Aspiring Young Investor!

sb93

Good evening guys

Hope you've been enjoying the sunshine!

My name is Sean and I'm 19 years old. I've just completed a fantastic first year at Surrey, studying Economics.

Just as an aside -- in the next few weeks, I anticipate completing the purchase of a 2 bedroom flat in London (:D) which I will regard for this summer as my 'project'. I'm sure that I won't be living there for the rest of my life, so perceive it as an investment over the longer term. In the meantime, I have been researching additional investment possibilities.

In the 3rd year of my degree, I aim to secure a solid placement in London. During this time, I'd like to expand my 'portfolio' - if you like - by opening up a Stocks & Shares ISA. My rationale behind this is that some of my placement salary, each month, can be regularly contributed into the S&S ISA so that I can benefit from pound cost averaging.

At present, this is just a goal I am working towards; I may not necessarily open the ISA in the 3rd year, but would like to get started as soon as possible so that my portfolio has as long as possible to grow. I also understand that I will have to build up an emergency savings pot and conduct plenty of research before I get started.

From my preliminary research (as I'm completely new to S&S ), I have learnt more about what exactly I can invest in - from places like this forum, monevator, HL brochures, etc. I've had a look at funds such as:

• Invesco Perpetual High Income
• Jupiter Strategic Bond
• HSBC UK Gilt Index Fund
• Troy Trojan Class I
• Newton Asian Income
• First State Global Emerging Mkt Leaders Class A
• Vanguard LifeStrategy 80% Equity

Even in these early stages, I have a vision of developing a 'core' S&S portfolio and then 'bolt on' funds etc which are perhaps riskier, but have the potential to deliver higher capital growth. I aim to hold my S&S ISA until retirement, but the minimum would be at least 10 years. As such, I view this as a long term project and am open to suggestions about risky funds etc.

Now that I've given you a very quick overview of my ideas, I'd really appreciate some advice as to what I can do next. Perhaps some questions I'd like answering include, but are not limited to:

• Do my plans sound reasonable/feasible?
• What would you suggest researching as 'core' holdings in an S&S ISA?
• What bad experiences have you learnt from in the past that you think will be useful for someone like me?

I must reiterate that I'm grateful for any feedback, whether positive or negative! I apologise if I've attempted to explain something related to S&S and it's incorrect, so please try to bear with me

Thanks a lot!

sb93

Any advice guys?

Gromitt

What books have you read on the subject?

For example:
http://www.amazon.co.uk/Tim-Hale/e/B001HCV9SM

sb93

To be honest, not a great deal. I've been passed on books such as '24 Essential Lessons for Investment Success' and 'How to Make Money in Stocks' but from reading through them, there is a lot of emphasis on timing of the market, which individual stocks to look for etc.

I'm looking to pursue an investment strategy which doesn't involve having to constantly check markets 24/7 and risk losing sleep at night. Just browsing through the early pages of Tim Hale's book and I get the feeling it will be much more useful to me than what I've seen in the past - thanks!

Southend1

Since you already have a home, the next priority (after emergency fund of 6-12 months outgoings plus contingency for new boiler/car repair etc) should probably be your pension? Though as you are quite young you may want to wait until you graduate and are in work before starting a pension. Why not blow some of your earnings on nice holidays/experiences? You only live once!

bowlhead99

sb93 wrote: »

• Do my plans sound reasonable/feasible

Perhaps, yes. Some thoughts:

Are you buying the flat outright, or will you have a mortgage? Presumably outright if you don't have your placement income until year 3 which will only be temporary anyway and hasn't been secured, yet you're buying now. If it was mortgaged though, you could consider paying down the mortgage to access a better LTV interest rate instead of trying to get a return from funds.

Before you lock away money for 10 years plus in S&S ISAs as you propose, you'd also need to have a good chunk of cash permanently available for maintenance and upkeep of the property and to tide you over once your placement year income dries up - not only for the rest of your university course, but also to handle potential unemployment for an unknown period after uni before your career starts properly.

Perhaps you already have all this cash from whatever source funded the flat purchase. But as you referred to the need to build up an emergency savings pot, I assume not. But then why would you be buying a flat as a summer project without leaving behind enough for an emergency savings pot?

Also, if you are buying a flat now where you're sure you won't be living for the rest of your life but want to keep as an investment, you will presumably need to be saving up for another property to actually live in. Depending on timescales you might look to be building up cash savings towards that, rather than maxing the ISA.

• What would you suggest researching as 'core' holdings in an S&S ISA?

For a 'start investing at age 20/21 to spend throughout retirement' portfolio, you might have about a thousand months between investing the first pound and spending the last. For that sort of timescale, general UK and global equities funds would be the core of your investment. The global equities would include a chunk of emerging markets, on the basis that you're looking for high growth and volatility isn't an issue when you have a thousand months to recover.

You would also prefer (perhaps) to invest in growth stocks over income stocks, and use funds containing rather more small companies than the average person might, rather than just investing in the biggest blue-chip companies paying solid dividends. But those big dividend payers, together with non-equities such as bonds, are better to hold when the economy is going down the pan, and can be sold when the other high growth high volatility shares are cheap to allow you to rebalance and boost returns. So depending on the state of the economy when you start investing you may want to try and time the market in terms of ratios between different types of assets. But if in doubt just get a balanced portfolio of equities with perhaps a small amount of bonds.

Of course, if you are going to invest just 'for a minimum of 10 years', rather than holding to and through retirement (you could live another 80 years), your portfolio should be more conservative and some of the riskier stuff would definitely be 'bolt on' in nature rather than the core of your porfolio. You could do the higher risk super-long-term investing in your pension rather than your cash-outable ISAs.

Which brings me neatly on to mentioning that, although you'd be dumb to lock money up in a pension until 55 during your brief placement year and have to wait 30+ years to get it back, once you start a real career you should definitely investigate company pension schemes when offered them. There is typically free money on the table, and it can be counterproductive to drip money into S&S ISAs at the expense of being able to put the same money plus free employer money into a pension pot while saving tax at the same time.

Given you aren't going to invest for at least a year and might not even do it then anyway, there's no point recommending any specific funds to look at. As a prospective economics graduate you hopefully have no issue reading books on the subject, nor critically picking apart theories and statistical arguments presented within them. The one linked above is not bad reading, but make sure you also read others for a balanced view.

Don't jump into investing without being prepared, unless the money is really money you woudn't miss. As you're quite young, you would probably miss it. You can get likely get as much lifetime return on £1000 invested in a new wardrobe for your junior executive job as you can by locking it in a tracker.

• What bad experiences have you learnt from in the past that you think will be useful for someone like me?

Don't presume that if you invest in something that went up, you made a good choice. All investments go up from time to time.

Don't buy something based on a chart looking nice in the short term. Instead research it in much more detail until you can fully explain why it has done well and what makes it a more compelling purchase than something else which has also done as nice, or better, or worse in the recent and not so recent past.

Don't invest in individual shares unless you can afford to lose all the money invested in pursuit of the gains they might deliver.

Don't get your investing tips off anonymous internet strangers. Only use some of their ideas as starting points for your own research.

sb93

Southend1 wrote: »

Since you already have a home, the next priority (after emergency fund of 6-12 months outgoings plus contingency for new boiler/car repair etc) should probably be your pension? Though as you are quite young you may want to wait until you graduate and are in work before starting a pension. Why not blow some of your earnings on nice holidays/experiences? You only live once!

Thanks for the response . A pension isn't something I have really considered at this stage but as you say, I will devote more time into researching about it closer to the time when I graduate.

Your second point is also a very valid one! It is often easy to get caught up in the mindset of savings and perhaps foregoing some enjoyment. Having said that, the past year at Surrey has been fantastic for me I've been able to live well and enjoy myself, whilst being able to stick to a budget. In fact, during the last week of July I went to visit my housemate in Wales and had a great time!

I think this whole process - particularly in the past few months - has made me learn to appreciate the simpler things in life. In my opinion, fun is not all about the booze fuelled nights out that are associated with teenagers!

bowlhead99 wrote: »

- Are you buying the flat outright, or will you have a mortgage?

- But then why would you be buying a flat as a summer project without leaving behind enough for an emergency savings pot?

Some really sound advice throughout your post, I do appreciate it

I will have a mortgage on the property. As I should have explained earlier, my brother and his current housemate are also on the mortgage, so will be contributing to paying it off/maintaining the property too.

bowlhead99 wrote: »

Also, if you are buying a flat now where you're sure you won't be living for the rest of your life but want to keep as an investment, you will presumably need to be saving up for another property to actually live in. Depending on timescales you might look to be building up cash savings towards that, rather than maxing the ISA.

This is something which I have been considering. When I start investing in an S&S ISA, I may only begin with £50/month, so I am not looking to max the ISA at this stage but I do take your point on board.

bowlhead99 wrote: »

Of course, if you are going to invest just 'for a minimum of 10 years', rather than holding to and through retirement (you could live another 80 years), your portfolio should be more conservative and some of the riskier stuff would definitely be 'bolt on' in nature rather than the core of your porfolio. You could do the higher risk super-long-term investing in your pension rather than your cash-outable ISAs.

If all goes to plan, I aim to hold my portfolio through retirement. In that case, I presume it's not a wise idea to have both ISA and pension holding equally risky funds?

bowlhead99 wrote: »

Which brings me neatly on to mentioning that, although you'd be dumb to lock money up in a pension until 55 during your brief placement year and have to wait 30+ years to get it back, once you start a real career you should definitely investigate company pension schemes when offered them. There is typically free money on the table, and it can be counterproductive to drip money into S&S ISAs at the expense of being able to put the same money plus free employer money into a pension pot while saving tax at the same time.

This is a fantastic point - thanks! Would you then put more emphasis (depending on the scheme) on contributing to a pension than starting investing in an S&S ISA? As I mentioned earlier, I don't aim to max out my ISA when I start investing, so perhaps I may consider siphoning some funds into an ISA and some into a pension.

bowlhead99 wrote: »

The one linked above is not bad reading, but make sure you also read others for a balanced view.

Are there any others you would recommend?


Again -- thank you for the advice, it has given me a new perspective on my ideas and a platform from which I can start exploring new areas.

dunstonh

sb93 wrote: »

To be honest, not a great deal. I've been passed on books such as '24 Essential Lessons for Investment Success' and 'How to Make Money in Stocks' but from reading through them, there is a lot of emphasis on timing of the market, which individual stocks to look for etc.

I'm looking to pursue an investment strategy which doesn't involve having to constantly check markets 24/7 and risk losing sleep at night. Just browsing through the early pages of Tim Hale's book and I get the feeling it will be much more useful to me than what I've seen in the past - thanks!

Any book that encourages you to time the market should be put down. You and most others will not have the ability to time the market consistently enough to profit from it. Timing can be good, such as investing more money after a major drop. However, timing to get out can be very difficult and usually got wrong.

sb93

dunstonh wrote: »

Any book that encourages you to time the market should be put down. You and most others will not have the ability to time the market consistently enough to profit from it. Timing can be good, such as investing more money after a major drop. However, timing to get out can be very difficult and usually got wrong.

I completely agree with you there. As they say, it's all about time in the market, not necessarily timing of the market.