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Help picking funds

Hi, I would like to make use of my 4k ISA allowance and get some money into 4 funds (£1000 x 4) before the end of March.
This will be my first time investing (have only ever used mini cash ISA's).

Due to my lack of experience and also the fact I am not spreading my investment over time (the 4k will be a lump sum, most likely placed within the span of a number of days), I need some help.

NOW! I know you can not suggest funds (and I am not asking you to).
However, you could help me perhaps by suggesting what kind of sectors I should be looking at.
Considering I only plan on selecting 4 funds, where should I be looking?
I know I want to avoid Asia (too risky).. but I dont want it all in bonds either (not enough risk).
I want the money to do as well as a 5-6% savings account but hopefully far better (no guarantees I know, but I want my choices to give it the best chance anyway).

I can look into riskier ones next year and also spread the investments out more, but for now, can anyone give me any suggestions of what to look for?

I suppose what I am asking for is a suggestion of 4 different areas to invest that would suit my risk profile.
- I will be investing 4k into 4 funds for 10 years or more.
- I do not need any income from the investment (in fact, I DO NOT want any).
- I am prepared for a loss of around 10/15% before I might get a little itchy (but hope to be in it for the long term).
- I have no further investments besides a pension plan being slowly fed. This is invested in high risk UK equity (but I dont mind so much as its spread out over such a long time).

I know I cant cover all areas as it is only 4 funds, but I'll get more in next year. I just need a good base, so if people could suggest the areas they like to have in their portfolios that provide a 'solid ground', I'd be interested.
You are welcome to name funds, but I am not asking you to.
All advice will be taken with a pinch of salt and followed by my own research.

Thanks.

Choices so far - comments are welcome. Im updating this section as I make choices (none of which are set in stone):

- INVESCO PERPETUAL Income (Accumulation) (£1000).
Reasons (many site recommendations, core UK equity holding). I see a strong consistent performance also.

- SCHRODER EUROPEAN ALPHA PLUS (Accumulation) (£1000)
Reasons (want exposure to europe I suppose... and this seems to be well recommended by everyone).

- AEGON STERLING CORPORATE BOND 'A' (Accumulation Shares) (£1000)
Reasons (another UK choice as the european investment above is about as risky as I go... for now. The bonds are less risky I believe so should lower my overall risk profile).


I am still concerned I have no investment in property, few in commodities (mining/resources) and little beyond UK and Europe... (but this can come with next years investment). Still need to pick another...
Any ideas... what sector/investment type is missing from the above 3 that is UK based?
Need help with the final sector choice. All comments welcome.
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Comments

  • dunstonh
    dunstonh Posts: 119,853 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    - I am prepared for a loss of around 10/15% before I might get a little itchy (but hope to be in it for the long term).

    That heads you down the route of:

    Commercial property
    corporate bonds
    global bonds
    uk other bonds
    UK Equity & Bond Income
    and a small amount into UK Equity Income.

    Anything in equity has the potential for at least a 30% drop.

    You could include other sectors for one or may 2 funds at most but you would need to offset them with lower risk funds to comply with your risk.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • When putting those 3 into the best invest portfolio planner (in an attempt to find my 4th one) it says:
    Your portfolio has much less exposure to Equities than we deem appropriate. This may reduce the potential for long term growth. A switch out of Quality Bonds would help to address this. Some switching into other assets which are largely uncorrelated with equities, such as Hedge and Other would be beneficial.

    It also made the obvious statement about poor geographic spread (but I'm fine with that for now).
    Looks as if I need more midcap/small cap equity.
  • OK, my final choice is:
    INVESCO PERPETUAL UK SMALLER COMPANIES EQUITY, also £1000.

    This brings my 4 to:

    INVESCO PERPETUAL UK SMALLER COMPANIES EQUITY
    INVESCO PERPETUAL Income
    SCHRODER EUROPEAN ALPHA PLUS
    AEGON STERLING CORPORATE BOND 'A'

    Best invest gives this a 10/10 capitalisation score, a 5/10 geographical score (which I'll resolve next tax year), and a 7/10 asset allocation score.
    Exposure to Quality Bonds is higher than we recommend. Some switching into other assets which are largely uncorrelated with equities, such as Hedge and Other would be beneficial.

    Still, I think that for this tax year I am happy with the above.

    Does anyone have anything to say that might put a spanner in the works or further advice? Thank you DunstonH for your earlier reply.
    Failing any replies that put a spanner in the works, I'll invest into these at some point in mid feb.

    It isnt 'unwise' having 2 'INVESCO' investments is it?
  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
    Small cap equity funds are the highest risk type.

    Are you sure that's what you wanted?
    Trying to keep it simple...;)
  • Thanks ED. Perhaps not...

    BestInvest did however make it clear that I am investing too heavily in the large caps, and there wasn't quite enough equity. Is there a sector or something a little less risky than small cap equities that will help (at least slightly) bring a better balance?

    To be honest, 1k out of what I hope to be a growing portfolio isn't too big a risk for me to take. I can put more into bonds next year and spread the geographical locations to help reduce risk. I'll also give up poker. :)

    Does anyone know of a website where you can enter in your portfolio and have it give you a 'RISK' value (represented somehow on a sliding scale) ?
    This is the kind of stuff I dont know enough about.
  • dunstonh
    dunstonh Posts: 119,853 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    The spread above has the potential to see a 40% drop.

    You arent going to be able to achieve a decent allocation with 4k. You are going to be heavy in areas and there isnt anything you can do about that until you add more.

    Currently, you are well above the risk for what you have specified.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • OK, thanks Dunstonh.
    Looks like my first attempt has gone wrong...
    I guess I'll have to ignore 'bestinvest' portfolio advice as it doesn't seem to take into account what % drop you specify when picking funds.

    I'll try again in the morning just picking funds out of the sectors you have specified with more in bonds/property and dropping the small cap. I hope you wont mind me running them past you again at some stage.
    All this advice is greatly appreciated.
  • Sillychuckie
    Sillychuckie Posts: 1,210 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Combo Breaker
    How about:
    AEGON STERLING CORPORATE BOND 'A' (Corporate Bond) - Accumulation
    ARTEMIS HIGH INCOME (UK Other bond) - Although, NOT accumulation units.
    JUPITER INCOME (UK Eq & Bd Income) - Accumulation
    AEGON GLOBAL BOND CLASS A (Global bond) - Accumulation

    Not really sure I fancy the property ones (not UK property anyway).

    Putting these into bestinvest indicates:
    ASSET ALLOCATION SCORE: 2/10 (ignored as above. best invest just want a certain level of equity holdings)
    GEOGRAPHIC SCORE: 0/10 ( :( am hoping this shouldnt worry me. can sort it out next tax year )
    CAPITALISATION SCORE: 7/10

    Again it says I don't have nearly enough equity but I learned from DunstonH's last post that this is best ignored if I am to stick to my risk profile.
    I can get some equity/small caps (maybe £500 a piece) in next year, as well as get more money into the rest of the worlds areas. I'll feel far more adventurous when I know I can spread the period of the investment a little (and save a little more money).

    Is the above selection more suited to my initial description?

    Finally... Is this a sensible thing to do? Over time, say 10 years, would my return on this investment be likely to beat the return if I were to put the money into the best cash savings accounts over the next 10 years? 'Likely' being the key word. It will provide a good balance to any riskier future investments anyway, but just need to know that I wouldnt be better off leaving it cash for 10 years (which I understand also has its risks...).
  • carnet
    carnet Posts: 501 Forumite
    Why does it have to be £1000 x 4 ?

    If you're going with Bestinvest anyway, why not invest £500 each into 8 funds via their Cofunds tie-in ?

    This would give you a decent enough spread.
  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
    A word about asset allocation.

    Without getting into esoteric stuff like wine and paintings, there are only basically 5 asset classes, listed here, safest first.

    1.Cash and gilts
    2.Corporate bonds
    3.Property (residential and commercial)
    4.Equities (fairly large range of risk, low-med to very high)
    5.Commodities

    Now if we look at your total savings and investments, arguably you are already (over) covered for category 1 via your cash ISAs over the years and you really ought to be focussing your investment ISA on starting to grow the other risk-based side.

    On this basis I would thus suggest you focus on classes 3,4 and 5 (but go cautiously with 5 and the top end of 4 at first until you get used to this). What often happens is that people start off pretty risk averse and then get more adventurous as they understand better how investment works and their confidence grows, but this needs a bit of time.

    That might suggest you start with

    1 commercial property fund
    1 UK equity income fund (lowest risk type of equities, eg the Inv Perp one )
    1 more risky equity fund (could be the European one)
    1 higher risk option ( commodities fund, UK small cap equity fund, emerging market fund, UK special situations fund)

    If that sounds too risky for you then a halfway measure might do the trick, if you could split the 1k into two tranches of 500 quid each. Then half could go into the more risky choice and the other half either into the corporate bond fund or the property fund as a balancing mechanism.
    Trying to keep it simple...;)
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