Passive + active investment? Or just passive?

TheLittleSaver

Hi everyone and hope you are all having a great time with your family during the festivity, despite this crazy year!

I decided to invest some of my money (an amount that I might be okay to lose, according to the general wisdom about investments) as a way of building up on my pension for the future.

After some research, I decided to open an account with OpenMoney, where they suggested me a package, according to the informations I have provided through their form.

So, I might get a passive investment package with ETF of "medium" level risk (I still didn't do anything, just thinking out loud now, to then take a decision).

On the other hand, I was thinking that it might be good to also have some money aside to "play" with shares of different small/medium companies, etc..

For example, something like £5,000 on the ETF package, than £1,000 on other investments? What do you think?

Also, would I need to set up a new account to do that separate investment? Would you suggest to use one platform for the ETF and another one for the other kind of investment?

Ideally, should I try to invest consistently (back to the example above: £5,000+£1,000 every year) until reaching retirement?

I'm pretty new at this so apologize if my questions might seem silly, any suggestion is very much appreciated.

Thank you very much and have a lovely Christmas!

El_Torro

There’s nothing wrong with putting all your investments in well diversified funds. If you want to invest a small amount in individual shares you can, though I wouldn’t recommend it.

Do you think you can consistently pick winners and outperform fund managers? If so then go for it, though using funds is much lower risk, and requires a lot less effort.

TheLittleSaver

Thank El_Torro for the reply. So you are saying that it would be better to have all the money in that ETF package, rather then using part of it to buy shares?

To be clear, when I talk about "playing" with shares I don't mean by shares now and sell it tomorrow or when I think they are "ripe" enough, etc...as I absolutely I don't have thatkind of experience and confidence!

What I mean is, apart from investing in that package, I would use part of the money in investing in a few more small companies, but still keeping the shares for a few years, if that makes sense?

By the way, the package I'm talking about is a "Self Invested Personal Pension" (just in case it helps to know that for your feedback).

JohnWinder

1. Estimate how much income from your investments you'll need after you retire.

2. Estimate how much that investment 'fund' should be worth so as to provide the income in #1.

3. Use a compound interest formula or calculator to estimate how much £5000/yr invested, with a realistic return, will give you after how ever many years you have until retirement.

4. Repeat for a sensitivity analysis using estimates near the boundaries of what those assumed figures could actually turn out to be, to give you an upper and lower value.

5. Adjust your £5000 + £1000, based on #4.

El_Torro

TheLittleSaver said:

Thank El_Torro for the reply. So you are saying that it would be better to have all the money in that ETF package, rather then using part of it to buy shares?

To be clear, when I talk about "playing" with shares I don't mean by shares now and sell it tomorrow or when I think they are "ripe" enough, etc...as I absolutely I don't have thatkind of experience and confidence!

What I mean is, apart from investing in that package, I would use part of the money in investing in a few more small companies, but still keeping the shares for a few years, if that makes sense?

By the way, the package I'm talking about is a "Self Invested Personal Pension" (just in case it helps to know that for your feedback).

I personally wouldn’t invest in individual shares. I certainly wouldn’t invest in various small companies and hold those investments for the long term, because some of those companies could easily go bust while I’m holding their shares. Most of the people on this forum (not all) hold the same view as me, i.e. there’s no need to hold individual shares when funds perform well over the long term anyway.

Of course for your investment journey what I would do isn’t particularly relevant, what matters is what you are comfortable doing. I would just say that when you invest in individual shares the risks are high, so you really need to know what you’re doing.

What ETFs are you planning to invest in? Are you happy with the strategy for those funds? Are you adequately diversified? What can individual shares add to your strategy that choosing suitable funds doesn’t?

Thrugelmir

Why an ETF.  An ETF is at most only going to provide limited exposure to the overall markets. One of the basic rules of investing is to diversify. Ideally start with a single multi asset fund that meets your personal risk appetite. Investing is a marathon not a sprint. Once you've more a substantial portfolio then you can start to become more esoteric. 

Alexland

TheLittleSaver said:

I decided to invest some of my money (an amount that I might be okay to lose, according to the general wisdom about investments) as a way of building up on my pension for the future.

That general wisdom only really applies to making speculative bets where total loss is a realistic possibility. Most of us need to invest money we cannot afford to lose in order that it can generate an adequate return above inflation to meet our goals. The risk can be managed with diversification.
If you are just starting then pick a multi asset fund (ETFs tend to be single asset class) in an appropriate tax wrapper and don't waste time trying to be clever with individual company shares unless you really want to learn the hard way seeing losses that will not recover.
Your investment purpose is to maximise the probability of achieving your objectives not to have fun messing around with individual shares at high risk of failing to beat the market.

dunstonh

Passive + active investment? Or just passive?

Why not a hybrid of the two?  Use passive where passive is best. use managed where managed is best.   

george4064

dunstonh said:

Passive + active investment? Or just passive?

Why not a hybrid of the two?  Use passive where passive is best. use managed where managed is best.   

Same here. My ISA portfolio is a mixture of active investment trusts and passive index tracking ETFs.

JohnWinder

dunstonh said:

Passive + active investment? Or just passive?

Why not a hybrid of the two?  Use passive where passive is best. use managed where managed is best.   

Well, the fees could be higher than passive alone, and the most compelling evidence suggests that one will get under-performance on a risk adjusted basis unless one can identify the active manager(s) who will out-perform in the future. The last bit is the hardest. So it's worth looking into.

TheLittleSaver

Merry Christmas everyone!

And thanks for the feedback.

I see, so the general consensus is to diversify as much as possible, and so a "multy asset fund" would be better than ETF (like Alexland suggested).

In which case, what platform would you suggest for someone like me who doesn't have much experience and would much rather buy a "package" without doing the hard work? As I said I was thinking OpenMoney but still didn't do anything (besides, I'm having some troubles on my browser to go through the process... maybe a sign?! eheheh), so if you know of a better place to start investing then I'm all ears!

Thanks