A ovices idea of an 'investment strategy'. Comments please

fimonkey

This is very very basic and novice and I'm waiting for someone to shout me down.

WHen I finaly took the plunge I decided to only invest what Icould afford to completely loose, and thus to date I have invested £1100 in a FTSE all share tracker (L&G UK index trust accumulator) (£500 initial investment and topped up with £100 per month) and I started in June 2010.

The unit price was 150.00p when I bought the initial investment with £500.

The unit price is now 176.50. To date I have spent £1100 and my investment is worth £1475.52 which is a £375.52 'profit'.

SO everyone advises that to invest is a long term strategy, but looking at the graphs and seeing that this 'profit' can be lost pretty easily if the markets take a downturn, surely it would be wiser for me to cream off the 375.00 profit now and put that somewhere safer than the stockmarket, and leave the £1100 in to earn/loose?

The graphs of the FTSE all share tracker shows a pretty steep incline these past few months and my thoughts are that this cannot continue at this rate given the troubling times ahead that we face economically - that's why I'm a fan of taking this profit now rather than risk loosing it.

Before you all go on about £375 not really being a profit - bear in mind I have only ever been a saver with the banks before and therefore used to seeing just 2.75%. £375 on £1100 is pretty big to me! (35% right?)

So this is the strategy I would like you to ocmment on:

If I take out the 'profit' but continued to add £100 pm to the fund (because thats how much I can afford to loose) and the fund then dips - no worries I made some kinda profit and will continue to add the money per month because it will buy more units and the fund will pick up again in the future hopefully - but I still 'made' a bit.

If the fund increases then whooppee, I will take out the extra above what I've already invested (so if I have put £1200 in by this time next year, added to the already invested £1100 giving a total of £2300 but the fund is then worth £2500 I would take out £300).

Does that make sense and why is it a good/or not so good idea? The alternative is that I take it all out and then re-invest it when the unit price drops so getting more units for the same amount.

To put it another way:
Looking at the morning star report for the L&G UK Index Trust I can see that the growth of £10000 invested at the beginning of 2005 would have peaked at just over £16000 at the end of 2007 and dropped all the way back to £10000 by the end of 2008. That same £10000 is back up to £16000 again now.

If that was my money surely it'd have been better to take out the £6000 profit when it was there (or even take it all out) and then re-invest it when the fund was low again.

Given that, why on earth is it better to keep adding money to funds like this and NOT sell any units? Why is the advice to save for the long term when in just 6 months I have 35% profit and I do not think this is sustainable (I even think there will be a drop soon).

I know I'm new and naive so please keep your explanations simple.

Much obliged and happy new year!

PS: Apologies for the bad typing, I have a very sticky keyboard.

jimjames

The strategy is fine if it is one you are comfortable with. The main problem is timing when to buy in and sell out of the market. You've done very well this year based on when you started but if you'd been invested from 1 Jan your return would have been 9%. Would this have been enough for you to sell? You also then need to think at what point you buy back in? What happens if the market is flat next year, what would you do then?

fimonkey

Thanks for the quick reply. Your questions have me thinking further.

At 9% yeild then no I would not sell unless it was a huge intitial investment adn the 9% would pay for something I really want. At 35% I think I should. But do I sell the whole investment or just the profit?

Bear in mind I want to continue to add £100 pm anyhow (the way I see it this is money I write off every month, - if its still there at the end of the year then great and if not then 'oh well').

Hence I am particularly pleased with the 35% increase and am thinking of taking this all out and putting it to one side ready for when the market will drop.

In fact thinking further - given this is money I had already written off then I may transfer the initial investment (£1100) to an emerging markets fund for the year - am currently researching this, and use the remaining £375 to put back into the FTSE all shares tracker (with a top up of £125 to make it the initial £500 investment they require) then continue to add £100 to the latter.

Thoughts anyone please?

Thanks in advance.

DavidHayton

I can see where you are coming from. Like you, I get "jittery" when my portfolio, or certain investments within it have done particularly well. However, the problem is identifying the peaks and troughs as they happen. Over the years, I have "lost" lots of money by pulling out of investments that have continued to rise.
I thought that JimJames' comment (post #2) was excellent.

David

DavidHayton

Hi! didn't see your last post before I commented.

Your startegy of investing a regular sum each month is a great idea. When the markets go up, try to feel good about the rise (though like you I get "jittery" - but I try my best) and when markets go down you will be getting more units or shares for your money. The principle is called pound cost averaging: http://en.wikipedia.org/wiki/Pound_cost_average

It is not an unwise decision to start diversifying into other sectors. Even if your returns are unchanged, I think that it is much easier to learn about something when your money is invested in it.

David

jimjames

The other risk I can see with your plan to move your money into emerging market funds is that potentially they are much more volatile as you have currency risk as well as the investments themselves. So moving a lump sum into that fund might not be the best move as it could be at a peak and then drop. What may work better is to change your monthly DD to be in the EM fund rather than UK and then you will benefit from the pound cost averaging of any peaks and troughs.

As with David I've taken money out of successful investments that have continued to rise. One in particular I initially switched half the fund each time it doubled. I now have approx £4k invested that originally cost me approx £800 once I decided to leave the balance there.

fimonkey

Thanks David and Jimjay for yuor answers. I completely see your points but the reason I am thinking the way I am is this:

My L&G tracker fund is currently in an S&S ISA held with L&G. I want to transfer this to Hargreaves Lansdown so I can begin to diversify and still hold it in my ISA. Bear in mind I am only investing little sums at this stage and am working on the premise that I'll get it wrong sometimes, but this time I want to use my 'profit' to my advantage.

I beleive the minimum initial investment in H&L funds is 1K, so I would take out the 1K from the L&G ISA and buy into emerging markets with that. I would leave the remaniing £375 in the FTSE tracker and top this up to £500, then drip feed £100pm to this. I may also drip feed an additional £50pm to the emerging markets fund.

So overall still investing for the long term, but as the overall sums are low at the moment I'm prepared to take a risk, and would also like to make best use of my profit.

What so you think?

Next question: Are emerging markets really a bubble that are likely to burst within 2011?

Thanks again

WHITEVANMAN

One ISA per Year rules.

jimjames

If you transfer the whole ISA to HL then there is no minimum to invest in a new fund. You can sell part of an investment and reinvest the proceeds in another fund with no minimum amount. At least in the HL ISA you can invest in pretty much any fund available in the UK, not just restricted to L&G products. I moved my L&G ISA to HL last year which was a very easy process.

I'm quite cautious about emerging markets at the moment. Long term I think they will still do well but when everyone is advising that they are the best bet currently I get more nervous - maybe as a result of being advised the same thing before the tech crash of 2001! The same people were advising against shares in 2009 and the UK market has rised nearly 80% since then.

DavidHayton

I agree with Jim ... transfer the whole thing to HL. As long as you set up a monthly savings plan (min £50/month) they have no minimum overall level of investment. You could transfer the L&G tracker across and then start building up the emerging markets fund.
Have a look at their FAQ's: http://www.h-l.co.uk/investment-services/isa/frequently-asked-questions

David