How should I invest £250 a month?

Moneywise believes in helping you save money so you can focus on taking your first steps on the investment ladder. Over the long term, investing money will produce far greater returns than you'll get from high street savings accounts.

With that in mind, our "How should I invest..." column aims to help beginner investors of any age and any financial background plan for their family's future by offering hints and tips from the UK's leading independent financial advisers on how and where they should invest their cash.

In this edition, it's how to invest £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."
Andy Parsons, head of investment research at The Share Centre, agrees. "I would also recommend investing the money in an Isa if the investor hasn't already used their Isa allowance to benefit from tax-efficient investing and to protect any potential gains from Capital Gains Tax (CGT)."
When investing in stocks and shares Isas, you can do so via collective funds. They pool together money from lots of people, which the investment manager uses to invest in a broad range of assets, helping to diversify risk. But how do you pick ones that are right for you?
Darius McDermott, managing director of Chelsea Financial Services, 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 has the following advice: "I'd also remind investors to review their fund choices on a regular basis; it's normally very easy (and often free) to change the funds inside an Isa if required in the future."
And remember, when you invest monthly, you get the added benefit of something called 'pound cost averaging'. "This is actually just a fancy term for buying shares on a regular basis at different prices," explains Black.
Take the following as an example. You invest £100 in a share priced at £1: if you invest the lot, you have 100 shares for your £100; but if the price later falls to 95p, your 100 shares are now worth £95. However, had you invested £50 at £1 a share and bought another £50 worth when the price dropped to 95p, you'd have spent the same but have more than 100 shares for your money (you'd have bought the share at an average price of 97.5p).
"Over the long term, investing in this way really can smooth out the short- term peaks and troughs of stockmarket investments."


In the UK Equity Income sector, Darius McDermott likes Artemis Income. 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". 
He adds: "The strength of the team at Newton and extensive in-house research capabilities give us confidence that the fund can continue to perform well."
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 suggests investing the money into two funds. "Firstly, the Schroder Income fund for yield. Income is sought from a blend of large and mid-cap stocks but with a value-orientated bias," he says. 
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 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 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."