Starting investing...

ag359

I am looking to start investing in the stock market with small amounts, in order to get a feel for it. As I'm very inexperienced, I'd like to start with something simple - maybe an index tracker (I've heard that Fidelity only charge 0.1% in fees) or something.

What would people suggest? As I said, its more about getting a feel for how these things work than necessarily maximising my return with huge, high-risk investments...

cheerfulcat

Have a look here -

http://www.fool.co.uk/help/help.htm

gizmoleeds

Yeah, go for an index tracker, and whatever you do remember:

- A high stock market is only a good thing when you are selling shares

- A low stock market is good when you are buying

If you see the value of your investments falling do not get worried and sell low - seize the opportunity and invest more at rock bottom prices.

dunstonh

and dont put all your money in one basket. Different areas perform at different times. The UK stockmarket tends to be best sector once every 5 to 7 years. So spread it around.

gizmoleeds

Also - if you have a mortgage or other debt now is not the time to invest. There is no point investing while you have debts which will probably be costing you a bigger %age in interest than you would be earning - better to pay all these off first.

ag359

OK, well I think I might give an index tracker a go.

Now presumably one index tracker is pretty much the same as the next, if it's tracking the same index...so is it just a case of going for one with the lowest charges? If so, what do people think of the new Fidelity 0.1% charges...is this the best option?

Just to clarify, I'm looking to invest a small amount as a 'taster' - only £500-1000, and I don't have any debts (apart from a standard student loan, which I won't have to start paying back until next year).

dunstonh

Now presumably one index tracker is pretty much the same as the next, if it's tracking the same index...so is it just a case of going for one with the lowest charges? If so, what do people think of the new Fidelity 0.1% charges...is this the best option?

Charges will be the main difference but obviously you can get trackers for different indexes. You need to decide which index to track and why.

carnet

gizmoleeds wrote:

Also - if you have a mortgage or other debt now is not the time to invest. There is no point investing while you have debts which will probably be costing you a bigger %age in interest than you would be earning - better to pay all these off first.

While that is undoubtedly very sound advice I don't follow it personally. I have had a mortgage for over 30 years and have also been a serious investor for 20 years.

My mortgage could have been paid off in full many years ago but I've chosen not to do so.

If I couldn't make far in excess of the mortgage interest with my investments in any rolling 5 year period I'd give up investing and pay off the mortgage immediately.

dunstonh

Also - if you have a mortgage or other debt now is not the time to invest

I'm with carnet. If you have the risk profile to invest an obtain potentially higher returns than the mortgage and accept short term volatility, then borrowing is fine.

Many investment funds borrow money to invest. Its when you dont have the risk profile to understand or accept it that you should not look to borrow and invest.

Tim_L

I'm with Carnet et al too: I've been able to earn more in instant access savings interest than I've been paying on my mortgage over the past 3 years, though this is mostly because my wife has been a non-taxpayer. I think that if you believe you can get a differential it's always worth doing.

The other point is that with early settlement of repayment mortgages all your money disappears into the capital value of the house, which you can't easily access. Having separate pots for savings and investments from mortgages is definitely worthwhile in this context, even if this costs you more in terms of the margin on savings rates/investment returns versus mortgage rate. If you have an endowment this is less true, since your capital value will be returned to you (or at least a proportion of it) when the policy matures.

Personally I'd consider dripping regular sums into a tracker to get into the habit of regular savings - probably this is more important at this level of investment than the gains you will make on a relatively modest lump sum investment. You have to bear in mind that you can lose money - possibly all of it - but at some point you have to start dipping your toes in and gaining experience.

whiteflag_3

I also agree with the last 3 posts . Carnet is dead right- if you cant outperform mortgage rates by investing over the longer term then theres no point in investing.

What I will add is that although trackers are cheap you dont benefit from dividends. The biggest constituents of most indexes tend to be blue chip shares that pay the biggest dividends. Therefore you have the equity risk without the extra boost provided by dividends.

Heres some stats that I think you will find of interest, from the Barclays Global Equity Gilt study 2004.

UK Market returns 31 Dec 1899 to 31 Dec 2003 (£100 invested)

Equities all income reinvested = £980,000
Take out inflation (real) =£17,356
Take out dividends = £161

Heres some other stats I found in the same booklet

In the 5 years to 31 july 2005 the ftse all share index returned 0.6%
while a well known equity income fund returned 52.9% over the same period


In summary I would go for an Equity Income Fund and pay the higher charges