Start investing today with just £50
Any investment guide will tell you that the key to successful investing is ensuring you have a balanced portfolio with a broad range of assets.
But while this is all well and good for people with thousands of pounds to lock away, what about those savers investing for the first time who can't afford to invest huge sums or build an entire portfolio from scratch?
In the first of our new three-part series, we look at options for those with £50 a month to invest.
See also: Start investing with £100 a month
Taking three typical 'amateur' investors as an example, we show the factors you need to consider and provide tips on the funds most likely to make your money grow as you dip your toe into the investment waters.
Currently single, Investor One is 27 and climbing the career ladder as a PA in the City. She recently purchased a house and has sensibly set aside six months' savings in cash in case the unexpected happens.
Now she wants to start growing her wealth. As far as investment risk is concerned, she describes herself as fairly adventurous and is keen for her money to work as hard as she does.
Because she doesn't expect to call on the money any time soon, she's happy to take a long-term view.
What she needs to think about...
Investment risk is best taken when you're young. If her investments do well she'll be sitting on a rising sum of money, but if markets move against her she'll have plenty of time to rebuild her wealth before retirement.
And given her long-term outlook, she should consider focusing on foreign shores with some money in the emerging markets.
Although such investments are more volatile, the long-term returns are likely to be better than returns from the larger, developed economies such as the US or Europe.
For example, the average fund in the IMA Global Emerging Markets sector has risen 152% over the past decade, according to figures compiled by Morningstar.
Contrast that with the average fund in the IMA Cautious Managed sector, which has gone up a more modest 37% over the same period, or those in the IMA UK All Companies sector that have only managed an average uplift of 16%.
Fund: First State Global Emerging Markets Leaders
Manager: Jonathan Asante
Value of £100 invested three years ago: £156.92
Dennis Hall says: "With her age and investment time horizon, there is likely to be a larger weighting to equities. Anyone who has been following this sector will already know that First State has an excellent track record in Asia Pacific, where many of the emerging markets are located."
Other funds worth considering: Aberdeen Global Emerging Markets & Schroder Global Emerging Markets
Investor Two is 35 years old, married, with two young children. As far as his investments are concerned, he has conflicting objectives – while he naturally wants his money to work as hard as possible and beat the lousy interest rates on offer at the bank, having a young family means he can't afford to risk losing it all.
Ideally, he'd like to line his nest so that he is in a position to help his kids out when they grow up.
What he needs to think about...
Making returns without losing anything along the way is the Holy Grail for investors, but the bad news is that whatever Investor Two does with his money he'll incur some risk.
Even if he tucks it away in a savings account, he may see its effective value shrink, unless it's earning a rate of interest higher than inflation.
Investor Two is a prime candidate for a balanced investment strategy. Funds in this area will contain a variety of assets – from relatively safe fixed-income to higher-octane equity components.
So they will enjoy some benefit if stockmarkets roar ahead, but will also have an element of protection should they turn sour.
The flipside of such a strategy, of course, is that returns will lag in soar-away markets because the diversified nature of the portfolio will dilute returns.
However, for someone like Investor Two, who is worried about losing all his money in a sudden downturn, these sort of funds won't keep him awake at night.
Fund: Invesco Perpetual Distribution
Manager: Paul Causer and Paul Read
Value of £100 invested three years ago: £114.45
Dennis Hall says: "I would look for a simple managed fund that has approximately 60% in bonds, including government and corporate bonds, and the other 40% in blue-chip shares. This fund fits the bill and also allows regular monthly savings from as low as £20, which makes it attractive to a wide range of savers."
Other funds worth considering: AXA Distribution, Jupiter Merlin Income Portfolio & Schroder Multi-Manager Cautious Managed
Our third investors are a married couple aged 40 and 44. They have reached the stage in their lives when they are concerned that the money currently being put away in their pensions will not be enough to give them the lifestyle they'd like in retirement.
Although they don't want to set up another pension, the couple would like another savings plan in order to top up their future retirement income.
As their longer-term plan is to use this money to fund holidays and luxuries (they should have enough to cover their basic expenses), they are happy to take a calculated risk.
What they need to think about...
This couple are in the enviable position of having already started to cater for their retirement basics, and they are now looking for some added extras.
However, they don't want to take too many chances. In this respect, their risk appetite sits somewhere between Investors One and Two.
While they are not quite adventurous enough to go 100% into emerging markets, neither are they overly cautious, as they still have around 20 years before retirement. Therefore, they probably require exposure to equities.
Although the couple doesn't have any dependants, they will have to pay close attention to their existing pension plans, the value of which could be vulnerable to any future downturns.
In this scenario, they may need to consider using the money they are planning to tuck away into the extra pot to bolster their retirement savings instead.
Fund: CF Miton Strategic Portfolio
Manager: Martin Gray
Value of £100 invested three years ago: £126.94
Dennis Hall says: "I was split between a global equity fund such as the M&G Global Growth fund and multi-asset fund CF Miton Strategic Portfolio. I opted for the latter – which currently has a higher percentage of assets held in cash and bonds – as the former is predominantly weighted towards equities, which could be more volatile over the longer term."
Other funds worth considering: M&G Global Growth, Newton Balanced Income & SVM Global
Moneywise's investment rules
Our investors may have different objectives but they must all follow the same basic principles before deciding where to invest.
The first is to clear outstanding debts. Obviously, it will be impossible to pay off your mortgage before you invest, but credit cards should certainly be cleared.
Even the best investment is unlikely to deliver a return that's greater than the interest you're being charged.
The second rule is to have some cash set aside in an easy access account in case of emergencies. Ideally, this should equate to six months' salary.
After all, you never know when your boiler will pack up, or even worse, you lose your job or fall ill.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
The familiar name given to securities issued by the British government and issued to raise money to bridge the gap between what the government spends and what it earns in tax revenue. Back in 1997, the entire stock of outstanding gilts was £275bn; by October 2010 it had surpassed £1,000bn. Gilts are issued throughout the year by the Debt Management Office and are essentially investment bonds backed by HM Treasury & Customs and considered a very safe investment because the British government has never defaulted on its debts and this security is reflected in the UK’s AAA-rating for its debt. Gilts work in a similar way to bonds and are another variant on fixed-income securities.
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).
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.