New to investing

style2

I new to investing and currently have about £500 to invest in something. I was thinking shares but I'm not 100% sure what the best way to go about it is. I know you can get ISAs where the money you put in is put on shares so you stand a possibility of getting a bigger return? But can you select which companies your money goes on?

Also what are mutal funds?

Any advice would be greatly appreciated.

isofa

There are thousands of options, and no-one can offer you direct share advice here, but £500 isn't much to invest in stocks and shares.

You can invest £7000 in a Maxi stocks/shares ISA.
Or £3000 in mini cash ISA (tax free cash account), and then the remaining £4000 in a mini Stocks and Shares ISA.

However investing £500 you'll never hit your capital gain allowance (which is £9200 this tax year - i.e. you can make a total investment gain of that and not pay any tax on stocks, shares, etc), so I'm not sure investing in a ISA wrapper would be very useful.

There are ISAs that allow you to pick the shares/funds etc you want to invest in, many companies offer these, including Hargreaves Lansdown.

There are some useful guides on this site, read and digest:
http://www.moneysavingexpert.com/banking/#SavingPensionInvestm

munk

Mutual funds are an american term for what in the UK is generally just called 'funds' or 'investment funds'. A fund is an investment vehicle for shared investing whereby you pay money into a fund and that money is pooled with everyone else who's investing in the fund. You pay an initial charge of around 5% (although you can get that discounted to 0-0.5% with discount brokers like Hargreaves Lansdown (HL) or Bestinvest) and then you pay an annual management charge of between 0-2.5% pa (average is around 1.75%).

The fund manager will invest your money in accordance with the remit of the fund which can be found in the fund's simplified prospectus or on any number of online fund tracking sites like morningstar.co.uk or trustnet.net to name just two. There are various types of funds - bond, equity, property, resources, hedge (slowly coming into effect as 'absolute return' or 'total return' funds) and cash (being touted now by fidelity as a safer option to investing a huge chunk of money in one savings account because cash funds invest your money across a number of different high interest accounts).

However most funds have a minimum initial investment of £1000 or more so investing in funds with only £500 is tricky. If you really did want to do it, you could possibly talk to the people at HL and see if they can accommodate you - still though ideally you want your money spread across a few different funds to reduce the risk if any one fund does poorly which will be very hard to do if you only have £500 to invest.

Perhaps investing the £500 in a mini cash ISA would be the best bet if you're prepared to leave it alone to grow for a while (you can access money in an ISA 'instantly', but once you take money out of an ISA you can't top it back up again, you lose the benefit of the ISA wrap). Currently NS&I offer the most attractive 'no-nonsense' cash ISAs at 6.30%.

Alternatively if you'll want access to the cash, go for a decent high interest savings a/c like icesave or sainsbury's bank savings accounts.

[Deleted User]

You ideally need at least £1000 to invest in a fund

see https://www.h-l.co.uk

Id recommend you stay away from the stockmarket unless you have followed the markets for years and read many books and the financial news everyday... and even then its possible things can come out the blue.

dunstonh

There are some fund houses that will allow £500.

style2

Well I think I need to do much research on the subject, I've not started my career yet this is just cash I've saved from my part time job it's in a mini cash ISA at the moment but I want to try and make my money work for me rather than going out and spending it on something useless.

I know there is a risk involved in the stockmarket but I suppose no one ever made a decent amount of money with out taking risks. Thanks for all the advice though

munk

Fairly important to remember that once you take your money out of your current year's ISA, you can't put it back in and the ISA wrap is gone forever!

From next year apparently you'll be able to transfer cash ISAs over to stocks/shares ISAs - worth keeping in mind if you decide to do it from April next year so you don't lose the benefit of the ISA wrap. I believe the way it would work at Hargreaves Lansdown is you'd transfer the ISA over as cash and it'd be held in a cash account at HL until you're ready to invest.

When you're ready you can then split the £500 across the funds you want - doing it that way I have a feeling you might not be limited to the £1000 minimum per fund as you are if you're investing 'new' money with HL. This way you'd be able to get a nicely diversified portfolio to spread your risk across the various sector types (geographical, asset class (bonds vs equity vs property etc), stock sector (manufacturing vs service vs financials etc)).

Best bet is like you say, have a good read of as much info as you can - here's a few bits I found useful:

http://www.incademy.com/pages/home.htm
(especially the sections on UT/OEICs ie 'investment funds')

http://www.bestinvest.co.uk/classroom/intro.htm
(I found these guides useful as an intro to funds, risk, diversification and fund picking, especially the advice about not relying so much on a fund's past performance but rather looking at the fund manager's performance/career history)

http://trustnet.com/
(their help pages are good for explaining technical stuff like the ratios used to describe a fund's performance and also their sector analysis can help understand how the different fund sectors are performing)

For general fund analysis my favs are:

http://bestinvest.co.uk/
(their research is excellent IMO, look out for their 'recommended' funds)

http://morningstar.co.uk/
(good portfolio management tool, try building up a few virtual portfolios first and see how they do over the next few months )

http://citywire.co.uk/
(good for rankings, both funds and fund managers)

style2

Thanks a lot for all the guides Munk, much appreciated I'll have a sit down tomorrow and go through them all.

style2

Just had a look at morningstar where do I go to build a virtual portfolio?

munk

http://www.morningstar.co.uk/UK/portfoliomanager/portfolio.aspx?lang=en-GB

You need to be logged in first though of course - you can sign up for free if you haven't already.

jon3001

Legal and General do a good range of cheap index trackers with online management.
http://www.legalandgeneral.com/investments/isas/index-tracking-isa/the-charges.html

Index trackers will spread your and other investors' money over a broad range of companies to to capture the market average performance at a low cost. Some people will prefer managed funds to trackers. The downside risk is that managed funds general charge more per year and most don't beat the average.

Funds (whether indexed or managed) will usually reduce your overall risk compared to sticking it all in a single company's stock.

You can get started with a £500 lump sum or £50/month. They're quite flexible with the allocation so you could say stick all £500 in a UK Index tracker or split it like so:
£100 UK Index
£100 European Index
£100 US Index
£100 Japan Index
£100 Pacific Index (Australia, Hong Kong, Singapore, etc)

Your money would then be spread over thousands of companies and diverse geographical sectors. Sure - your not backing the next Microsoft or anything but these kind of strategies tend to ensure steady superior growth.