Where do you get investment ideas from ?

BiggaThanBen

Have some spare cash sitting in my shares ISA and need to chose a few funds to invest to.

Before I tried to read the financial papers, specialist websites and bought shares which were a strong buy everywhere, turned out to be a disaster (quindell, premier foods etc.). Fortunately I didn't lose much.

Then I tried to analyse H&Ls Wealth 150 funds and selected a few there that were showing a stable growth for the last 5 years - bought at a wrong time (Jan last year) - still negative values.

What approach do you normally take when creating your portfolio as a casual investor? I can't say I trust IFAs either..

gadgetmind

Unless you have enough money to build a diversified portfolio of at least 15-20 different shares, in a variety of sectors, you need to use collective investments, so funds, investment trusts, or trackers/ETFs.

Choosing these based on past performance is a tactic many use, but it leads to buying high and (potentially) selling low.

The best approach is to construct a multi-asset balanced portfolio and the periodically (once a year?) rebalance back to your chosen allocation. I personally like using low free trackers and ETFs, but you can use the same approach with active funds.

Buying a copy of "Smarter Investing" by Tim Hale will be money will spent, and reading a range of articles on the Monevator web site will also teach you a lot.

Linton

Either buy a balanced general fund if your portfolio is small (< £10K) or decide on a diversified overall asset allocation and buy funds to match that.

In my view past perfomance is of some use in choosing a fund but mainly to see how well it performed in the bad times. Long term high performance without further analysis can be very misleading. The past 5 years in particular have seen broadly rising prices and so some highly volatile funds have done extremely well, but what happens in the next crash may be very different. Tips of any form whether from brokers or "experts" are a poor basis for investment decisions. By the time you get to hear about them its probably too late.

BiggaThanBen

Linton wrote: »

In my view past perfomance is of some use in choosing a fund but mainly to see how well it performed in the bad times.

This is the approach that I am taking now, but I am still not confident. E.g. looking at the Kames Investment Grade Bond, - it did well in the past year when other funds were falling, and the years before that. But the same manager's fund had fallen a lot in 2008.

I had a look at the balanced portfolios from H&L and their performance records are far from impressive, - big negative numbers every second year.

Linton

BiggaThanBen wrote: »

I had a look at the balanced portfolios from H&L and their performance records are far from impressive, - big negative numbers every second year.

Are you looking at the right things? - according to trustnet every fund in the 40%-85% Shares balanced fund sector made a profit over each of the past 3 years and there was average 1.5% loss 4 years ago.
If you want impressive gains you must be prepared for impressive losses as well.

BiggaThanBen

Linton wrote: »

made a profit over each of the past 3 years and there was average 1.5% loss 4 years ago.
If you want impressive gains you must be prepared for impressive losses as well.

I was talking about last year, I was under impression many UK funds suffered losses in the 1st-2nd Quarter of 2014. By impressive I meant being at least positive year on year, the one balanced portfolio I checked on H&L had like +20%/-30%/10%/-25% figures for the past several years. Not sure how it is balanced, looks quite volatile.

Linton

BiggaThanBen wrote: »

I was talking about last year, I was under impression many UK funds suffered losses in the 1st-2nd Quarter of 2014. By impressive I meant being at least positive year on year, the one balanced portfolio I checked on H&L had like +20%/-30%/10%/-25% figures for the past several years. Not sure how it is balanced, looks quite volatile.

Wow !- that doesnt look like a balanced fund. For example try the H-L Multi manager balanced trust as an example not a recommendation: 10.88%/-3.28%/12.86%/13.95%/4.41% since 2010. And that's towards the higher risk end of balanced funds.

Ryan_Futuristics

Basically you have to view most investments with at least a 5 year horizon ... That means ignore what they do in the meantime

If an investment is down after a year (or even a month), it may be wise to add to it - pushing the average price you paid down, so when it bounces up again you're in profit sooner ... If you stick to sensible, highly regarded funds and sectors, there shouldn't be a great deal of risk beyond the normal movements of the market (and you may prefer to drip money in to avoid buying at the wrong time)

I always call Woodford Equity Income the no-brainer for UK investors - but drip-feed into it, and perhaps buy the Income version and have it pay the dividend into your bank so at least you're getting something tangible back whatever the markets do in the short-term

Don't see a loss over a year as a failure - the reality of the stock market is you can be in profit for 5 years straight, then see all your investments fall to half the value you paid for them ... Par for course - you have to anticipate it and know THAT is the time to top up, and not to get emotional and sell, and make the whole thing pointless (astonishing how many people do that)

If you want a short-term profit, you need to look into momentum or trend-following strategies - but I wouldn't recommend them for beginners (at all)

Daniel_Elkington

Dear Sirs,

Balanced simply means balanced between income and growth, you can have extremely volatile income stocks and extremely volatile growth stocks with a high correlation, ending up with an extremely volatile income fund.

I'd trust an IFA if it is a decent amount of money, although I would say that, being one.

Ryan is wrong - woodford is not a no brainer. It is a concentrated equity income fund, it works well as a satellite play in an income portfolio, but doesn't help to construct a portfolio as, due to the low history, one cannot calculate correlation and how that impacts overall portfolio volatility.

http://www.thewma.co.uk/private-investor-indices/

I like these, as an asset allocation, I use them with my clients!

To be quite honest, I'd go and talk to an IFA (who uses analytics). Most of them, well we do, offer the first appointment pro-bono so you can see if you think they've got enough knowledge to trust them.

I know MSE is the place for DIY types and my comments will likely attact scorn, but if you are unsure as to what you're doing and DIY isn't working then maybe call in the professionals?

Hope this helps,

Dan.

gadgetmind

Daniel_Elkington wrote: »

I know MSE is the place for DIY types and my comments will likely attact scorn

No scorn from me, but a big helping of MRDA.

Ryan_Futuristics

Woodford's record goes back to the mid-80s - it's just been rebranded ... His fund's been the no-brainer for UK investors for almost 30 years

And other than equities, it's cash and alternatives (such as P2P lending)