How do you know which funds to invest in?

amyk01

I am a total newbie to investing and I wondered for those who invest the funds themselves, how do you know where to invest? Is it just a matter of researching yourself? I see a lot of talk about Vanguard, what makes people opt for something like this?

Thanks

OldMusicGuy

You do one of two things:

- You pay an IFA to do it for you, based on input about your risk profile and objectives you give them, or
- You do a lot of reading on this site, places like Monevator and work it all out yourself.

I adopted the second approach after doing a lot of reading on here and other sites and thinking long and hard about what I was trying to achieve with my investments. It probably took me about 18 months to get to the point that I was comfortable to make my own investment choices.

If you go down the IFA route, make sure it is a genuine independent financial advisor, not a wealth manager or tied financial advisor unless you have good reasons for using them. For example, in the past I used a financial advisor from Hargreaves Lansdown because my money was on their platform and I was happy with the range of fund choices they offered.

I'll add one thing - you never "know" which fund to invest in. One thing I can guarantee is that if you say on here "I think fund xxx is great" someone else will say "are you mad, this one is much better". What you have to be ready to do is to make choices that you can stick with based on your long term objectives. The worst thing you can do is to pick a fund or two and then chop and change investments when you see the posts that say "the return on this fund is much better".

TheTracker

The question is a whole topic so a single answer or thread isn’t sufficient to answer. But here are a few pointers.

Vanguard is a provider of funds, and has a particular type of fund it primarily sells. But one shouldn’t choose Vanguard. Find the right fund and it will be associated with a provider.

One shouldn’t start with fund selection.

Start with an understanding of your needs and circumstances and risk profile. Risk profile largely means how well you’d react to suddenly drops of say 20, 40, 50% value that may take years to recover.

Work out an asset allocation to meet that information. An asset allocation would describe the proportion of equities and bonds, and of different type of equities like developed world, emerging markets, maybe geographies or industrial sectors.

Find funds that match that allocation, taking into account the platform choices and all the various fees.

That’s a bit daunting for new investors. So there are a range of ‘multi asset’ funds available. These have pre-selected a set of funds that might match your circumstances and risk profile. Providers include Vanguard with their Lifestrategy product, and Blackrock with Consensus. You don’t need to be novice to use these, many seasoned investors are bought in for the long term.

Now there ARE people who start with looking at and researching funds without going through the above. But they are generally making random decisions largely based on recent returns and fashion. Start with an understanding of risk and asset allocation and portfolios and you’ll be in a better position.

BLB53

For me it comes down to a combination of risk/reward, charges for funds, global or UK and actively managed or passive tracker.

The simplest strategy for the average diy investor is probably a low cost, globally diverse tracker and then, if you go for an all-in-one option such as Vanguard Lifestrategy, it's just a case of matching your risk appetite with the most appropriate level of equities - for me the Lifestrategy 60 gets the job done (average 9% each year return) without too much volatility.

Read more in depth on Monevator - mainly passive
http://monevator.com/category/investing/passive-investing-investing/

and DIY Investor
http://diyinvestoruk.blogspot.co.uk/p/basics.html

A good book for beginners is Hale's 'Smarter Investing'

movilogo

Easy steps are:

1. Select a platform (like Tesco, Lidl etc.) first e.g. Hargreaves Lansdown, Charles Stanley Direct, Interactive Investor etc. etc.

2. Select some tracker funds (also known as index funds) e.g. FTSE 100 tracker, FTSE 250 tracker, Emerging Market tracker etc.

3. Within those trackers decide whom you want to buy from (like Hovis, Kingsmeal, supermarket's own label etc.) e.g. Blackrock, Vanguard, Fidelity, JP Morgan etc.

4. Buy those selected funds.

5. Wait few years.

6. Become rich

Audaxer

BLB53 wrote: »

The simplest strategy for the average diy investor is probably a low cost, globally diverse tracker and then, if you go for an all-in-one option such as Vanguard Lifestrategy, it's just a case of matching your risk appetite with the most appropriate level of equities - for me the Lifestrategy 60 gets the job done (average 9% each year return) without too much volatility.

I agree and I like Vanguard LifeStrategy but we have been in a bull market since Vanguard LifeStrategy was launched about 6 years ago, so although I have recently invested in LifeStrategy 60 I don't expect average 9% returns over the next 6 years. More likely there will be an equity crash at some time where the fund drops 20% or 30%, but we will just need to hold our nerve when it happens as over the long term it should increase in value.

LHW99

How old are you amyk01? If you have a time horizon of 20years+, then as well as the above suggestion:
Make up an imaginary portfolio perahps with an initial imagined investment of £10,000 - perhaps in Excel. Monitor that while you are learning.
Consider taking out a regular investment using a well known fund, for example Foreign & Colonial IT, Artemis Global Income, or a Vanguard Life Strategy fund, putting in their minimum amount (don't forget to read about the fund on Trustnet, Morning Star or similar).
Regard this as to an extent "fun money" and see what happens to it over days, weeks, months to get a feel for what "a drop of x%" is like to you.
In the end, talking about your "appetite for risk" is fine, but in terms of funds and shares "risk" in the abstract can feel quite different when you meet it in reality.
It can make you feel like you never want to experience it again - or it can give you an adrenaline buzz because it means your next monthly payment will buy you twice as many units / shares and so when things go back up again your investment will have done even better than you expected.

bostonerimus

This is a good question.

I've been investing for 30 years and I don't know what funds to invest in. So I buy the entire stock market. I have no confidence that anyone can pick and choose what to buy so I buy everything. Such funds are broad "index trackers". The decision I do have to make is how much to put in equities and how much into lower risk things like bonds. I do that by looking at the performance of various ratios of those investments for past markets and while I was working went with 60% equites and 40% bonds.......but if you are young and adventurous you might go with 70% or even 80% equities.

Prism

bostonerimus wrote: »

.but if you are young and adventurous you might go with 70% or even 80% equities.

Or even 100% equities if its all in a pension that you can't touch for 10 years plus..

badger09

movilogo wrote: »

Easy steps are:

1. Select a platform (like Tesco, Lidl etc.) first e.g. Hargreaves Lansdown, Charles Stanley Direct, Interactive Investor etc. etc.

2. Select some tracker funds (also known as index funds) e.g. FTSE 100 tracker, FTSE 250 tracker, Emerging Market tracker etc.

3. Within those trackers decide whom you want to buy from (like Hovis, Kingsmeal, supermarket's own label etc.) e.g. Blackrock, Vanguard, Fidelity, JP Morgan etc.

4. Buy those selected funds.

5. Wait few years.

6. Become rich

They might be easy steps but they will not automatically lead to your outcome. In fact, they almost certainly won't, because there is so much scope for error.

OP have a read around the Monevator website linked in post 4 for some basic explanations.

paul090971

Prism wrote: »

Or even 100% equities if its all in a pension that you can't touch for 10 years plus..

Is 100% equities a good or crazy idea if you are not going to use your sipp for 15-20 years??