Newbie to Index Tracker Investing

samuelodog

Dear All,

I am looking to start investing - have very little to begin with and want to start off doing something quite safe - ish, with the possibility of slowly growing a portfolio or making a bit of money.
I looked here but can make no sense of any of it:

FTSE 100 tracker funds
Cheapest fund: iShares UK Equity Index - 0.07pc charge

Cheapest ETF: iShares FTSE 100 Ucits ETF, HSBC FTSE 100 Ucits ETF - 0.07pc charge
Cheapest fund shop specific deal: L&G UK Index Trust - 0.06pc charge via Hargreaves Lansdown

FTSE All Share tracker funds
Cheapest fund: iShares UK Equity Index, Fidelity Index UK - 0.06pc charge
Cheapest ETF: SPDR FTSE UK All Share ETF - 0.2pc charge

I am a complete novice - looking to put out a direct debit of say... £30-£40 a month onto something? Am I way off the mark? Any advice of a simple way to do this and make a wee bit would be appreciated.

Many thanks

Sam:j

ewaste

I gather if your on this forum you have the recommended couple of months of expenses in savings accounts and/or high interest current accounts e.g. Nationwide FlexDirect 5% on £2500 for a year?

If your starting out the forum would probably suggest a 'Multi-Asset' fund like the oft mentioned Vanguard LifeStartegy range rather than sticking to one index like the FTSE 100. However the usual question would be what are you saving for e.g might a LISA be of interest if your saving/investing for buying property.

What is your pension provision like as this is an obvious place to save long term and in a tax efficient manner?

samuelodog

I don't have anything in Nationwide FlexDirect 5%.
I don't understand your second paragraph!
I'm only saving to try to make my money work more for me.
I have a pension with work.
I'm a total noob.
Basically... I just got a pay bump, I save c. £200 a month - just firing into a bank account form my pay. I want to fire some away and potentially do something with it - at least have a chance of making it work more - investing in something - stocks/shares. I dont understand them at all, just want to try something different and potentially make a bit more money.
thanks

dunstonh

I am a complete novice - looking to put out a direct debit of say... £30-£40 a month onto something?

Most have a minimum of £50pm.

Single sector investing is bad quality investing. Especially if you are considering one of the worst stockmarket indexes of the last 25 years. You should use a multi-asset fund instead.

samuelodog

So... what is a multi-asset fund and how do I access it? What kind of return does it yield?
Many thanks, sorry for my ignorance.

ewaste

The normal advice for most people is to first establish and emergency fund equal to a couple of months expenditure, this is held in cash. Ideally this would be held in as high an interest account as you can find rather than sitting in your current account which your pay goes into both becuase it will earn more interest and also becuase you'll be less inclined to spend it unnecessarily.

My second paragraph was in relation to your mention of index tracker funds, the funds you had mentioned track a single index e.g. the FTSE 100 which is an index of the 100 largest UK listed companies. This to many would be a concentrated risk as it's betting on the performance of the 100 largest companies whereas other funds would diversify across multiple indexes e.g the Vanguard LifeStrategy range track indexes of European and American companies and can also include bonds.

When I ask what are you saving for I should have asked, Do you own your own home or already have a mortgage because if they answer is no then a Lifetime ISA may be an efficient way to save up for a mortgage deposit. Otherwise a traditional Stocks and Shares ISA via platform such as Hargreaves Lansdown would be the default route, although platforms do have minimums as DunstonH mentions.

The risk is that if you don't know what and how long you are saving or investing for then needing to access any money tied up in investments could lead to you being forced to sell at a loss.

samuelodog

I own a home, paying off a mortgage.
I'm working on para 1.
The Vanguard LifeStrategy range track index sounds good - how do I do that? Or is the traditional Stocks and Shares ISA via platform such as Hargreaves Lansdown better for me?

ewaste

That's good to hear you've got a mortgage and are building a cash emergency fund.

You can invest in either the Vanguard LifeStrategy funds or similar held in a S&S ISA, which is a tax wrapper, via a platform. Hargreaves Lansdown is just one such platform and it offers a variety of tax wrappers including a Stocks and Shares ISA, so you could open a S&S ISA with them and then purchase units in whatever funds you wanted.

Which fund you chose would largely be based on your risk tolerance and as a new investor it's likely to be low. Therefore starting with something like LifeStrategy 40 or 60, which contain 40% and 60% shares respectively, might be a good starting point for regular investment via direct debit.

It might also be worth doing some reading on Monevator for example:- http://monevator.com/category/investing/passive-investing-investing/

samuelodog

many thanks, I'l look into it.

samuelodog

whats the difference between the 40% and 60%?

If I fire £30 a month into this - what will it mean say... 5 yrs down the line?

thanks again

dunstonh

whats the difference between the 40% and 60%?

as the fund name suggests it is 40% equity and 60% equity.

If I fire £30 a month into this - what will it mean say... 5 yrs down the line?

Not a lot. its only half an economic cycle and the bulk of the money would not have been in there 3 years let alone 5. You could be in a loss position or gain but somewhere similar to what you paid in is likely.

Regular contributions take around 15 years to show their worth.