Noobs guide to investing?

bingobangobongo

I am hoping someone can either provide links - or even write - a noobs guide to investments.

There is so much overwhelming information and confusing lingo that it is hard to know where to even start when considering investments.

Lets say that all ISAs have been maximised and that Person A has 40k left over to invest. At the minute 3% is the best savings rate in a bank they can get and they want to consider some sort of investments with the goal to maximise the return.

How can they go about this and what are the options available?

Stocks, shares, funds, bonds, gilts - what are all these and how do they differ? What is determined to be a good return, an average return? i.e. Could they earn 4% a month, 10%?

What if the investment is to be less than a year? Does that change the options? What are the longer term options? i.e. 2-3years, 5 years, 10years.

How do you go about investing? Can you just go to some website and buy 40k worth of gold shares? Whats a portfolio and how do you set one up? How do you decide what invesments to choose?

I know these are a lot of questions and may be silly to some but hopefully it might help others too.

Thanks

Newbie2saving

I read a couple of books recommended to me by another MSE member. They were http://www.amazon.co.uk/gp/product/0273722077/ref=pd_lpo_k2_dp_sr_1?pf_rd_p=103612307&pf_rd_s=lpo-top-stripe&pf_rd_t=201&pf_rd_i=0273708007&pf_rd_m=A3P5ROKL5A1OLE&pf_rd_r=04ANP25P8PM2FHTSETQR and http://www.amazon.co.uk/Financial-Times-Guide-Investing-Definitive/dp/027372374X/ref=sr_1_1?s=books&ie=UTF8&qid=1296135692&sr=1-1 both books were worth the money spent. They gave me a good insight into how different investments work.

Good luck.

Loughton_Monkey

Yes, I would start with a few books.

The trouble is, as you may find, that there are so many aspects to it. Similarly, it would be difficult to write "Computers for Dummies" that would satisfy two different people. One simply wants is to Join Facebook and use e-mail while travelling throughout the world. The other simply wants it to sit in his study all day and perform the most hideously complicated mathematical data crunching routines. Both know exactly what they want to do, but have completely contrary needs when it comes to understanding how to specify, buy, and use a suitable computer.

But as an absolute start, I would suggest initially getting to grips with the distinction between "Saving" and "Investing" because they are, in fact, two different things.

Pabloiom

I found the Daily Telegraph guide "How the Stock Market works". It get a bit patronising at times. But it seems to cover all the bases and gives a good overview (still blocked from posting links sadly!) it's less than £6 as well, so it leaves you more money to invest!

bingobangobongo

Thanks

How do you decide whether to go for a unit trust, or investment fund? If you decide on a unit trust - how do you decide which one to go for and how do you get one?

Is it best to go to a bank, Legal and General or IFA?

For the likes of £3k in a low risk unit trust - what are the likely outcomes after 5 years (humour me!). Is £300 profit considered good after 3 years? Would you expect more or less? (I know it all depends on the market etc but surely there must be some realistic expectation on what is good and what is average etc).

Thanks!

dunstonh

How do you decide whether to go for a unit trust, or investment fund? If you decide on a unit trust - how do you decide which one to go for and how do you get one?

You decide based on how you want to invest, how you intend to buy and how you intend to manage the portfolio. There are pros and cons with each.

Is it best to go to a bank, Legal and General or IFA?

If you need advice then its a no brainer. Always an IFA. Bank sales reps and tied insurance agents cannot offer the products, providers or funds that an IFA has access to. Also, the employer (Bank or insurance company) will place restrictions on what their rep can advise on. Most common tied agent restriction is that they are not allowed to portfolio plan. So, going to a tied agent is a bit counter-productive if you want to build a portfolio.

For the likes of £3k in a low risk unit trust - what are the likely outcomes after 5 years (humour me!).

Would that be a good 5 years or a bad 5 years?
What is your definition of low risk? (people have different views on risk and one persons low risk could be another persons high risk)

Is £300 profit considered good after 3 years? Would you expect more or less?

No. You would expect more than that but be prepared it could be that or less (although it depends on what you mean by low risk again - £300 on 3k in 3 years may actually not be bad for some peoples definition of low risk). 5 years is the shortest timescale you should really consider and anything can happen in a 5 year term. As you start heading towards 10-15-20 years then you can almost work on the basis that you will see a bit of everything in there sooner or later.

You know when someone says that a flood that occurs is a 1 in a 100 year event. That doesnt mean you will get a flood every 100 years. You could get two in two years and then go 198 years with none. Investments are similar. We had two 43% market drops in a 10 year period. You would have to go back many years to fine another one of that scale. We could have another one of that size in the coming weeks or not see another one for 15-20-30 years. You never know. In Donald Rumsfeld style you need to know that you dont know.

bingobangobongo

Thanks for your detailed reply.

So if I was to go to Hargreaves Lansdown (which seems popular) - they have lots of different funds. There is no real way to get advice on a low risk one?

If an IFA were to set it up they would get paid a fee or commission - would it even be worth thier while for a £3k S&S ISA / unit trust?

Just having a look here: https://www.bestinvest.co.uk/isa/index.aspx

There are so many fund managment groups and sectors! What are they all! How can anyone choose both a manager and a sector~?

dunstonh

So if I was to go to Hargreaves Lansdown (which seems popular) - they have lots of different funds. There is no real way to get advice on a low risk one?

HL do not provide advice on their platform. Its a non-advice service (hence why you are not paying for advice - although you are in a way but thats another thread..)

If an IFA were to set it up they would get paid a fee or commission - would it even be worth thier while for a £3k S&S ISA / unit trust?

Yes the IFA would be paid a commission or fee. However, realistically its not worth it for you or the IFA to give advice on just £3000. It wont be cost effective. Still more cost effective than a bank or tied agent but no option other than DIY is realistically a good idea unless you think you are likely to make a real mess of it.

bingobangobongo

Thanks - so taking this one here as an example:

https://www.bestinvest.co.uk/investment-research/fund-research/fact-sheet/jhamukor/jo-hambro-cm-uk-opportunities-r/performance

If someone had invested £5000 in this for 5 years, would they have made anything on the 5k? I am looking at the performance but it means nothing to me in terms of what someone could gain or lose after x amount of time.

Would anyone be able to explain how one could extrapolate this data? (Obviously this is no indication of future potential but I just want to know what I'm looking at!)

Linton

bingobangobongo wrote: »

Thanks - so taking this one here as an example:

https://www.bestinvest.co.uk/investment-research/fund-research/fact-sheet/jhamukor/jo-hambro-cm-uk-opportunities-r/performance

If someone had invested £5000 in this for 5 years, would they have made anything on the 5k? I am looking at the performance but it means nothing to me in terms of what someone could gain or lose after x amount of time.

Would anyone be able to explain how one could extrapolate this data? (Obviously this is no indication of future potential but I just want to know what I'm looking at!)

Under cumulative 5 years, you will see 141. This is 141%. So your overall gain would have been 41% - £2050.

The 07/08 discrete year is 81% - ie you would have lost 19% in the 07/08 year.

This is an unusual way of representing performance. If you look at, say, https://www.trustnet.com you will see numbers that represent the gain. Here the corresponding numbers would be 41 and -19.

jimjames

That one has a 41% rise over 5 years which appears to be 10% more than the index. I'll dig out some more detailed info later but if you are new to investing one option is to build an inital portfolio using tracker funds.

You dont then need to worry about choosing a fund to beat the market (but that may actually underperform) as you will match the market - guaranteed.