Your coffee break investment plan - Day 9: Four simple ways to get started
For the uninitiated, stepping into the world of investing can be a daunting task. But provided you are prepared to stick with it for the long term, the gains can be potentially very rewarding.
Before you dive in, remember to ask yourself what you want to achieve and be honest about how much risk you are prepared to take. This will help you decide the most appropriate investments for you.
Below we highlight examples of core fund investments to get you started.
Many first time investors are likely to want to keep their money close to home and for that reason, Laith Khalaf, senior investment analyst at fund broker Hargreaves Lansdown recommends the £4.6bn Legal & General UK Index fund, a tracker fund that aims to replicate the performance of the FTSE All-Share index.
He says: “The UK is home to many world-class corporations and on that basis, I would recommend novices look at this, fund. It is as cheap as chips and offers investors access to a wealth of companies and it is available from as little as 0.06% per annum.” Over the past five years it has delivered a total return of 19% to its investors.
Neil Woodford is a name many novices may have come across before. The fund manager is famed for delivering consistently strong returns during the quarter century he spent at his previous employer Invesco Perpetual.
His new venture, the £8bn CF Woodford Equity Income fund, only launched in summer of 2014 and has already achieved a 15% return. He aims to deliver income as well as capital growth by investing in dividend paying UK firms – i.e. profit sharing corporations.
Juliet Schooling Latter, research director at Chelsea Financial Services says: “His long-term strategy has held up particularly well. His approach is defensive in nature as the companies in which he invests typically possess very strong balance sheets.” The fund’s annual charge can be as low as 0.75%.
You can spread risks further by selecting a global equity fund that will invest in companies listed around the world. Patrick Connolly, a certified financial planner at Chase de Vere, highlights the £4.6bn Fundsmith Equity vehicle “as a good choice for investors looking for that extra diversification”.
It is managed by Terry Smith who is a long-term investor, not a short-term trader. Over the past five years he has delivered a very strong return of 116% and the fund carries an ongoing charge of 0.99%.
If you would prefer to take a cautious approach and do not want all of your money going into shares, Gavin Haynes, managing director at Whitechurch Securities highlights the £9.1bn Newton Real Return fund as “a good defensive holding for a first time investor”.
The fund is run by Iain Stewart, who aims to beat cash returns by 4% per annum on a rolling, three-year basis. The fund is diversified across different asset classes, including cash and international bonds, as well as some shares. Over five years, it is ahead by 16% and comes with an ongoing annual charge of 1.04%.
Mr Haynes says: “Iain Stewart is a proven and effective asset allocator who is supported by strong resources and has demonstrated good use of a wide range of strategies to enhance returns and control risk.”
(Performance Source: FE Analytics as at 16 February 2016)
If you missed them, make sure you read the first articles in this series.
Also watch Moneywise editor Moira O’Neill interview Andy Parsons from The Share Centre about why you should start investing.
The term is interchangeable with stock exchange, and is a market that deals in securities where market forces determine the price of securities traded. Stockmarket can refer to a specific exchange in a specific country (such as the London Stock Exchange) or the combined global stockmarkets as a single entity. The first stockmarket was established in Amsterdam in 1602 and the first British stock exchange was founded in 1698.
Also known as index funds, tracker funds replicate the performance of a stockmarket index (such as the FTSE All Share Index) so they go up when the index goes up and down when it goes down. They can never return more than the index they track, but nor will they lose more than the index. Also, with no fund manager or expansive research and analysis to pay, tracker funds benefit from having lower charges than actively managed funds, with no initial charge and an annual charge of 0.5%.
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).
An individual employed by an institution to manage an investment fund (unit trust, investment trust, pension fund or hedge fund) to meet pre-determined objectives (usually to generate capital growth or maximise income) in prescribed geographic areas or investment sectors (such as UK smaller companies, technology or commodities). The manager also carries the responsibility for general fund supervision, as well as monitoring the daily trading activity and also developing investment strategies to manage the risk profile of the fund.
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.