, still young so certainly can look at a variety of risk options (for some of it) but I'm no gung-ho individual share buyer.

Research has brought me to the interminable tracker vs. fund debate. I'm thinking splitting my Investment ISA between a basic tracker and a big named fund dealing with large blue-chips (as a lump sum to get it going). Is this viable/wise?

Then either looking at more funds with a drip feed system or adding to another tracker?

I've almost got my head around it but not quite. Does this seem good? If I was to be dividing £20,000 I'm just not sure how to split it and my brain leans me towards saying doing £5,000 for each fund (including a high risk emerging markets)

Any help would be oh so gratefully received.
I'm looking for capital gain over income, certainly want some risk involved, and will have a safety net in cash already in place :A

Lokolo

Aim for a portfolio rather than just a couple of funds here and there.

So say you want some high risk.

40% UK Equities
20% Global Equities
10% Emerging Markets
10% Commidites
10% Asia
10% Specialist

Thought about that?

tresco851

Yes I think this was what I was trying to get at but my brain couldn't quite get it sorted.
What I do worry about is that I've been spending so long researching all this over the past month or two that now I'm understanding how it all works I'm desperate to start.

But is that just naivety on my part and would it be more sensible to monitor these markets and only buy into those which are considered low or low-ish at the moment?

For example there's a lot of material written saying that the Emerging Markets have had far too good a rally and a correction must surely be coming soon.

I don't want to jump onto all these only to realise my mistake in a few months. I do understand you can't just look at a few months, but still it must be more sensible to not jump in altogether... or does it not matter enough to worry about?

And I'm completely bemused by the tracker/fund options. I get that the majority of funds have been historically beaten by trackers, but surely the top funds with the top managers always beat the trackers? Is it normal to do one or the other? Or both? Or tracker first?

Lokolo

Yeh but the past doesn't indicate future. Its what the fund managers think. Not all fund managers will think the same! So I have 2 global growth funds. Both have had completely different experiences, mainly because they've invested in different things. Although they are both above some trackers this has not been the case the whole time and the one not doing so well was behind a tracker 6 months ago (urgh).

If you want to start off with lowish risk then the areas you want to go for are Gilts, Bonds and Absolute Return.

What usually happens is in good times, higher risk funds do exceptionally (usually!!!) well, but when times are bad, they do astonishingly bad. At the moment things are bit rocky as to where things are going. Its upto you where you put it, I can't tell you. But if you want to start off with lower risk, goes for the groups above. You can easily sell and buy elsewhere when you are more comfortable.

Also you might want to buy some NS&I index linked certs

http://www.nsandi.com/products/ilsc/index.jsp

These are a product incase of high inflation.

Rollinghome

tresco851 wrote: »

For example there's a lot of material written saying that the Emerging Markets have had far too good a rally and a correction must surely be coming soon.

I don't want to jump onto all these only to realise my mistake in a few months. I do understand you can't just look at a few months, but still it must be more sensible to not jump in altogether... or does it not matter enough to worry about?

You're quite right to be wary of the latest big thing by putting your money in just as is all about to head south. It's what I did 20 years or so ago when the place to be was Japan. You know the story. You couldn't go wrong investing in Japan apparently so I bought into a Japan IT which I've held onto for old time sake and is still worth less than I paid. The other reason I hang onto those shares is because it's a good lesson to remember. No matter how good the story and how many tell it don't rely on it.

When you're starting out I think global funds, whether UTs or ITs make a lot of sense. That way the fund manager makes the decision on the right region to invest. Not so sexy but makes sense.

tresco851 wrote: »

And I'm completely bemused by the tracker/fund options. I get that the majority of funds have been historically beaten by trackers, but surely the top funds with the top managers always beat the trackers?

Judge for yourself: See http://www.trustnet.com/Investments/Perf.aspx?univ=U&Pf_AssetClass=A:&Pf_Sector=U:JAP&Pf_sortedColumn=Performance[Cur].P60m,NameFull&Pf_sortedDirection=DESC

You'll notice that of the 55 Japan funds listed only 8 funds managed to beat the L&G Japan tracker over 5 years. What you'll also notice is that almost a third of the funds didn't exist 5 years ago. That's because what the fund managers do is wind up or merge the really dud funds and replace them with new ones. That way they bury their failures. Of those 8 will they still be at the top next year? Some may, others not.

If you want to see what happens to "star managers", have a look at Jupiter Income run by "Alpha Manager" Anthony Nutt who was once everyone's favorite. The funds run by New Star which was supposed to be full of stars and the darlings of advisers performed so badly that the company has now gone with only some of it's less disasterous funds taken over by Hendersons. It goes to show that managers can look wonderful until their luck runs out. Neil Woodfood is another who could do no wrong until this year - though I think it could still come good for him next year.

Myself, I tend to buy managed funds because I like to think I can pick the best fund managers. I'm quite likely kidding myself. Managed funds of course are much preferred by commission based financial advisers because they pay them the best commission and by the fund managers because they make them the most profit. Whether trackers are the answer for you depends on the way you invest and how able you are to pick the funds that might beat a tracker fund.

tresco851

Ok - I'm beginning to understand the diversity issue of all this. But with (comparatively) a small amount to be investing should I still be looking for multiple funds/trackers within the different groups? Taking into account annual rates etc I don't want to see too much of it swiped away before I can get to it by spreading it too thinly.

And with regard to this (and other fees) - how do the performance fees really work out? Too much for too little guarantee of success? Especially seeing as when they underperform you don't get any kind of compensation the other way?

DiggerUK

tresco851,
You don't give any indication of short or medium term goals. Do you have any.

Could be your scratching around for a focus, do you have a strategic aim at present, or are you just on a fact find.

Best of fortune.

tresco851

Hi Digger,
My whole planning behind this is that for too long I've seen money intended for the long term doing nothing in a bank account. My short term goals are covered by easy access and fixed rate accounts so this £20,000 would be entirely for a mid-long term focus (anything between 5-10 years) but I would hope it would lead to a happy life of hair-tearing and reinvestment.

So my goals are for capital gain, allowing for a good (but not gambling) degree of risk involved in part of my portfolio. I think that's what you are getting at. Basically I can deal with volatility as I won't be needing this money for a long enough period of time. Does that make sense?

DiggerUK

tresco851,
Makes sense, on 5/10 years then the advice of lokolo for NSI IL from NSI is sound. No risk so long as UK PLC does not go down toilet.

I'm a big fan of gold, so on a 5/10 year frame I would recommend you research putting money in the yellow metal. Not to everyone's taste however.

Whilst you are making up your mind, make sure all funds are in pots that match or beat inflation. Make that an immediate priority, before any other decision.
Then DYOR.

EalingSaver

Assume you have paid down all debts already? Existing mortgage? If not a homeowner is that something you would like be considering before the 5-10 year investment period you are considering? If so you might be smarter to consider keeping the money in investements which are less volatile and which you can pull out off more easily/quickly. Having a large deposit available for a house purchase is likely to reap dividends in terms of a) ability to get a mortgagte b) get a decent rate on it. Plus the obvious saving of interest payments on the balance.

Boring, but worth taking into account.

If the £20k is really the amount you are happy to use to play with, great.

Tracker versus managed. Your choice, but personally I've always gone for trackers. Known fact that a) bulk of managed underperform trackers and b) being able to pick those that will outperform is not a science, its roulette. So do you feel lucky ****, so do you?? [Sorry, Clint E fan here] Why fatten fund managers pockets to underperform?

Gold: Each to their own. Gold is at a big high at the moment: the question of course is do you expect it go higher thanks to these times of uncertainty. But my guess is that in 5 years time things generally will be looking a lot better and less uncertain than they do now, and gold will be possibly substantially down relative to where it is now. Gold is very volatile. My point being that at the moment just about everything is in favour of a high gold price. IMHO for an investment NOW I would think there is more chance of significant capital loss in 5 years than there is with equities.

NS&I index linked certs. Boring, but definitely worth considering, especially if you are a taxpayer, and esp. if you are a higher rate taxpayer (or are likely to be at maturity). The other nice thing about these is that contrary to what a loit of people seem to think, you can redeem them before full maturity w/o comletely wiping out the benefits, but only sensible to do so after at least the first aniversary date. AND DON'T WAIT UNTIL THE HEADLINE RPI figure is up. Then its too late to max. the return. [Happy to explain more if interested].

Pension: what's your pension position? You say you want this as investment for 5-10 years. But if you are going to really invest it in equities/bonds etc., why not consider doing it inside a pension wrapper? The earlier you start - I'm sad to say - the better. If you are a taxpayer, I would really seriously consider this (you'll get an immediate 20% boost to the amount you invest). If you think investment in equities at this time is good, then it makes even more sense to do it in a pension wrapper (providing you can swallow not getting it back till you are much older than you can currently contemplate ever being....)

If you are not a taxpayer now, then forget the pension option and use the proceeds of whatever you do now to invest into a pension when you are.

Drip feeding: Definitely consider drip feeding into equity investments. But if you think the timing now is about right, don't bother too much - maybe spread it over a few months.

Spreading across regions: Lokolo made sense. You could of course make a lot by investing in emerging/BRIC countires. And you could lose a lot as well. Again, high volatility: is that what you want? It shoudl only form a small part of your total nest egg. And with foreign you are always playing with both the combination of fund performance and impact of exchange rate changes.

Not completely related, but one of the sorriest tales I saw was on these boards back when Iceland went into meltdown (the country that is). A woman posted on here that even though they had lived in the UK for a long time (they used ot live/work there), and intended staying here, they had continued to keep their savings in an Icelandic account (real icelandic i.e in local currency). At the time of posting, they had already seen their £75k life savings plummet to around £25k due to the currency going through the floor.

Best of luck. Whoever left you the money wanted you to get something from it. Make the most of it. And if for you that means using it to take time out from work, travel, educate, or whatever, then great. If it means using it to build some form of financial footing for the future, then act wisely, spread your risk around, don't get too greedy, and ultiatemly don't worry about your decisions too much.

Aegis

EalingSaver wrote: »

Tracker versus managed. Your choice, but personally I've always gone for trackers. Known fact that a) bulk of managed underperform trackers and b) being able to pick those that will outperform is not a science, its roulette. So do you feel lucky ****, so do you?? [Sorry, Clint E fan here] Why fatten fund managers pockets to underperform?

I have to disagree with you here. Trackers typically fall in the middle of the table, so that would mean that roughly half of managed funds underperform them, not the bulk. As a general rule, the bank managed funds tend to end up lower in the performance tables than their investment house counterparts, so picking an investment house fund rather than a bank one will generally shift you up the table a bit.

On top of that, the performance tables all assume full charges. With discount brokers you cn usually get rid of most up-front charges and a proportion of the ongoing charges, which improves the performance over time.

All in all, it's nowhere near as clear cut as "the majority of managed funds underperform".