Expert investment tips from £50 to £50,000
You don't need huge sums of money to kickstart an investment habit. Whether you have £50 a month to begin with or want to invest a windfall of £10,000, there's no time like the present to get your money working harder.
Over the long term, investing money will produce far greater returns than you'll get from high street savings accounts. But for beginners, the question is: how should I invest?
We've put together four different investment scenarios and asked the experts how they would invest the cash. The answers should help beginner investors of any age and any financial background plan for their family's future by offering hints and tips on how and where they should invest their cash.
As always, if you are in any doubt, make sure you seek independent financial advice to help you make the right decisions.
£50 A MONTH
Patrick Connolly, head of communications at Chase de Vere, says where you should invest depends on why you are investing, over how long and the amount of risk you are willing to take.
If you are investing over a short time period, such as less than five years, then you should stick to cash. You should look to make regular premiums into a cash Isa, where all interest will be paid tax-free.
Justin Modray, founder of Candid Money, agrees but says the golden rule is the same however much you invest: make sure you don't bite off more risk than you can chew.
"If you can invest for five to 10 years or more and sleep soundly through potential downturns along the way, then the stockmarket is generally a good place to start for long- term investing," he says. "An added potential advantage of monthly investing is that it helps smooth the ups and downs of markets."
He says beginner investors with £50 a month should opt for a single fund and consider switching future contributions into another fund once they have built up a reasonable amount of money.
Patrick Connolly of Chase de Vere recommends a "good low-cost UK tracker fund" that will give broad exposure to the UK stockmarket. He likes the HSBC FTSE All Share Index fund. For those who want to adopt a more cautious approach and don't want all of their money going into shares, then Connolly rates Schroder Multi Manager Diversity fund, which spreads risks by investing one-third into shares, one-third into fixed interest and one-third into other investments such as property or commodities.
For those who are happy to take greater risk, then exposure to more volatile areas such as emerging markets can be considered. "These have the potential to perform very well over the long term," adds Connolly. "A good choice is the JPM Emerging Markets fund."
Peter Chadborn, director and adviser at Plan Money, recommends a fund with a cautious objective for someone starting out with just £50 a month: "We require a management team that is well established and well respected and, of course, has good consistent past performance. To meet these criteria, I would suggest the F&C Navigator Distribution fund."
£10,000 LUMP SUM
All our experts state that your attitude to risk is one of the most important things to consider before you invest your £10,000. "You must ask yourself: how much risk am I prepared to take? How long am I investing for? What are my investment goals?" says Darius McDermott, managing director of Chelsea Financial Services.
He says a medium-risk person looking for capital growth across a minimum 10-year investment horizon could consider weighting their portfolio towards 40% in the UK, 20% in the US, 15% in Europe and 5% each in Asia, Japan and other emerging markets, as well as 10% in so-called absolute return funds.
All our experts said that investors should look to tax- efficient investments as a first port of call. That means using your Isa allowance, whether you're investing in cash or the stockmarket via a New Isa (Nisa).
Rebecca O'Keefe, head of investment at Interactive Investor, says that for those who do not have time to monitor their investments, a less well-known fund, Consistent Practical Investment, holds a range of investment trusts and has performed very well, investing in a full range of global investments across different asset classes and sectors.
"If you have the time to focus on a specific geographic area, for example emerging markets, then the First State Global Emerging Market Leaders fund is a well-known, attractive option," she adds. However, you will need to be quick, as this fund, which currently has no initial charges, will levy additional fees from September.
Patrick Connolly of Chase de Vere says a good choice could be Schroder Multi Manager Diversity, which invests one-third in shares, one-third in fixed interest and one-third in other investments, such as property and commodities.
"If you've already got an investment portfolio in place and are happy to take greater risks, then good choices could include Investec UK Special Situations, which invests in UK shares, or AXA Framlington American Growth, which invests in US shares," he says.
£250 A MONTH
"When investing on a monthly basis, it's best to have a clear understanding of what you are actually saving the money for," says Ray Black, managing director of Money Minder. "If your aim is to build up emergency funds or you're saving for something specific and expect to spend the money within
the next three to five years, deposit accounts and cash Isas are probably the best way to go."
McDermott agrees that the tax benefits of Isas should be key. He suggests the following strategy. "For cautious investors – perhaps someone making the transition to investing in other asset classes other than cash for the first time - I would suggest a mix of a more defensive UK equity income fund and a targeted absolute return fund.
An equity income fund is a way of getting exposure to the stockmarket but at the same time should be less volatile than a growth-orientated fund." Whatever funds you go for, Black says you should review your find choices regularly.
In the UK Equity Income sector, Darius McDermott of Chelsea Financial Services likes the Artemis Income fund. He says the managers invest for both value and growth and the fund has a consistent yield at around 4.5%.
In the Targeted Absolute Return sector, he favours the Newton Real Return fund, which has "a decent track record in all market environments, with pretty low volatility".
Meanwhile, for investors with a medium- to long-term time horizon, a medium appetite for risk and not currently in need of income, Andy Parsons, head of investment research at The Share Centre, suggests investing the money into two funds.
Secondly, he picks the Invesco Perpetual Global Smaller Companies fund "for the potential growth opportunities and diversification both geographically and through market capitalisation size this fund can offer".
Ray Black of Money Minder suggests dividing the £250 investment in the following way. "Put £75 a month into the Liontrust Special Situations fund, £75 into Old Mutual UK Mid Cap fund, £50 a month into Aberdeen World Equity fund and £50 a month in to the M&G Global Basics fund," he says.
"All of the funds have great track records and respected managers. I also believe they will complement each other well over the longer term."
£50,000 LUMP SUM
"How and where to invest £50,000 is very dependent on a number of factors - time horizon, attitude to risk and objective - whether that's income, growth or a bit of both," says Sheridan Admans, investment research manager at The Share Centre.
"These variables will help determine what strategy an investor might follow to achieve their goal," he adds.
Connolly adds: "If you don't have many, or any, other investments, then you shouldn't take too much risk. If you take big risks and your investment falls by 20%, which is entirely possible, then your £50,000 investment will be worth only £40,000," he warns.
Connolly believes the best way to spread risk, and so help to protect your money, is to invest in different investment types. "So perhaps put some money in shares, some in fixed interest and some in property. Then also spread risk within each of these assets by picking different types of investment in different geographical regions. So, for example, with shares you can invest in large and small companies, in different types of businesses and in different parts of the world," he says.
Patrick Connolly of Chase de Vere suggests those looking to spread risk by diversifying could consider investing through a multi-asset fund such as Schroder Multi Manager Diversity, Fidelity Multi Asset Strategic or M&G Episode Balanced.
Alternatively, Darius McDermott of Chelsea Financial Services recommends they consider Chelsea's balanced growth Easy Isa portfolio, which includes AXA Framlington American Growth, JO Hambro UK Opportunities, M&G Recovery, Rathbone Global Opportunities, Threadneedle European Select and L&G Dynamic Bond. He suggests Newton Absolute Return could also be added to the mix.
However, for those looking for income, he suggests a diversified income stream from a mix of property, strategic bond and equity income funds that use covered call options to enhance the income provided.
"I like the Henderson UK Property fund, which has one of the highest yields in the sector; Invesco Perpetual Monthly Income Plus, which again has one of the highest yields in its sector; Fidelity Enhanced Income; RWC Enhanced Income (both of which use covered call options) and Newton Asian Income."
Sheridan Admans of The Share Centre suggests investors seeking income and who are prepared for a bit more risk in the hope of generating growth could consider the M&G Global Convertibles, Newton Global Higher Income and Legg Mason ClearBridge US Aggressive Growth funds.
An unexpected one-off financial gain in cash or shares, generally when mutual building societies convert to stock market-quoted banks. Also windfall tax, a one-off tax imposed by government. The UK government applied such a measure in the Budget of July 1997 on the profits of privatised utilities companies.
The general term for the rate of income from an investment expressed as an annual percentage and based on its current market value. For example, if a corporate bond or gilt originally sold at £100 par value with a coupon of 10% is bought for £100 then the coupon and the yield are the same at 10%, or £10. But if an investor buys the bond for £125, its coupon is still 10% (or £10) and the investor receives £10 but as the investor bought the bond for £125 (not £100) the yield on the investment is 8%.
A way of valuing a company by the total value of its issued shares and calculated by multiplying the number of shares in issues by the market price. This means the market capitalisation fluctuates continually as the value of the shares change in the market. For example, HSBC has 17.82bn shares in issue at a price of 646.2p making a market capitalisation of £115.15bn.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
A term applied to raw materials (gold, oil) and foodstuffs (wheat, pork bellies) traded on exchanges throughout the world. Since no one really wants to transport all those heavy materials, what is actually traded are commodities futures contracts or options. These are agreements to buy or sell at an agreed price on a specific date. Because commodity prices are volatile, investing in futures is certainly not for the casual investor.
Generic, loosely-defined term for markets in a newly industrialised or Third World country that is in the process of moving from a closed economy to an open market economy while building accountability within the system. The World Bank recognises 28 countries as emerging markets, including Argentina, Brazil, China, Czech Republic, Egypt, India, Israel, Morocco, Russia and Venezuela. Because these countries carry additional political, economic and currency risks, investors in emerging markets should accept volatile returns. There is potential to make large profit at the risk of large losses.
Absolute return funds
Absolute return funds aim to deliver a positive (or ‘absolute’) return every year regardless of what happens in the stockmarket. Unlike traditional funds, they can take bets on shares falling, as well as rising. This is not to say they can’t fall in value; they do. However, over the years, they should have less volatile performance than traditional funds.
There are limits to how much you can invest in any tax year. For 2011/12, the limit is £10,680. Of that, the maximum you can invest in cash is £5,340 and the balance of £5,340 can be invested in shares (individual company shares or investment funds). If you don’t take the cash ISA allowance, you can invest up to £10,680 into a stocks and shares ISA.