Is it worth investing small amounts?

Svenena

Until recently I didn't know anything about investing, and I've been trying to get my head round all the terminology and principles, and while I know a lot more than I did a month ago, there's still lots I don't get. But I don't really want that to stop me. I'd rather make a start and then learn more as I go along, and I'm young enough that I can afford to risk making some mistakes.

I don't want to invest a lump sum, as the money I currently have (appx. £12k) is earmarked for a house deposit, and I'm still saving monthly for this from my wages, and will be for a few years, so I don't feel that I can spare a large regular amount either. So I'm wondering whether it's worth even bothering? I can probably spare £100 a month, which would mean only investing in a couple of funds. I'd hope to be able to spare more in a few years, when I've bought a house, but equally, I might have to reduce the amount or stop for a while, in order to boost my savings for a while.

So, is £100 a month worth it? I'm looking to invest for the long term, 10+ years.

Nanpy

Something to think about:

http://www.h-l.co.uk/news/expert-comment/junior-isas-have-got-me-thinking

It's not directly relevant but shows the effect of saving a grand a year in certain funds over an 18 year period.

But you should only invest for the longterm, and only what you can afford to do without short-term.

Svenena

Thanks. Are these fairly typical returns, or are those particularly high performing funds? Obviously it's going to vary a lot depending on where I invest.

As a beginner, I was thinking maybe £50 a month into some kind of FTSE tracker (eg HSBC FTSE All Share Tracker) and then maybe the other £50 into a bond fund (eg Scottish Widows Overseas Fixed Interest Tracker), as I understand there is low correlation between stock and bonds, and this would diversify my portfolio. I want to go for trackers due to the low annual costs, which I understand can have a significant impact on returns. Would this make sense or have I got it completely wrong?

lisyloo

Yes, I think £100 a month is worth it.

If you have only been studying a month then you could save short term whilst having a "virtual" portfolio.
This simply means putting it into a tool where you monitor the returns but you don't actually invest, you just see how much you would have gained/lost. This gives you practice with no risk.

Another alternative is to take advice.
I have a portfolio spread over 15 funds and my advisors monitor it and give me advice on when to switch and what to switch to.
This costs me 0.5% per annum.

nufc_fan

I think I am in a smiliar situation to yourself. I plan to fill a cash ISA each year but am looking for something more long term to invest a smilar amount of money in, probably around £100 or so per month for now but increasing this in the future if I have the spare cash to do so.

I am just unsure where it is best to invest this money, if i should go through a IFA or myself, and if I do it myself how and who do I use to make the investment.

edinburgher

I want to go for trackers due to the low annual costs, which I understand can have a significant impact on returns. Would this make sense or have I got it completely wrong?

Due to their nature, trackers normally lag behind the cream of the managed funds, but they are consistent and a heck of a lot cheaper to invest in.

Investing in trackers sounds like a very sound idea for a new investor looking to start now, learn a bit along the way and minimise your exposure to fees.

I started with a £50/mth FTSE tracker - now I'm up to £200/mth across 6 funds. We all have to start somewhere

I am just unsure where it is best to invest this money, if i should go through a IFA or myself, and if I do it myself how and who do I use to make the investment.

I doubt an IFA would be interested, it's a fairly small amount of money.

jimjames

It is absolutely worth starting with small amounts and investing monthly. It is an excellent way to build up your portfolio over a long period of time. Very few people have tens of thousands of pounds at hand to invest up front.

I started with a tracker at £50 per month and I think it a good way to get started. Some managed funds may beat the index but over the long term many do not and it is very hard to pick which ones will do so consistently. With a tracker you do not need to do so and will always track the market. With some markets outside of UK/US etc then managed funds have more scope to add value but they are more risky as you have currency changes to take account of as well as the movement of the funds themselves.

If you go direct to a provider like HL as mentioned above you have a great deal of flexibility in your investments. You can even change your DD month by month to add extra money when you can afford it so April could be £150 and May then drop back to £50 if you had other expenses that month.

Nanpy

HSBC and Legal and General offer a good range of cheap trackers.

FTSE tracker vs overseas Bond - is the reverse of what I'd do, but I am a little rock'n'roll. The FTSE hasn't been very exciting and likely won't be in the future - unless Cameron is legitimately onto something and stimulates business with low taxes, but he'll only get one term to do it then it'll be back to running the country for the benefit of the public sector. Where was I? Oh yeah, UK fixed interest bonds are pretty stable and I'd pick a BRIC (Brazil, Russia, India, China) or similar emerging economies tracking fund. I'm in the L&G Pacific Index fund and it's been pretty good to me for, I think, a .85% total expense ratio, which is what you'll lose in management charges each year.

More specialised funds would include Agriculture, Pharmaceuticals and general resources. All things we're going to need more of as the population increases worldwide.

Having said that, there's nothing wrong with your original suggestion.

Svenena

Thanks for your help everyone, it's much appreciated, and I feel more confident about taking the plunge now. I'm going to use Hargreaves Lansdown as my provider, as I like the site.

I've read that it's not that worth using an S & S ISA if you're a basic rate tax payer and CGT isn't an issue, but I thought I would anyway, as it's possible I could become a higher rate payer in the future. I assume there wouldn't be any negatives about using an ISA?

psychic_teabag

Svenena wrote: »

Thanks. Are these fairly typical returns, or are those particularly high performing funds? Obviously it's going to vary a lot depending on where I invest.

I'd be pretty sure those particular funds were selected with the benefit of hindsight.

Michael_Corleone

Are the HSBC FTSE Tracker Funds only available through their Global Asset Mngmnt site or through the normal internet banking? I have been considering the (almost) same things as the OP and wondered how easy it would be to track my individual fund performance.