Advice for a lazyish novice investor

Golfcat

Hi

I currently have my emergency cash fund and am using up my cash ISA allowance every year, I have additional funds that I would like to start invetsing for my future with, I am looking at these funds to help boost retirement income or allow me to retire earlier (in about twenty years, so plenty of time to ride out ups and downs of the markets).

I do tend to be quite lazy and want to set ups something that I pay into and don't have to take too much notice of all the time, I was thinking that either trackers or managed funds would be my best bet (definately won't be able to self pick stocks!), but having a look at the range of funds I am totally confused as to where to start! Can anyone give opinions as to what sort of funds are good as a starting point to build up a portfolio, i.e. covers several sectors, general type funds, or is everything very specific?

Many thanks for any opinions.

atush

Drip feeding into an investment trust via their savings plan would be a good idea for smallish amounts. Investment trrusts have different minimums but tends to be 25-50 quid a mon but you can invest more. if you reinvest dividends it grows quite nicely over time.

If bigger sums, you may want to open a S&S ISA and invest thru that. you can choose trackers or other general funds that invest in a wide range of shares. Or you can pick several funds incl ones for emerging markets, NA, eurozone, UK etc.

MintMark

I just have a stocks and shares ISA that contains a FTSE all share tracker fund and pay in a fixed amount every month.

The monthly payments stop me having to worry about timing (should I sell some?, should I put more in?, how much?, is now a good time?). The tracker fund exposes me to the average of everything so it will grow as the market does (and shrink of course).

I think the thing to do is find a provider and fund with small annual charges. That's the bit that's under your control.

I did think about starting a second type of fund for diversification, but I had no idea what else to go with to complement the tracker.
Then I realised that the tracker fund is my most risky investment and it's not a large proportion of the total (yet), so I decided there wasn't much overall risk to protect against and no further diversification required (for now).

Mark (nowhere near an expert investor!)

Golfcat

Thank you both for your responses, I am looking at a S&S ISA, you never know one day I may have enough investments to need the tax protection (already have a pension set up and am paying into that, but don't wish to icrease the contribution ther in case they move the age you are allowed to take it further out!).

I currently do have a small FTSE tracker (that I need to move as it has expensive charges on it compared to others), so I'm looking at other areas to diversify out a bit....just so many choices as where to put some money!!

jhxmt

I tend toward MintMark's approach, though I do also have some managed fund exposure as well.

If you're interested in getting some basic knowledge of investing principles, I recommend reading Tim Hale's Smarter Investing, which I've found very useful. That's just my personal opinion, and others will have other recommendations, but I found it a good starting point.

DrSyn

1. Whatever you decide to invest in make sure the charges are low. Other than the choice of fund, this is the only thing you really have any choice over. The more in charges the less for you at the end. Over 20 years even a annual charge of 1.5% makes a considerable difference!

2. The HSBC FTSE All share Index (Inst) is a low cost tracker fund.

3. Before you invest in a fund do some simple research at:

www.morningstar.co.uk

www.trustnet.com

www.candidmoney.co.uk

4. Don't be a lazy investor! Its your money no one else will care for it as much as you will! The sharkes are out there.

Porcupine

If you want to be lazy, a fund of funds has someone else picking the funds for you. But they're more expensive than picking funds yourself.

Note that the FTSE100 is actually medium/high risk: it's a fairly concentrated group of oil companies, miners, banks, etc who happen to be registered in London. The FTSE All Share is slightly better, but because everything's weighted by size the former still dominate.

So I would diversify. Geographically you might go for:
UK
Europe exc UK
North America
Japan
Asia exc Japan
Emerging Markets

In terms of asset classes the big ones are equities and bonds: depends whether you want growth or income, and how much you want to smooth out market fluctuations. Other things like property, currencies, gold, etc are a more specialist pursuit. And then you can invest by sector (natural resources, financials, retailing, healthcare, etc etc): I would probably keep those as secondary to topup geographically-spread investments.

So you could go with a bundle of trackers for the above. Note that one theoretical advantage of managed funds is downside protection: if the manager can see a fall coming, and the fund's objectives allow them, they can go out of equities temporarily to avoid a dip. Trackers have to track the market all the way down: this can easily wipe out the 1% a year saved by having a tracker. But managed funds aren't always flexible or canny enough to sell up.

Another thought is 'Absolute Return' funds: these try to smooth out some of the market fluctuations. There's a risk here that the more advanced voodoo involved can go wrong (eg if they use shorting, that they lose). And watch for fees - the 'darling' of the sector used to be BlackRock UK Absolute Alpha which is now not doing very well - in part due to the 20% performance fee charged on gains above base rate (ie the managers take one fifth of all gains over 0.5%). These funds can be handy for a core holding: I have CF Ruffer Total Return which seems to be doing a good job of smoothing out the fluctuations. 'Balanced managed' and similar funds aim for smoothing by holding a mix of equities and bonds. Both sectors are home to funds with widely varying strategies, so worth reading the fund objectives carefully.

Good luck!

MoneySaverLog

Porcupine wrote: »

So I would diversify. Geographically you might go for:
UK
Europe exc UK
North America
Japan
Asia exc Japan
Emerging Markets

If I were to invest a sum of money into trackers within these markets, what percentage of my pot should I invest in each tracker?

atush

It all depends on what you think will happen in the next 5-20 years I guess.

I would go 40, 15, 10, 0, 15, 20 myself. Normally I would weight europe higher, but not looking too good to be piling into funds there at the moment.

You need to decide for yourself what asset mix to have.

Loughton_Monkey

There are a number of funds that are considered to be for the 'lazy investor'.

Personally, I am no great lover of this approach. I find most of this type of fund dominated by what [I am convinced] is the last place to invest for growth in the long term - and that's UK, and Europe [and to an extent USA].

But my main reservation is that many people 'think' that a 'lazy' fund is one in which you throw your money into such a fund, and in the back office somewhere, there's an investment manager working over your 15 to 25 years saying to himself "UK is not doing so well. I think I'll chuck a huge sum at Japan because it will do well, and a bit more into India......."

Well this just doesn't happen! If the fund is equities (and a bit of bonds/gilts) in UK 70% Europe 30%, then that's how it largely stays. There are a few exceptions [absolute funds] who are a bit more 'active' but they tend to concentrate more on capital protection rather than growth.

So my main 'recommendation' is not to be lazy! It really is not difficult to pick a few funds that represent 'where you want to be' and it is equally simple to set up a 'portfolio tool' to provide a frequent and simply 'lookup' to see how it is performing.

Currently, I 'want to be' in India, Russia, Asia, and Natural Resources. I can see a time in the near future where I might wish to amend this a bit.

calypso_rhapsody

I agree with Loughton Monkey (and others) that you should not be lazy in your fund selection ... but i do think that if you choose established funds with good ratings then you probably can just review your portfolio every 3 to 6 months to make sure you are still happy with your choices - you don't need to be looking at it daily as perhaps you might if you had a portfolio of individual shares.

Many of the fund platforms offer the sort of portfolio tool that LM refers to and that (as well as cost) might be part of your selection criteria?

In selecting your funds, think carefully about your attitude to risk - emerging markets are very popular and have the potential for significant growth - but also for substantial losses. Spend some time researching - Dr Syn pointed you to some good sites for this.