Where should I start?

DireEmblem

So I'm looking to start a regular investment into stock and shares. I believe investing in funds would be better in terms of diversification, rather than direct investments in stocks as I am not willing to risk sufficient funds at present to diversify on my own.

Having a quick look around, in the very least for the short term it would appear that it would be wise to take advantage of one of the signup offers.

Fidelity have £100 cashback for £5000 investment
Moneyfarm have £200 cashback for 3x £900 investments
Nutmeg hwill pay £110 for £500 investment and £100 regular investments.


Fidelity appear to be the best in terms of allowing diversification and charge £45PA up to £7500, then 0.35% thereafter, Moneyfarm dont allow me to choose my own portfolio and charge 0.6% from 10k to 100k, and Nutmeg charge 0.75%.

To me the clear choice here has to be fidelity, to allow for the best diversification, and lower charges. I need to review trading charges, but initial thoughts are that I am happy to invest the £5000 as a starter in 5 funds, and then drip in cash each month equally into all 5, and review.

Is there anything obviously wrong with this view - and is there a minimum that should be invested for regular investment into the funds each month, as this doesnt seem to be clear on the websites out there.

My plans are to invest half my savings into relatively easy cash(ZOPA for example), and the other half split into the 5 funds. Ideally I would like to start with £25 each, but could split this into £50 each on alternate months etc. I also intend to reinvest any dividends, once I have enough to cover one regular investment, then I intend to diversify into a 6th fund and so on.

Initial portfolio I am considering is as follows:-

HCASI HSBC FTSE All Share Index Income C (pays mid Jan,July)
IE00BVYPP131 Guinness Global Equity Income FUnd Y GBP Dist(pays Feb,August)
GB00BVXC2S15 First State Diversified Growth B Acc GBP(Pays end Mar,Sep)
First State Emerging Markets Local Currency Bond B Acc GBP(Pays end Mar,Sep)

Not 100% on the last one in terms of a bond fund, as I intend to continue to invest cash through Zopa, and I expect to pick another Global/European equity fund to add to the mix as well.

If I have missed anything out, or am doing anything daft, then please let me know!

Plus

Doing some sums, with £5000:
Fidelity would charge £45
Charles Stanley Direct would charge £12.50
After a year and you have £6200:
Fidelity would charge £45
Charles Stanley Direct would charge £15.50
After two years and you have £7400:
Fidelity £45
CSD £18.50

Total paid to Fidelity: £135
Total paid to CSD: £46.50

In other words you only win with Fidelity's cashback if you're going to hold for less than about three years. If this would be an ISA transfer, be prepared for a few weeks either out of market (transferring in cash) or for a period when you cannot access your holdings.

Usually the minimum for regular investment is £50pm per fund, though I don't know these providers. You might have to manually switch every month from one fund to another. Perhaps just topup one or two funds for a few months, then switch to another to keep things in balance?

Can you tell us the reasoning you've chosen these funds? I'm not familiar with them - so just curious what your strategy is?

You do realise that two are accumulation funds (ie reinvest dividends so you don't see them) and two are income funds (ie you have to {usually} pay your platform to reinvest for you)? And the dividend dates are irrelevant - unless you're going to be withdrawing the income?

DireEmblem

Thats an intersting insight, so Fidelity would only be better if I held less than 3 years. I will have to look into potential exit charges to confirm if this is worthwhile or not.

Yes I do realise that two are accumulation classes, and can deal with that in the short term. My main plan is to build up a regular income portfolio, opting to reinvest the income in a fund of my choosing every few months or so and rebalance. If there is a minimum of £50 to be invested pm, then I can deal with that by rotating round the funds on a quarterly basis, or may consider an increase to £250pcm.

In terms of these funds - these are not set in stone. I have decided based on my own risk stance that I want to invest in a UK All Share Index fund, an Emerging Markets fund, Global Equity and Debt. My fifth fund will likely be another Global Equity/Emerging markets fund, but I am yet to decide on this. It is also worth noting this will only make up a third of my investments - hence I am happy to pick Emerging markets and have a slightly riskier portfolio. Currently I save into both aregular 12 month saver, and Zopa. I have been happy with the return from these sofar as they helped to grow my deposit for a flat, however I am now looking to diversify longer term, with the aim to hopefully achieve better returns.

These funds fit the portfolio I am looking to build, and may be subject to change.

AnotherJoe

DireEmblem wrote: »

Thats an intersting insight, so Fidelity would only be better if I held less than 3 years. I will have to look into potential exit charges to confirm if this is worthwhile or not.

Yes I do realise that two are accumulation classes, and can deal with that in the short term. My main plan is to build up a regular income portfolio, opting to reinvest the income in a fund of my choosing every few months or so and rebalance. If there is a minimum of £50 to be invested pm, then I can deal with that by rotating round the funds on a quarterly basis, or may consider an increase to £250pcm.

In terms of these funds - these are not set in stone. I have decided based on my own risk stance that I want to invest in a UK All Share Index fund, an Emerging Markets fund, Global Equity and Debt. My fifth fund will likely be another Global Equity/Emerging markets fund, but I am yet to decide on this. It is also worth noting this will only make up a third of my investments - hence I am happy to pick Emerging markets and have a slightly riskier portfolio. Currently I save into both aregular 12 month saver, and Zopa. I have been happy with the return from these sofar as they helped to grow my deposit for a flat, however I am now looking to diversify longer term, with the aim to hopefully achieve better returns.

These funds fit the portfolio I am looking to build, and may be subject to change.

You are talking about far too little money he to be messing about with income and rebalancing by buying with the income, because it will be trivial, a few pounds,

It will be far easier to rebalance Acc funds occasionally by just buying a bit more of ones that have fallen behind.

In any case you've pretty much created your own high cost pseudo global fund (which will therefore tend to approximate a tracker but with worse performance ) allied with an idiosyncratic unbalanced selection of bonds,

DireEmblem

I don't see how it is higher cost, unless you are talking about the typical 2 months from xd to pd where any dividend to be reinvested is essentially cash, reducing the performance slightly, so yes it may be more sensible in the first 5 years say to go with acc shares but that difference should be minimal.

Note however that although it may be a few quid to start, that it will be reinvested alongside a 150-250 regular monthly investment. Are you suggesting £50 a month is not sufficient for regular investment into a fund?

I have a lot of research and modelling before I start, hence this post to gather the thoughts and collective of others for anything I might have missed. Ideally I would like all the products in one portal, but It's looking now like I should split them out which has added complications as you can only invest into one s&s isa per year I believe...

AnotherJoe

DireEmblem wrote: »

I don't see how it is higher cost, unless you are talking about the typical 2 months from xd to pd where any dividend to be reinvested is essentially cash, reducing the performance slightly, so yes it may be more sensible in the first 5 years say to go with acc shares but that difference should be minimal.

Higher cost because once you aggregate multiple managed funds their performance tends to approximate that of a tracker. But a tracker has low cost. Managed funds dont.

Note however that although it may be a few quid to start, that it will be reinvested alongside a 150-250 regular monthly investment. Are you suggesting £50 a month is not sufficient for regular investment into a fund?

I'm suggesting that if you look at the income from any one fund that you are saving £25 or £50 a month into, the actual money from it will be a few pounds. Even a few years down the line, it might not even be a months worth of saving into any one fund in a year.

So using that to rebalance your funds is practically speaking pointless, (and as you point out yourslef, counterbalanced by having less invested anyway) you might as well just buy an extra month or twos worth of whatever funds have fallen behind should you feel the need to rebalance.

I have a lot of research and modelling before I start, hence this post to gather the thoughts and collective of others for anything I might have missed. Ideally I would like all the products in one portal, but It's looking now like I should split them out which has added complications as you can only invest into one s&s isa per year I believe...

Well that just makes it worse, you are worrying about the minutea without looking at the big picture, your fund selection.

Why income funds? Income funds are there for income not growth so you'd expect to overall have less growth (even including income being reinvested), and by choosing income funds you are excluding whole rafts of companies who dont pay much or any income but may have high growth. US technology companies for example.

Why have you picked Far Eastern income bonds rather than global or UK bonds?

You've got 1/4 your fund in the UK with Brexit looming ( very gutsy)
1/4 in Far Eastern government issued bonds and the like (super gutsy).
1/4 in a whole load of financial derivatives issued by banks (rather you than me)
1/4 in equities, but only those that pay dividends (very selective and relatively safe, soemwhat at odds to the two above).

So you are very low in equities, you are missing out a huge selection of worldwide equities, mostly UK or where global, you are subsetting those to a select few mostly staid companies that pay dividends.

Other than that I dont see any problem with your selection

Plus

I agree, the fund selection looks very unbalanced. Also, the FTSE All Share is dominated by global companies - but a very peculiar mix of them. There's miners like Rio Tinto and BHP Billiton, oil companies like BP and Shell, and financials exposed to emerging markets like HSBC and Standard Chartered. That means it already has a fair amount of emerging markets and commodity exposure. So you might think it's folksy home-grown companies, but it really isn't - and more risky as a result.

While investors rightly worry about losing money, the other danger is your investment not growing as fast as it could have. You seem to have gone right up the top of the risk scale. The danger of that is not just that you might have a crash (which is likely sooner or later), but that the markets up there can be much more volatile. If the market halves one year and doubles the next it can be great if you got in at the bottom, but if you're in it for the long haul you've basically lost two years with nothing to show for it. That's against a slow plodding developed-world fund which grew 10% and lost 5%, returning a 5% dividend - leaving you 10% up in total.

DireEmblem

I see the point, ditch the two income funds as they may sacrifice overall growth for income generating stocks.

I want to invest 20% in the UK, although it is practically at a 5 year high so Probably expect a fall in the short term. An Asx tracker fund drip fed over time would level out the peaks and troughs, and yes the initial entry point is key.

Emerging markets is where I see the real value. If you ignore china which growth is unsustainable, and South America, then I believe we will see good growth in the next 5-10 years, particularly in infrastructure. This is where I want to invest 40%, and don't mind part of this being debt.

This leaves 40% so a hedged US equity fund and a hedged euro fund OR global equity should be where I am at. I am also happy for derivatives being used for the purpose of leverage.

AnotherJoe

If you want to invest in the U.K a FTSE250 or 350 tracker may be better as it excludes the nominally U.K. but really international companies in the FTSE100/AS that dominate it disproportionately and as said are focussed on a few volatile industries.

So taking your comments on board, how about a ftse350 tracker, a global ex UK tracker (that takes care of US and Euro plus a smidgeon of the really big U.K. but not as big a proportion as in a FTSE AS), and a specialist Far East ? All Acc versions in whatever proportion floats your boat, rebalance as needed by buying more of the laggards.

greenglide

If you want to invest in the U.K a FTSE250 or 350 tracker may be better as it excludes the nominally U.K. but really international companies in the FTSE100/AS that dominate it disproportionately and as said are focussed on a few volatile industries.

The FTSE250 is the 101th to the 350th companies in the index as you say.

The FTSE350 is the 1st to 350th - essentially the FTSE100 + the FTSE250.

The FTSE250 is really, really badly named!

ColdIron

DireEmblem wrote: »

Emerging markets is where I see the real value. If you ignore china which growth is unsustainable, and South America, then I believe we will see good growth in the next 5-10 years, particularly in infrastructure. This is where I want to invest 40%, and don't mind part of this being debt.

That's a pretty bold call and would give me the heebie jeebies late at night in bed. You do realise that debt does not work like equitiy and is unlikely to produce the growth I presume you are looking for? At this level of investment you would be much better off in a single, professionally managed, multi-asset fund until you get into at least the tens of thousands of pounds. It will likely cost you a fraction of the costs into the bargain. Finally I would not base my choice of platform on who gives me the best joiner's kickback but select the one that best suits my needs in terms of service and fees