Investments for a newbie

sophlowe45

I keep my savings in the best paying account i can find...have done for years...but now thinking about other types of investments...

I'm thinking some kind of basic tracker fund - i would have made 10% last year as opposed to 5% in the bank...but there are regular saving accounts that offer 12% at the moment so is it actually worth thinking about investing in the stock market?? also are there any tax breaks associated with investing in shares? As of course, the regular savings bank account is 12% before tax...

I got wine mentioned to me...but as i don't drink wine/know much about wine...i ruled out that idea....


Any idea/pointers woudl be greatly appreciated.

tom188

Forget wine unless youve invested in everything else, great dinner party discussion but to me not a serious investment.

You are taxed at 10% on dividends if you are a basic rate tax payer/non tax payer or 30% if you are higher rate, however capital growth is the most important factor in play here.

The market is for the long term, savings accounts for the short term as you will get superior gains by investing but the ride can be volatile.

What is your risk profile, ie by what % would you be happy to see your investment fall before you want "out".

I dont advise on investment products but someone else will reply soon.

Jake'sGran

In the 80s when I knew nothing at all about the stock market I started a monthly investment plan with Fidelity in their Special Situations Fund just because I was impressed with the chart of fund performance in the paper I read. I had to stop the plan when my husband was made redundant but left the accrued money, £4400, in the fund. Today it is worth approx £50k. I was lucky I suppose and after that I did make some mistakes. There are some excellent funds out there and if you like the idea of investing monthly instead of by lump sum most of the well known names offer this type of plan. They do have minimum amounts though, some as much as £100 but you could find the odd one allowing a £50 investment. The only tracker I ever invested in never made a bean. Use the performance charts to check some funds e.g. Fidelity European, M & G Global Basics etc. Equity income funds are expected to continue doing well - Perpetual Invesco High Income, Jupiter Income etc.
Citywire have tables showing those that have been tops over 3,5 or 10 years.

tom188

A tracker will only make you money if the market is going in the right direction

tom188

And importantly past performance is not an indication of future performance.

alanobrien

sophlowe45 wrote:

I keep my savings in the best paying account i can find...have done for years...but now thinking about other types of investments...

I'm thinking some kind of basic tracker fund - i would have made 10% last year as opposed to 5% in the bank...but there are regular saving accounts that offer 12% at the moment so is it actually worth thinking about investing in the stock market?? also are there any tax breaks associated with investing in shares? As of course, the regular savings bank account is 12% before tax...

I got wine mentioned to me...but as i don't drink wine/know much about wine...i ruled out that idea....


Any idea/pointers woudl be greatly appreciated.

Most mutual funds underperform the market average - known fact so read
read and read more before you commit cash to anything.

A starter for 10;
http://www.fool.co.uk/lrninvnov.htm

dunstonh

i would have made 10% last year as opposed to 5% in the bank...but there are regular saving accounts that offer 12% at the moment so is it actually worth thinking about investing in the stock market??

Last year, performance was around the 20% mark not 10%. Those savings accounts at 12% are taxable knocking the net return down.

Most mutual funds underperform the market average - known fact so read

No they dont. Selective picking of different timescales can show managed funds beating trackers and vice versa. It all depends on what the markets are like in the period chosen.

If you disregard passive managed funds as there is no point in being in one of those and disregard closed funds as you cant invest new money into those anyway and only look at active manged funds, the figures are much better.

Its about picking the best across the sectors. Sometimes that will be tracker, sometimes it will be managed.

Just to highlight that point, in the UK All companies sector, over the last five years, all FTSE 100 trackers performed below sector average. Best fund was 158% return, average was 46.48% L&G FTSE100 tracker 24.55%. (a sector allocated portfolio to medium risk achieving sector average returns got 62.7% in that same period). FTSE All share trackers were a little better but still below the average. FTSE250 trackers were the top performers though. Good time for the mid caps.

alanobrien

dunstonh wrote:

Last year, performance was around the 20% mark not 10%. Those savings accounts at 12% are taxable knocking the net return down.


No they dont. Selective picking of different timescales can show managed funds beating trackers and vice versa. It all depends on what the markets are like in the period chosen.

If you disregard passive managed funds as there is no point in being in one of those and disregard closed funds as you cant invest new money into those anyway and only look at active manged funds, the figures are much better.

Its about picking the best across the sectors. Sometimes that will be tracker, sometimes it will be managed.

Just to highlight that point, in the UK All companies sector, over the last five years, all FTSE 100 trackers performed below sector average. Best fund was 158% return, average was 46.48% L&G FTSE100 tracker 24.55%. (a sector allocated portfolio to medium risk achieving sector average returns got 62.7% in that same period). FTSE All share trackers were a little better but still below the average. FTSE250 trackers were the top performers though. Good time for the mid caps.

Hmmmmmm, I am sure the owners & writers of the Motley fool site would be happy to argue the semantics of that with you but the fact remains tracker funds are the best option for the novice investor to spread risk and gain average market returns with low start up and annual costs.

Personally i prefer individual stock picking anyday.

dunstonh

Hmmmmmm, I am sure the owners & writers of the Motley fool site would be happy to argue the semantics of that with you

I have nothing against trackers and have one in my portfolio. The lack of investment choice with trackers is the serious issue I have (on the UT/OEIC front). Its where you invest that matters most. The MF overstate the charges and understate the choice of investment.

The figures I posted clearly show that the MF is inaccurate when it says:
Over periods of five years index trackers have produced a better return than 75% of managed funds, primarily because of their lower charges.

The FTSE100 trackers came out virtually bottom in the last 5 years because large cap just wasnt the place to be and the lack of downside protection that is a benefit in rising markets is a negative when the markets drop.

Mid Cap was the best place to be and the FTSE250 trackers were top of the pile. If you went with FTSE100 or all share, you performed well below sector average. The returns had more to do with where you invested. Not how much you paid.

Also, looking at the FTSE100 trackers, they have failed to perform above sector average in each and every year for the last 13 years.

the fact remains tracker funds are the best option for the novice investor to spread risk and gain average market returns with low start up and annual costs.

Not really. Most novices underestimate the risk they are taking with FTSE trackers. We have often seen it on here where they have been referred to as lower risk. I'm not sure how they get that idea when they are usually high risk than the managed fund equivalent. Also, most novices end up picking one fund/tracker and sticking all their money in that. That isnt good sector/asset allocation and over the long term will underperform a sector allocated fund.

Whilst I am not a fan of Fund of funds, they are probably better suited to the novice investor as the sector allocation is handled within the fund and gives them much better investment spread and management to their risk profile. I dont use them myself either personally or professionally as fund picking is my role. However, the DIY novice with little or no interest in following it should consider it.