Last week I wrote about investing in the UK and sensible places to put your money. This week I’m looking at areas outside the UK where Brexit-fearers might feel more confident about investing. It’s a good idea to make up your mind soon. You can stash up to £20,000 this year in either cash or investments in the tax perk Isa account. But you must do it by the end of the tax year (5 April) or lose the allowance entirely.
At SMM we would always suggest you invest in funds (baskets of shares from lots of different companies) rather than shares in a single company like Apple. Confusingly, there are zillions to choose from and it’s hard to tell which is right for you. One short cut is to check out the recommended lists at fund platforms (online fund brokers). I’ve had a look at what the experts are picking and thought I’d share a few suggestions.
Before you jump in however, it’s worth looking at what investments you have already. You should have an emergency cash fund of three months’ worth of your salary before you even think about investing. Then you should look at funds of UK shares for a good chunk of your overall portfolio. Only when those bases are covered should you contemplate going further afield. And, as investing abroad means you’re also dabbling in currencies other than sterling, the risk of losing money is greater. Make sure you aren’t overcommitted in any one geographical area. You should also be investing for the long term: at least five years, preferably 10 or more.
The economic news coming out of Europe currently is gloomy but there are still some individual companies making money. You therefore need a fund manager who can pick the gems out of the mud. One of the most recommended by experts, says research by Interactive Investor, is Richard Pease who runs FP CRUX European Special Situations. I’ve held this fund for a few years now and am very happy with its performance.
Another widely picked fund is BlackRock Continental European Income. This focuses more on generating an income every year for investors rather than growing the value of your money. In theory, that means concentrating on large firms with dependable dividends which should be more stable. You can always reinvest the income back into the fund.
Fund managers seem to add little value to US investing so you’re best off with a tracker fund. These are run by computer and simply follow the ups and downs of a stock market index such as the S&P 500. A little bit of your money is invested in every company in the index (actually 505 in the S&P 500) so your risk is widely spread. The great benefit of a tracker fund is that it is cheap with generally 0.1% or less a year of your money going in fees. There is not much to choose between them so pick on price. Names to look out for are Fidelity, Legal & General and Vanguard.
Experts think that American shares are a bit overpriced at the moment so bear in mind you could be buying at the top of the market. One way to get around this is to drip-feed in your money over time with a regular monthly savings plan. To meet the Isa deadline, you’d have to open the Isa with cash before 5 April, then set up the regular saving into shares.
3. Asia and emerging markets
These areas are high risk due to political uncertainties. But they also happen to be home to some of the fastest-growing economies in the world eg China and India. You should invest only a small amount of your total portfolio here (5% to 10%) and general funds rather than single country funds are (in theory) less risky.
One of the most recommended by experts is Stewart Investors Asia Pacific Leaders. This fund, which I also hold, invests across the region and focuses on larger, more established companies. Fund platform Hargreaves Lansdown also tips Aberdeen Asia Pacific Equity while Bestinvest likes Schroder Asian Alpha Plus.
If you can’t make up your mind, why not just pick a general global fund? (These do sometimes have some UK shares too.) Here you’d need to choose between a fund focused on a small amount of worldwide shares, which is higher risk and could make potentially bigger gains, or a more general fund with lots of shares which will trundle along with less steep swings up and down. Hargreaves Lansdown picks Lindsell Train Global Equity and Rathbone Global Opportunities for the former, Artemis Global Income and Newton Global Income for the latter. Bestinvest likes the concentrated FundSmith Equity and suggests a tracker fund, Fidelity Index World, if you want a cheaper, more widely spread option.
Please see our SMM guides to Isa investing for more help.