Total Beginner to Investment

Specterwannabe

Hi there, I've just recently started my first full time job and wanted to start putting some money away in investments for the future, probably by way of an S&S ISA. I bank with HSBC and know they offer one with a variety of investments.

I have had a poke about both here and elsewhere and also heard Vanguard and Cavendish recommended highly, although I understand they require a bit more input from me than simply some cash. I'm not averse to that, but as I say I am totally new to this so obviously would want to understand better what I'm doing. I have about £500 as a lump sum, to begin with, and adding between £100-200 a month after that.

As I say, I've heard Vanguard recommended highly, the LifeStrategy particularly (which I understand has several levels of risk, similar to the HSBC Global Fund that I came across in conversations with my bank). I was hoping some of you kind members would have some advice for me, either about my situation or where I should look to get a better understanding. I am particularly keen to understand what makes a good investment (to take an example from above, why the LifeStrategy is recommended and how the several different levels of risk work). What, in short, should I be looking for is I end up picking my investments myself?

Thanks!

Alexland

The bank staff were probably selling the HSBC World Selection which is basically an expensive retail version of the HSBC Global Strategy funds series which is for the DIY and IFA market. Cost is a drag on investment return.

HSBC GS funds are available via Cavendish (or at a higher fee on the HSBC Investment Center platform) and the LifeStrategy funds would be cheaper direct on the Vanguard Investor platform.

All these fund series contain a mix of shares/equities (volatile but healthy long term growth) and bonds (less volatile and more sluggish long term growth) in varying proportions to suit different risk / reward profiles.

Going DIY with a mixed asset fund isn't that complicated you just need to pick a fund and pay the platform fees knowing the total cost is lower than a retail product.

Ps. are you contributing enough into your workplace pension to get maximum employer contribution? Have you considered a Lifetime ISA for a 25% government bonus towards a qualifying first time property purchase or retirement from age 60?

Alex

Specterwannabe

Hi Alex, thanks for your reply. I think it was Global rather than World, but I have no idea what difference that makes, or indeed if they're any good. I only began with them because they are my bank.

I am contributing the 3% into my workplace pension (I don't know if that gets the maximum employer contribution? It's the standard position afaik?). I confess I've never heard of a lifetime ISA - they sound similar to a help-to-buy thing where the government contributes? I shall seek one out.

Dan

badger09

Specterwannabe wrote: »

Hi Alex, thanks for your reply. I think it was Global rather than World, but I have no idea what difference that makes, or indeed if they're any good. I only began with them because they are my bank.

I am contributing the 3% into my workplace pension (I don't know if that gets the maximum employer contribution? It's the standard position afaik?). I confess I've never heard of a lifetime ISA - they sound similar to a help-to-buy thing where the government contributes? I shall seek one out.

Dan

For general background financial information, have a read around this:
https://www.moneyadviceservice.org.uk/en

This is also useful insight into Passive Investing
https://monevator.com/category/investing/

There is lots of info on LISAs the ISAs subsection of this board

Finally - 1st priorities are probably to pay off expensive debt & build cash emergency fund

Specterwannabe

Thanks badger, I'll check them out!

I have no debt (save my student loans) and have a cash reserve for emergencies, that's why I wanted to start some long term saving

Zorillo

Find out asap if your employer will match any increased contributions into your pension. The minimum you should pay into your pension is enough to get the maximum employer contribution. I.e. my employer matches whatever I put in up to 6%.

Bravepants

Time to deploy my ever evolving set of beginner bullet points based upon my own experience and non-expert findings (comments/adjustments always welcome)...Start with bullet point number 1 and then choose other bullets as appropriate, or consider them in order:

• Pay off any non-mortgage debt first, then

• Start with 3, 6 or 12 months outgoings (maybe even swap the word "outgoings" for "salary") as an emergency fund in some sort of (or several) instant access account. Find out about current accounts, regular savers etc. and the interest rates they provide. With all savings and investments use the principle of "pay yourself first", that is, put money aside when you get paid, not at the end of the month saving what's left over - because there probably won't be!

• Make sure you have any cash needed for expenditure in the short term, such as house purchase deposit, replacement car, wedding (don't overspend on this) etc., and

• Figure out how your work pension works, and how much extra your company contributes for any additional contribution you make, pensions (work, private or SIPPS) are particularly good if you are a higher rate tax payer. On the subject of pensions…

• Be very aware of pension transfer scams! Even the ones that mention bone fide financial companies. Anyone promising you "guaranteed" returns is likely a scam artist, especially if the returns they are promising are double figure percentages, i.e. 10% or more! Remember you cannot, and nor can anyone on your behalf, legally take money out of a pension before pension age!

• Buy or borrow a copy of Tim Hale's "Smarter Investing", and once you have point 2 and point 3 in place:

• Check out www.monevator.com, particularly the passive investing section, and,

• Read up about the tax advantages of Stocks and Shares ISAs and SIPPS, and

• If considering retiring early check out www.mrmoneymustache.com and https://theescapeartist.me for inspiration, then

• Stash as much as you can, monthly (taking advantage of "pound cost averaging"), in a global index tracking fund , or a multi-asset index fund (or fund of funds - read up online about these). As you get older switch to funds that contain a lower percentage of equities and higher percentage of bonds (read up online about these, but Tim Hale talks about it too) depending on your tolerance for risk. Keep it simple and stick to one or two funds until you have £100k or so.

• Whatever fund(s) you plan to invest in make sure you don't pay too much in annual fees; a good passive index fund should be around 0.5% or so, including platform charge, active funds (those managed by humans) are around 1% to 1.5% but try to keep close to 1%. In no way pay 2% in annual fees for any of your investments!

• If having considered the above you are unsure about making your own investment decisions then seek the advice of an IFA (Independent Financial Advisor) - the word "Independent" is very important here, avoid Financial Advisors who want to sell you a product owned by the company for whom they work!

• Learn about the concept of a "phased" retirement, using certain pots of money to carry you through periods before work pensions or SIPPS become payable at Normal Retirement Age (often referred to as "bridging the gap") and/or think about actuarial reduction if appropriate.

• Learn to use Microsoft Excel (other spreadsheet software is available) and write yourself a retirement planning spreadsheet!

Specterwannabe

Very comprehensive! Thanks!

DrSyn

1. Whatever you decide to do you should watch this video.

https://www.ifa.com/indexfundsthemovie/


2. The VLS basically does for you what is suggested in the following:-

http://www.kroijer.com/

https://www.vanguardinvestor.co.uk/investing-explained/what-are-lifestrategy-funds?intcmpgn=lifestrategyfunds_learnmore_link



3. Multi-Asset Funds. A good place for a beginner to start.

From looking around the options seem to be:

Vantage Life Strategy
HSBC Global Strategy
L&G Multi Index Funds
Blackrock Consensus
Architas Passive

These have wide diversification while minimising risk, at low cost.

Life Strategy seems the most often mentioned as it's pretty much "fire and forget" which is the point.

There is also Fidelity Multi Asset Allocator

Baillie Gifford Managed. Holds individual shares, rather than index funds.

https://forums.moneysavingexpert.com/discussion/5879942/multi-asset-funds-differences&highlight=multi+asset


4. Basic Investment Points


1. No one can foretell the future, not even so called experts. It may be better, worse or the same as now.

2. You should always have an emergency fund before investing. Each person has their own idea how large that fund should be.

3. Investing is a long term gamble. If you need the money within 5 years it should be in something relatively safe, like a savings account.

4. You should never invest above your risk tolerance. An investment should not cause you worry or sleepless nights.

5. Peoples risk tolerance, circumstances, portfolio (& the amount in it) will be different.

6. Markets can swing up and down frighteningly sometimes. Over the long term they go upwards.

7. Attempting to time the markets is not a good idea.

8. Doing nothing in investing is also a valid option.

9. Investing in just one company is always more risky than investing in a Fund or ETF.

10. Smaller companies are more risky than Large companies.

Clive_Woody

VLS 80 fan here.

Starting small with this fund while maxing pension to get full employer contributions. As more funds become available and knowledge grows I will potentially look elsewhere or seek professional guidance for a home for my money. Next step will be salary sacrifice AVCs though as this avoids me moving into the 60% tax band plus my employer adds 13.8% (their NI saving) on top of the tax savings.

I invest directly with Vanguard to reduce costs and their website is nice and straightforward to use.

Suggest you also spend some time learning about pensions as this is something I've been doing and it was well worth the time and effort.