Stocks and Shares v Self Trade ISA - Natwest

dunstonh

So of the initial £1200 I was considering putting 600 into Gold ETF 300 into oil and 300 into apple.

Which, in isolation of any other savings/investments, is a very high risk spread.

There is phrase known as "fashion investing". Its where you go heavy into whatever is fashionable at the time. The problem with fashion investing is not having some investments there but going too heavy into them. The reason investments become fashionable is usually down to past performance. The problem is that by the time they become fashionable they have had the bulk of the gains. i.e. tech stocks didnt become fashionable until they had gained around 90% of their overall gain before they dropped in value.

The reference to tech stocks is important to note as well as gold and oil are at the same risk level as they are focused, niche areas of very high potential for gains and very high potential for losses. You wouldnt be surprised to see them make 80% in a year but equally you wouldnt be surprised to see them lose 80% in a year.

Psychological_2

Thanks a lot - so perhaps less of each, say if I maintained that spread but using only half of my initial investment (600). I could balance this with something safer so half my money was there to offset the risk? I though the general consensus was that gold is a fairly safe bet which is why I included it.

The remaining 600 in National Grid?

I completely see your point about fashion investing, personally I wouldn't consider Apple to fall under that - they release two waves of brand new products every couple of years, not to mention updated versions of each inbetween. I can't imagine the queues winding around their Regent Street store for every launch subsiding in the next few years. Great products and loyal (even obsessive) customers.

The oil can remain the riskier of my investments, I have to take some risk

Would love to hear your thoughts on what you'd do with this fairly low investment?

dunstonh

though the general consensus was that gold is a fairly safe bet which is why I included it.

Anything that goes up as much as it has in a short period can go down that much as well.
Gold in investments can also include the mining companies as well. The fund data will verify if it does and to what extent. Some gold funds may allow other metals to a limited degree.

I completely see your point about fashion investing, personally I wouldn't consider Apple to fall under that

No. But gold and commodities could be. Certainly having them in your portfolio isnt an issue and there is definitely a place for them. Its a case of not getting carried away by going too heavy.

Great products and loyal (even obsessive) customers.

Yes. Apple have managed to get a significant base of customers who will buy all updates every time they get released. Not so much cash cows but cash sheep.

Would love to hear your thoughts on what you'd do with this fairly low investment?

Depends on where it fits with your overall savings and how much you are prepared to risk it. Someone with £100k in cash will probably take more risk with £1200 than someone with £2000.

Psychological_2

I really appreciate you taking the time and effort to talk me through this, it's incredibly kind of you to spend some of your saturday to post in this thread!

My personal situation is steady but still a long way to go, 25years old, job of 5 years, take home roughly £50k a year now with potential for other large commissions (these aren't certain so am not factoring them in). Savings in a Santander First Home Saver (5%) of £6,000 with maximum monthly contributions of £300.

Aim is to get a decent deposit together for a mortgage, I am sure when the time comes to buy I will have help from mine and my girlfriend's families but important for me to bring as much to the table myself as I possibly can. Properties in the area of £300k (Kensal Rise, London) most likely.

Considering the relatively small savings of £6,000 I realise this £1,200 I am prepared to play with is a fair amount so risk needs to balance the potential rewards. As I mentioned above perhaps initially £600 in something safe and dull, £300 in medium risk, £300 in high risk - keeping that balance as I make my monthly contributions? Perhaps I need to spread it out more but iii.co.uk charge £10 per trade I believe so I need to factor that in to my plans. Prepared to lose 25% to experience if the risk/reward ratio means I am just as likely to make as much as I could lose.

There's my life story for you. Sadly I don't know any financial advisers apart from on this board so just interested to see to what you would do in my position.

jamesd

Psychological wrote: »

I was thinking a gold ETF fund, Tullow Oil (apparently Ghana set to produce oil this year), and Apple Inc (more new products on the way and I have a great deal of interest in gadgets)

Two very high risk choices (gold particularly) and one high risk.

When reading about gold or silver you need to remember that there's a set of people who always promote them, regardless of their merits and whether prices are high or low, though they become more active when prices have already risen and most of the scope for making money has already gone.

Psychological wrote: »

I would say the level of risk I am prepared to take is medium/medium-high but fairly balanced. So of the initial £1200 I was considering putting 600 into Gold ETF 300 into oil and 300 into apple.

Those investments aren't remotely close to being of that level of risk.

If you wanted to reduce the risk level with the same types of investment you could swap from gold to a natural resources ETF, from Tullow Oil into a larger company (BP say) or an oil ETF (still very high risk, just less extreme) and from Apple into a tech ETF.

But that's still going to be well above the level of risk you're giving.

To get to the risk target you'd need to cut way back on these investment types so that they are more like 10% of your total investment.

Would you consider something that has a record of dropping and gaining by say 40% in a year as safe and dull? That's a medium to high risk investment. Trying to get some perspective on what you think of as safe and dull. What do you think this investment is?

What sort of time horizon do you have for the property purchase? Shorter timescales increase the risk level of any investment unless you're willing to be flexible on the timing.

You don't seem very committed to your objective, given the fairly low amounts you're considering investing each month and your gross income. The property price is particularly challenging at this fairly slow rate of investment, because it'll only take a quite low growth rate in property price to grow the required deposit value at a rate greater than that at which you're accumulating a deposit. Are you after a fifteen or twenty year plan or do you want it purchased in five years or so? You'll need to up your game if you're after a time horizon that's decently short. Cutting back on day to day spending through things like living in cheaper places or using cheaper cars might be one viable way to reduce expenses and increase the investment rate. It's the sort of approach that I took, though at over 60% of income invested each year I went further than you're probably willing to go.

cheerfulcat

Hi there,

Psychological wrote: »

Considering the relatively small savings of £6,000 I realise this £1,200 I am prepared to play with is a fair amount so risk needs to balance the potential rewards. As I mentioned above perhaps initially £600 in something safe and dull, £300 in medium risk, £300 in high risk - keeping that balance as I make my monthly contributions? Perhaps I need to spread it out more but iii.co.uk charge £10 per trade I believe so I need to factor that in to my plans. Prepared to lose 25% to experience if the risk/reward ratio means I am just as likely to make as much as I could lose.

Have highlighted the important bit. You could get a far bigger spread of investments by using investment trusts. Have a look at the AIC site for more information.

Psychological_2

Thanks guys - I clearly have a lot to learn about investments before I buy anything.

Equally, you're absolutely right I should consider upping the level of investment per month - I certainly could do this and cut back on a number of things. The sooner I can get my first property the better I feel.

I'm still no closer to working out what to invest in though - seems every idea is going to get shot down by someone or dismissed as foolish. I guess that's the nature of investments.

cheerfulcat

Psychological wrote: »

I'm still no closer to working out what to invest in though - seems every idea is going to get shot down by someone or dismissed as foolish. I guess that's the nature of investments.

To be honest I think that the problem is that you may be approaching this from the wrong angle. Botany made an excellent point earlier in the thread, worth repeating -

The Big Decision is how to invest -what to buy. Plain shares, ETFs, managed funds, investement trusts..........? and what type of companies: large-caps, medium, small...... ? and what type of sector? what type of country or geographical area? .....I could go on..... the combinations are almost endless if you are interested.

Psychological_2

Quite right, and exactly the reason I am posting to this thread - I need help in making the decision in what to invest in. In the absence of my own IFA I am trying to see what more experienced people on here think.

ETFs, OEIC,Investment Trusts all seem to make sense to give a diverse spread without buying into several different shares - although I left the Natwest S&S Isa so I could have more control over what I'm investing in, seems this would put me back where I started (albeit without the Natwest management fees).

So given comments above that gold, tech and oil are all very high risk areas for me to invest in. What would people consider medium / low risk that would likely beat current interest rates in a savings account that could make up the majority of my investment. If I leave 10% in risky tech, gold or oil - where should I put the rest?

cardsharps

Psychological wrote: »

What would people consider medium / low risk that would likely beat current interest rates in a savings account that could make up the majority of my investment.

Buy some individual defensive shares that pay good,steady dividends. e.g. water, electricity, telecommunications shares. So that'd be United Utilities, Scottish and Southern Energy, BT, Vodafone, etc.