How should I invest £500 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 £500 a month.


"The best place to invest will depend on your financial objectives, circumstances and attitude to risk,"arguesPatrick Connolly of IFA Chase de Vere. "If you are investing over a short period, certainly less than five years, or if you want to avoid investment risk, then you should stay in cash. If you use a cash Isa, your returns will be tax-free. The current cash Isa annual allowance is £5,760 meaning you can invest £480 each month."

However, investing in cash is unlikely to give you the best return over the longer term, with interest rates still at historic lows." If you can take a long- term view, most people should look at a combination of pensions and stocks and shares Isas," Connolly adds.

Pensions give initial tax relief but are inflexible, whereas stocks and shares Isas can also be tax efficient and they are flexible, meaning you can get hold of your money when you want.

This is something Rebecca O'Keeffe of Interactive Investor believes, too. "While you're still contributing to your Isa, you're likely to be focusing on growth rather than income and despite the fact that the tax advantages of an Isa from a capital gains tax point of view are small, the benefit of a number of years worth of contributions is where the Isa benefits are greatest, potentially saving you hundreds, if not thousands, of pounds in further tax.

"Regular investing reduces the risk of market timing, which means that you can arguably take more risks with your underlying investment choices, including small companies and global funds. With £500 to invest a month, you can get significant diversification across three or four funds," she adds.

Investing regular monthly amounts means you can take more risk, too. If your investment falls in value, you buy at a cheaper price the following month, adds Connolly.

Darius McDermott of Chelsea Financial Services recommends splitting the investment across as many as five funds, putting £100 in each. "My preferred asset class at the moment is developed market equities," he argues. "Despite the economic challenges of the past five years, developed markets have outperformed their emerging market counterparts and I expect this to continue for the next couple of years."

For a new investor with a higher than average risk appetite, he suggests a mix of developed market equity funds that have a bias towards small and mid-cap companies. "It's always a good idea to review a portfolio at least once a year and the investor could consider switching to gain some exposure to emerging market equities in a year or two when their outlook improves."


Rebecca O'Keeffe's favourite global fund is the Baillie Gifford Global Discovery fund, whose performance "continues to impress". On the UK side, she says Standard Life Investments UK Equity Unconstrained fund and Cazenove UK Opportunities fund are both attractive options.

Low-cost tracker funds such as HSBC FTSE All Share Index, which tracks the performance of the UK stockmarket, are a good option, according to Patrick Connolly. He also rates UK funds with good quality managers such as Investec UK Special Situation or BlackRock UK Special Situations or diversified global funds such as Aberdeen World Equity or M&G Global Dividend.

"If you are nervous about having everything invested in shares, then there are a range of decent funds that will also hold other investments such as fixed interest or property alongside shares," Connolly states. "Funds to consider include Cazenove Multi Manager Diversity, Fidelity Multi Asset Strategic or Investec Cautious Managed."

Darius McDermott's picks are Marlborough UK Micro Cap Growth, Baring Europe Select, Miton US Opportunities, Jupiter Japan Income and JOHCM Asia ex Japan Small and Mid Cap. "They are a pretty racy mix, but I think the prospects for long-term growth are good.They have very experienced managers with well-resourced teams, and the investment processes have all withstood the test of time."

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