Investment for Dummies

BLB53

The important lesson to learn is to invest wifely.

Agreed...I leave it to mine to take all the important decisions!

MallyGirl

So does my DH - he is a wise man!

atush

Another rule I follow is never to buy an fund that invests in an single niche market as they are not as "efficient" as the entire market. This gives opportunities of gains, but also for losses, due to incorrect pricing.

Rubbish.

of course a newbie shoould not consider a niche market, but some likke them to divversify esp in areas of emerging markets whcih arent covered in multi asset.

bostonerimus

atush wrote: »

Rubbish.

of course a newbie shoould not consider a niche market, but some likke them to divversify esp in areas of emerging markets whcih arent covered in multi asset.

I think we should be careful in the use of terms like "Rubbish", particularly when multi-asset funds like VLS80 include emerging markets. I have nothing against emerging market investments, but I don't overweight them in my portfolio and so don't buy them as single sector funds.

Eco_Miser

FailedTeacher wrote: »

I think investments is something we may stay clear from to be honest

Long term, I think sensible investments are a better home for spare money than anywhere else.

FailedTeacher wrote: »

We are young and just getting our first mortgage, interest is 4.8% which is uncomfortably high but that is life for 5% deposit and 5 years fixed interest.

At that rate, yes, you need to be overpaying; but once you've got the rate down to something sensible, hopefully in five years, look again at investing.

Meanwhile, spend some time learning about investments.
Monevator is a very helpful blog, a bit biased to passive investment.

There's a thread about investment books.

Also are you keeping your cash in the best bank account for you? Getting 5% or cashback on bills?

Linton

bostonerimus wrote: »

....I have nothing against emerging market investments, but I don't overweight them in my portfolio and so don't buy them as single sector funds.

Your needs may not be met by “overweighting” EMs but other people’s may. You choose to overweight equity when bonds form a larger part in the global market of tradable investments. Derivatives form an even larger percentage. Yet they apparently don’t meet your needs so you don’t use them.

Just as equity is a particular niche in a much larger market, within equity there are niches with different characteristics. Successful Investing is a matter of choosing the combination of niches that together best meet one’s needs in terms of returns and risk acceptance.

Risk acceptance isn’t just a matter of the chance of failing. People may have differing views on which risks they are prepared to accept. Personally I would consider investing 80% of my money in the correlated niches of large global companies in developed economies as far too high a risk to be worth accepting given the opportunities available elsewhere.

jimjames

FailedTeacher wrote: »

We are doing much of bostonerimus' list and think that overpaying is the best way forward - I have another thread about income streams and that is geared towards making as much of overpayments that we can.

I think investments is something we may stay clear from to be honest - I feel I am looking for shortcuts to wealth but I think that given my current skillet and position - I'm probably best suited to investing in my home for a start.

I'm puzzled by the 2 different answers here. Around half the list includes investments but they're something you want to stay clear of. That's fine but you do need to realise what you're missing out on by not investing especially when you are young.

The really key bit to be aware of though is your shortcuts. There isn't a shortcut, it's not a get rich quick situation, the best way to grow your money is long term - get rich slowly - by making the best of compounded returns over many years.

bostonerimus

Linton wrote: »

Your needs may not be met by “overweighting” EMs but other people’s may. You choose to overweight equity when bonds form a larger part in the global market of tradable investments. Derivatives form an even larger percentage. Yet they apparently don’t meet your needs so you don’t use them.

Just as equity is a particular niche in a much larger market, within equity there are niches with different characteristics. Successful Investing is a matter of choosing the combination of niches that together best meet one’s needs in terms of returns and risk acceptance.

Risk acceptance isn’t just a matter of the chance of failing. People may have differing views on which risks they are prepared to accept. Personally I would consider investing 80% of my money in the correlated niches of large global companies in developed economies as far too high a risk to be worth accepting given the opportunities available elsewhere.

Yes people have varying opinions and needs. I can afford to have a higher equity exposure than most retirees and stick with a cap weighted allocation to better fit the allocations used in efficient front models. I will move up the risk scale a bit on that frontier as I get older. If you are a fan of the factor extensions to these basic ideas then go ahead and overweight other areas, like small cap, EM or value. Many people do that and in the US you can buy DFA funds that implement that strategy. Of course the explanation for the potential greater return of a "slice and dice" approach is the increased risk. So I stick to a pretty efficient allocation and cap weight so that it has the best chance of producing a reasonable outcome. I think most people would be well served by this approach as it can be low cost and simple. I'm that some people with the inclination and knowledge to overweight various sectors will do well, but I would not advise that approach to the OP.

BananaRepublic

bostonerimus wrote: »

VLS is ok in as much as it gives you a wide range of investments. I don't particularly like the asset mix, but not enough to say don't buy it. My preference is for broad cap weighted indexes and that's how I invest and would recommend that others do that too, but one of the global multi-asset funds will be ok too.

Your recommendation to the OP to buy a global index fund is reasonable although they are heavily US weighted and the US market is considered by many to be overpriced. So come the next crash, these funds could take a large hit. However, as general advice saying buy index funds and avoid active is in my view plain wrong. Some markets are volatile and an index fund would be risky, as incidentally would an active fund. In some markets and sectors index funds are not available. And in some markets index funds are mediocre or perform poorly. The FTSE 100 is a good example. In the Japanese market index funds underperform compared to active funds.

People really need to do background reading to understand the basic principles before they invest money. Otherwise someone might buy one of your nice global funds, see it lose 30%, and then panic and sell thereby crystallise the losses, even though it would almost certainly make up its losses in a year or two.

Alternatively, they should employ an IFA who will create a portfolio for them based on their risk profile. The problem with that is that if they are ignorant of the basic principles, the IFA will probably assess them as risk averse, and design a low risk and poor performing portfolio. But at least they won’t lose their shirt. And of course they could then do some reading, and move funds if desired.

bostonerimus

BananaRepublic wrote: »

Your recommendation to the OP to buy a global index fund is reasonable although they are heavily US weighted and the US market is considered by many to be overpriced. So come the next crash, these funds could take a large hit. However, as general advice saying buy index funds and avoid active is in my view plain wrong. Some markets are volatile and an index fund would be risky, as incidentally would an active fund. In some markets and sectors index funds are not available. And in some markets index funds are mediocre or perform poorly. The FTSE 100 is a good example. In the Japanese market index funds underperform compared to active funds.

People really need to do background reading to understand the basic principles before they invest money. Otherwise someone might buy one of your nice global funds, see it lose 30%, and then panic and sell thereby crystallise the losses, even though it would almost certainly make up its losses in a year or two.

Alternatively, they should employ an IFA who will create a portfolio for them based on their risk profile. The problem with that is that if they are ignorant of the basic principles, the IFA will probably assess them as risk averse, and design a low risk and poor performing portfolio. But at least they won’t lose their shirt. And of course they could then do some reading, and move funds if desired.

Selling into a big loss would be bad. If you own a 10 fund slice and diced active portfolio, a single global equity index fund and a global bond index fund, or a multi-asset fund, foolish management decisions are going to lead to poor outcomes. An IFA might be a useful buffer for some people, but with a little education and a few simple rules they are not really necessary. I use broad indexes and rebalance. I would not buy an individual fund in say small cap or japan whether it was an index or actively managed and I would not buy a FTSE100 index either.

PE ratios are certainly high and I'll ride those in my basically equity cap weighted and small fixed income allocation way rather than trying to select or time the markets.