How to invest on a (weeny) budget

gadgetmind

jamesd wrote: »

Whether we like it or not we are pretty much forced to use funds for many areas, just because of the practicalities and how much money we have available to investor time available to use.

Well, we're not really forced to invest in those areas, but I guess we do partly for the chance of finding an area that out-performs, but perhaps also because we're genuinely interested in the investment process.

Some of the specialised funds really do seem to poke into some odd investment nooks and crannies, but I did find a Japanese Shariah ETF the other day, so I guess there is demand!

Lokolo

gadgetmind wrote: »

No, I don't think I am. I think that buying into a tracker, or ideally a few trackers, will give better long-term results with lower risk than buying a few active funds, but active is certainly an option. However, I will admit that I have never really tried the monthly drip into active funds - what are they usual minimums?

£20 a month. Same as the trackers. (I have only looked at a couple, but I suspect it's the same across the board).

gadgetmind wrote: »

A lot of high risk things are possible, individual shares, only one or two active funds, but is this really a direction in which a smaller investor should be steered?

If they want it - why not? I currently have just under £3.5k in my portfolio, yes it's small, and I know the risk I am taking. £2k of that is in a single share. It's not for us to say "No you can't do that", it's up to the investor.

gadgetmind wrote: »

So how would you advise someone with only £50pcm to invest?

It would depend what they wanted. If they want to have an investment portfolio, I would suggest a few funds that they can invest in (which could include either active funds or passive funds), switching every 6 months or so. I wouldn't suggest that they invest in those individual funds, but I would point them to a number of broker providers such as iii, and tools to pick funds such as those on Morningstar and Trustnet.

If they wanted to invest in shares I would direct them to iii's regular share investment scheme where it only costs £1.50 a trade a month. I would mention that with £50 it is high risk but it's their choice.

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You cannot say that it is unaffordable for those with <£100 to invest anything other than trackers. It's not. They can affordably invest in single shares, active funds, trackers. Plenty of options. Whether they are a good idea or not is another point entirely. The article is mixing small budget with passive investing - which is fine if the article is titled that and so readers know this. But from what is obvious (given you created this thread), it is aimed at new investors and saying they can't invest in anything but trackers because of huge costs - which isn't true.

atush

That's a pretty poor article. Poor asset allocation, all UK and 40% in gilts when they are in a bubble.

James, I completely agree and said so before. 40% in gilts is not what I would chose esp now and all in the UK is just a poor idea all round.

I pay fund managers for a reason. There's too much investing world for it to be practical to research the useful places to invest adequately and it's important to invest in the right places, not just stick to the easy ones because they are easy and practical for individual investors to use.

I agree, that investing on the rest of the world and emerging markets you need a fund manager or two.

I'm getting global smaller companies exposure via a Vanguard Small Cap tracker

gadget, it isn't global, but I have had some great performance form Aberdeen Asian Smaller Cos IT

gadgetmind

Lokolo wrote: »

£20 a month. Same as the trackers. (I have only looked at a couple, but I suspect it's the same across the board).

Yes, but a single tracker is low risk, whereas a single active fund is (generally) higher risk. Of course, someone could go for a "balanced managed" fund, but some of these are real dogs, so would you be happy to put £20pcm into just one of these?

If they want it - why not? I currently have just under £3.5k in my portfolio, yes it's small, and I know the risk I am taking. £2k of that is in a single share. It's not for us to say "No you can't do that", it's up to the investor.

No-one is saying that an investor can't do that, just explaining that there are better alternatives.

It would depend what they wanted. If they want to have an investment portfolio, I would suggest a few funds that they can invest in (which could include either active funds or passive funds), switching every 6 months or so. I wouldn't suggest that they invest in those individual funds, but I would point them to a number of broker providers such as iii, and tools to pick funds such as those on Morningstar and Trustnet.

And at that point, most smaller/novice investors would turn right off the idea and simply not invest at all.

You cannot say that it is unaffordable for those with <£100 to invest anything other than trackers. It's not.

Maybe it's something they can afford to do, but will it give them the same outcome, at roughly the same level of risk, and without it requiring both an upfront and ongoing investment of time?

gadgetmind

atush wrote: »

James, I completely agree and said so before. 40% in gilts is not what I would chose esp now and all in the UK is just a poor idea all round.

There was an interesting Citywire article on gilts this AM.

http://www.citywire.co.uk/money/index-linked-gilts-time-to-get-out-of-linkers/a557723?ref=citywire-money-latest-news-list

It hasn't convinced me to dip a toe back into them!

Lokolo

gadgetmind wrote: »

Yes, but a single tracker is low risk, whereas a single active fund is (generally) higher risk. Of course, someone could go for a "balanced managed" fund, but some of these are real dogs, so would you be happy to put £20pcm into just one of these?

Er no. Something isn't more risky because a person is managing it. Something is more risky because of the assets inside it. A managed UK equity fund isn't neccessarily more risky than an UK Index tracking fund.

gadgetmind wrote:

No-one is saying that an investor can't do that, just explaining that there are better alternatives.

The article clearly states

The_Article wrote:

At £50 a month your biggest enemy is costs. You can’t afford them! Upfront fees, flat-rate transaction charges, tax, admin costs – you need to duck ‘em all like Indiana Jones in a sword fight.


To ensure bargain diversification, forget about:

• Shares
• ETFs
• Active funds
• Investment trusts

In my previous post I just disproved this. The article IS saying you cannot invest in these options because of cost. I have just shown you this is not true - and you are still saying I am wrong! The diversification part with shares I will admit, you cannot do this cheaply. But Active Funds can have the same diversification as Passive Funds.

gadgetmind wrote:

And at that point, most smaller/novice investors would turn right off the idea and simply not invest at all.

Not from my experience. I suspect telling them to invest in a UK index tracker, without any explanation, is likely to do more harm than someone researching and learning themselves.

When has spoonfeeding done anyone any good?

I would rather teach and explain and risk putting people off than to tell me simply put all their money in 100% UK index trackers and leave it.

gadgetmind wrote:

Maybe it's something they can afford to do, but will it give them the same outcome, at roughly the same level of risk, and without it requiring both an upfront and ongoing investment of time?

Once again, that's not the point of the article. The article is not mentioning risk - otherwise as others have pointed out, they wouldn't have said to put all money in UK equity and UK Gilts, because that does involve a lot of risk in comparison to 100% UK Gilts and Bonds.

Lokolo

Lokolo wrote: »

I would rather teach and explain and risk putting people off than to tell me simply put all their money in 100% UK index trackers and leave it.

Just to add to this point, on that very article in the comments section there is a user who found the article very useful, but then asked about Bank bonds and why they haven't been mentioned.

These are the exact people I would rather put off than tell them to shove their money in a UK Index Fund. It's wrong. These people need to be taught about investments, not told to do something which they don't fully understand.

gadgetmind

Lokolo wrote: »

A managed UK equity fund isn't neccessarily more risky than an UK Index tracking fund.

You're taking the risk that they will under-perform the market, which after taking fees into account, the vast majority do over longer time periods. You can mitigate this risk by holding several funds, or trying to actively switch between them, or ... you go for a tracker.

But Active Funds can have the same diversification as Passive Funds.

Doesn't stock picking reduce diversity somewhat?

Not from my experience. I suspect telling them to invest in a UK index tracker, without any explanation, is likely to do more harm than someone researching and learning themselves.

I always tend to tell people to get reading, but I'm not sure how many actually do it. You'll also note that I questioned the use of just a single UK tracker in the comments section, and the response was interesting.

gadgetmind

Lokolo wrote: »

These people need to be taught about investments, not told to do something which they don't fully understand.

That did happen further down the thread.

Linton

gadgetmind wrote: »

Yes, but a single tracker is low risk, whereas a single active fund is (generally) higher risk. Of course, someone could go for a "balanced managed" fund, but some of these are real dogs, so would you be happy to put £20pcm into just one of these?

Really!?!? Sorry G but I can't let you get away with this. A FTSE tracker in no way could be considered low risk (using volatility as "risk"), whereas a cautious or balanced managed is far more stable.

To give a real example:

The HSBC FTSE 100 tracker has made 7.1% total over 5 years.
In 2008 it dropped by 26%, in 2009 it rose by 35%

By comparison the average "mixed investment 20%-60% equity" managed fund had much the same mediocre performance making 6.9% over 5 years (after fees!). But it only dropped by 15% in 2008 and rose by 19% in 2009 - much less volatility. The median fund in that sector made about 9%.

One of the big mistakes newbie investors seem to make is to just go for a single tracker, normally a FTSE100 or allshare, on the basis that trackers are "safer" than other investments. This is simply not true - investing solely in the FTSE100 is pretty high risk however you do it. Its primarily the sector that makes an investment safe or not, not whether its a tracker.