OEIC 20k Lump 5k Month to invest, newbie, help!

TheZero

Hi folks,

Ive recently come to a position in my career where I now have a lot of surplus cash available each month, and I want to invest it.

Ive searched these forums, but I dont think I came across the answer i was after, or if I did, I most probably didnt understand the jargon and terminology as Im new to investing (bar an ISA), so appologies if this has been asked before.

On to my query, initially, Ive got a 20k lump, with a monthly surplus of around 4-5k, im financially comfortable, so I was looking at investing in something more "risky" to gain a better return.

While investigating my options, I came across OEIC's and read up more about them, visited variouos sites to see the kinds of returns that you can realise.

I was amazed to find that some of these funds, have a growth of 50% or more a year!!

I guess my query is, whats the catch? Have I mis-understood something and the those %'ages arent the returns? Or is it really a case of the more risky the investment, the more you MAY make?

Thanks

Aegis

The 50% growth ones could easily lose that much instead of making it, so there's a large element of risk involved with OEICs and Unit Trusts.

TheZero

Ok, so it actually is a case of "hedging your bets" so to speak, the higher risk the better return, of couse I realise that it could drop the same amount too, but I was assuming Id miss-read something and it wasnt that high.

I guess that with these "high risk" funds, that its better to spead the investment over a number of funds? So then if one drops value, you still have "hopefully" other ones offsetting the loss somewhat?

Aegis

I would say that diversification is a must in any portfolio. I'd also suggest that if you're after high-risk, you might want to consider sticking at least some of your money into more stable funds like in the UK Equities or UK Bonds sectors, as these tend to be a little more resistant to volatility than the high-risk emerging markets/specialist funds.

I consider myself a high risk investor and I still have some 40-50% of my portfolio in UK funds (admittedly that includes my small caps fund, which is somewhat higher risk than general UK equities).

In any case, it's entirely up to you how you do your asset allocation, but remember to research everything fully before you commit yourself, and especially make sure that you get a broker that will discount your fund investments to make them a little more affordable initially!

munk

I'd highly recommend the Bestinvest portfolio planner for planning a nicely balanced portfolio - although have to say recently it's been a bit flaky and crashing regularly but when it does work there's nothing else like it online for free.

Bestinvest are an IFA who provide broker discounts on fund purchases - if you have over £50k(?) to invest they'll provide an initial portfolio review for free and they then get paid out of the 'trail commission' that they receive from the funds that you invest in via them. (Trail commission is paid to IFAs/brokers by fund managers as an incentive for them to get them new clients/continue keeping clients).

By contrast, Hargreaves Lansdown (HL) are a good idea if you don't want to take advice and only want to obtain the best discounts possible - they actually refund a portion of the trail commission they receive so overall you get more bang for your buck.

Both bestinvest and hl give similar discounts on the initial charges levied by funds - generally you'd pay 0-0.5% IC on most funds through hl/bestinvest. Annual management charges on funds (the annual charges levied by fund managers to actually run the fund) are again pretty similar between hl and bestinvest.

Best bet is to first work out your attitude to risk in terms of how much you feel you can afford to lose at most as a percentage (your 'downside risk tolerance') - the first thing you're asked on the bestinvest portfolio planner - and then also work out how long you're willing to invest your money for - second thing you're asked on the planner. From that info an independent financial adviser (IFA) (or the planner) can assign you a 'risk profile' and then work out a suitably balanced portfolio for that risk profile.

Note that if you do use the planner, don't just go along with the initial suggested funds as they're always the same for anyone that uses the planner - the best thing is to tweak the suggested funds, reading through the performance, portfolio and management info for the funds as you go to make sure they're suitable.

Also check the sites below for research:

http://www.morningstar.co.uk/ - good for finding info on funds quickly, used by many financial institutions for their quality data feeds, very good portfolio management/fund comparison tools

http://citywire.co.uk/ - good for looking up fund/sector ranking statistics (ie where a fund has ranked in it's sector over the years), also the home of the citywire rating system used to rate fund managers, also has great financial news feed

http://trustnet.net/ - another good site for comparing fund rankings per sector, also has good fund sector analysis and insights

End of the day, if all of this is too much hassle, look for a decent IFA locally (check out http://unbiased.co.uk/). Importantly though, don't go direct to a fund manager to buy holdings in a fund - they'll often charge you the full initial charge and full annual management charges whereas if you go through an IFA/broker - as described above - you'll get much better terms.