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.