Another Newbie - help much appreciated

pete74

Dear All,

I've been reading my way through these forums and am really impressed by all the help generously given. I know my question is covering well trodden ground but the more I research, the further I seem to get from a decision!

Here's my situation. I'm 40, have just paid off my mortgage. I have about £26k in First State Global Emerging Market Leaders (Chosen by myself a few years ago). I also have a small pension pot with Aviva in a 60:40 fund which I'm topping up by £150 per month. My wife and I also have small workplace pension pots topping up from our salaries. We have a vague plan that at some point from 5-10 years in the future we may move up the housing ladder but other than that, no specific goals other than just making our spare money work better for us. I would say that we are pretty tolerant of risk (hence the punt on the emerging fund above)

We have about £20k held in current accounts/cash Isa/ecobond and can probably afford to invest/save about £500 per month (my wife is about to have a baby so have discounted her earnings for the time being).

I'm planning on initially investing £10k in stock/fund/trust and then topping it up each month. Here are some of the things I've been considering:

1) lifestrategy 100 (or other low cost trackers)
2) Scottish Mortgage Investment Trust (Currently trading at a premium which has put me off a bit)
3) CF Woodford Equity Income
4) Stocks that are currently on a 'Buy' broker recommendation: Easyjet, Taylor Wimpey, Royal Dutch Shell
5) A risky punt on Ergomed which was tipped on the fool site but seems to talk a good gig.

I know that's a pretty wide spread of options so would appreciate any wisdom that someone can throw at me. From what I've been reading, it may be a good idea to get some investments paying dividends which I can reinvest rather than relying on capital growth but I'm open to suggestions!

Linton

Sensible investing isnt about "punts", particularly punts recommended by brokers, web sites or tip sheets.

Your £26K in EM as an isolated investment is high risk unless it is balanced by similar sized safer and more broadly diversified non EM holdings in your pensions.

The important thing to aim for is a broadly diversified set of investments covering a wide range of asset types (bonds/equity/whatever), geographies, industry sectors, company sizes etc etc. The %s can be adjusted to provide the degree of risk and return you are seeking - more risk should, but may not, give you higher return in the long term, but could give lower lows in the meantime.

A good way to proceed would be to use your knowledge and experience to define a set of %'s and identify funds that together meet the requirement. However as a new investor you will probably not yet have this K&E and so of the options listed perhaps the best would be to build up a large holding in Vanguard LS, probably 100% or 80%, and then buy smaller funds to adjust the overall %s closer to what you want.

Another reasonable approach is to simply buy a multi-asset fund where you pay the manager to do the diversification job for you.

Dividend arent an added extra to capital growth, rather a replacement for some of it. The two advantages of reliable dividend payers are if you actually want the income and that reliable dividend payers are more likely to be solid well-run companies. However it's not a guarantee - the banks were some of the best dividend payers before 2007.

Spidernick

I'm not really a good person for specifics, but in general terms:

Are you a 40% taxpayer? Will you be hit by the Child Benefit clawback on income over £50K and is this your first kid?

Your cash reserves seem fine (it's always good to have a few months' worth of salary in the event of problems). I'd say punt a lot of what you were paying into the mortgage into your workplace pension (any employer match still to use? That would be 'free' money), especially as you admit that your pension pot is small. If you are affected by the Child Benefit clawback, then the potential savings are even greater, as you may reduce your income below the £50K to avoid the clawback at all (so can add this to the tax and any NI savings), or below £60K to at least have something (if you income is under £50K or well over £60K you can probably ignore this).

pete74

Thanks guys. I'm not a higher rate taxpayer so don't have to worry about the child benefit clawback.

Is there no benefit to using an inc version of a fund and reinvesting the dividends rather than relying on the acc version to grow faster? Am I just falling into a psychological trap of thinking that buying more units is better?

System

pete74 wrote: »

Thanks guys. I'm not a higher rate taxpayer so don't have to worry about the child benefit clawback.

Is there no benefit to using an inc version of a fund and reinvesting the dividends rather than relying on the acc version to grow faster? Am I just falling into a psychological trap of thinking that buying more units is better?

Acc is basically the same as inc with reinvesting.

With the inc version you will end up with more units, but each unit will be worth less. Net result they will hold the same value. If you dont want the income, the Acc version is usually recommended as doesn't require you to worry about reinvesting.