First-time investor

So I've decided that now is the time that I should finally start investing. I've read both Smarter Investing by Tim Hale as well as the FT's guide to ETFs and index trackers. As a result, ETFs and index-tracking funds is the route that I'm going to go down. I've been doing a lot of reading around the board and my initial thoughts are to open an ISA with Iweb, X-O or SVS.

However, I've got a few questions and I'd be grateful if they could be answered.

1) I understand that reinvesting dividends is crucial to gain full benefit from returns. So I was surprised to see that few brokers offer automatic reinvestment of dividends. What is the general consensus around this? Do you guys tend to collect the dividends and then wait until you've built up a sufficient amount to make more investments? Or do you just pay for the automatic reinvestment (I'm guessing the fees are justified?)

2) Can index-tracking funds be bought through the brokers that I mentioned above? Or are they only for shares? If this is true, if I wanted a mix of ETFs and tracker funds would I have to go through a broker and do the whole supermarket funds thing as well?

3) I'm going to start off investing about £1000. Since this is a relatively small amount I was planning to invest it all in something basic like a global tracker, in order to minimise trading charges. And then when more funds become available, go for another tracker/ETF with my next £1000 or so. And so on. Does this sound like a smart idea?

4) Can I gain access to a well-diversified global portfolio of trackers through just the UK market e.g. could I track emerging markets by buying some ETF on the LSE?? I guess what I'm asking is should I open an account with a UK-only broker, or an international one?

Any replies appreciated. Thanks :)
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Comments

  • MrMalkin
    MrMalkin Posts: 210 Forumite
    1) If you're buying funds, you'll see two variations of the same fund - Income and Accumulation. Accumulation funds automatically re-invest all dividends for you, Income funds will deposit the income as cash in your account.

    2) I'd be amazed if those brokers didn't offer a full list of all the funds available, otherwise you have no idea what you can buy through them. You might want to look at places like Hargreaves Lansdown, iii.co.uk and BestInvest, because they publish all available funds as fact sheets online.

    3) This depends entirely on the funds and the platform you choose. There are lots of charges involved with this sort of thing and the most efficient way of avoiding those charges depends on which platform you go with. If you're just starting out you may want to look at something like the Vanguard LifeStrategy funds, which bundle together trackers from a wide range of markets together in one single cheap fund.

    4) You can usually buy a full range of funds from across the world within each platform, but again this depends on the range available within that platform. You shouldn't need to open an account abroad to get access to a tracker for that market.
  • Totton
    Totton Posts: 981 Forumite
    Hi,
    (1) You can have the Accumulation class which will automatically reinvest dividends or take the income and reinvest.

    (2) if the provider doesn't offer a list of available funds then best to invest elsewhere or phone them to check. I use HL where I can get everything I need, they provide a full list for anyone to see but they are not the cheapest fund supermarket.

    (3) If buying funds then lots of strategies are available, you could do as you suggest, or invest in a Vanguard Life Strategy fund (or similar) or go for 60-75% core index tracker and then add 40-25% satellite funds to add some spice.

    (4) Yes quite easily, L&G give good coverage as do Vanguard and others. If going for more than one or two trackers then HL wouldn't be a good bet as they will charge you £24 p.a. for each tracker. Personally I would consider the Vanguard Life Strategy option, they offer a range of equity/fixed income options (100% Equity, 80/20, 60/40 etc)

    The only problem with the Vanguard option is that you will need to find a good place to buy them as going direct means you need 100k. HL might be too expensive at £24 for the year but perhaps others such as Alliance (ATS) or BestInvest offer them cheaper.

    With regard to the Tim Hale book, I'd recommend following his advice to properly assess your level of risk before deciding on what to buy.

    HTH,
    Mickey
  • Thanks for the advice guys, it really helped.

    I'll take a look at the Vanguard LifeStrategy funds. I was reading on theInternationalInvestor website about how funds need to be bought through both fund supermarkets and discount brokers. Does this apply to the vanguard ones then?

    I think I'm quite a risk averse person. The £1000 figure I was throwing about is a sum that I wouldn't be distraught over if I were to lose it. So I can quite easily put in another £1000 in a few months time, once I'm familiar with the general set up etc.
  • 3. Have another look at what Tim Hale writes about pound cost averaging, and diversification. If you can run to it, you would be better off investing regularly in a range of funds, rather than putting the occasional lump sum into one or two.
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  • PS consider Fidelity.

    Also, I don't know but I would take a good look at the charges on those Lifestrategy funds, then consider whether they meet your desire for low-cost tracking funds.
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  • Totton
    Totton Posts: 981 Forumite
    Although recent studies have shown that pound cost averaging doesn't always work, it all depends on how the markets go. I would expect averaging to work over the long term when it is more likely to capture ups and downs but if the market trend is up then averaging isn't the best idea.

    Useful link: http://www.morningstar.co.uk/uk/news/62457/The-Benefits-of-Pound-Cost-Averaging.aspx
  • Totton
    Totton Posts: 981 Forumite
    Also, I don't know but I would take a good look at the charges on those Lifestrategy funds, then consider whether they meet your desire for low-cost tracking funds.

    Good advice, if buying these from HL then you have to work out the % charge with the £24 annual fee added on. Holding a low value amount wouldn't be worth it.
  • Totton
    Totton Posts: 981 Forumite
    I was reading on theInternationalInvestor website about how funds need to be bought through both fund supermarkets and discount brokers. Does this apply to the vanguard ones then?.

    Sadly it does unless you have 100k to invest :-( You can normally buy funds direct from the fund provider but this is not a good idea as you can expect to an additional 5% initial fee.

    HTH,
    Mickey
  • I've done some research on the fund brokers, was thinking of going for Cavendish. Seems to be amongst the cheapest and feedback seems relatively good. And since my investing strategy is fairly simple it should cover all my bases.
  • Totton wrote: »
    Although recent studies have shown that pound cost averaging doesn't always work, it all depends on how the markets go. I would expect averaging to work over the long term when it is more likely to capture ups and downs but if the market trend is up then averaging isn't the best idea.

    Useful link: http://www.morningstar.co.uk/uk/news/62457/The-Benefits-of-Pound-Cost-Averaging.aspx

    Thanks for the link. It depends, I guess, on the length of time the investor has before he/she needs the money!

    I am in the first year of a fifteen-year monthly investment programme. I am pleased with my returns so far, but, counterintuitively, I know that a good crash and recovery in the early days will be just what I need!
    My Debt Free Diary I owe:
    July 16 £19700 Nov 16 £18002
    Aug 16 £19519 Dec 16 £17708
    Sep 16 £18780 Jan 17 £17082
    Oct 16 £17873
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