Spring 2018 suggestions for beginner investors
We all want our money to be safe which is why a savings account is so attractive. But the interest rates they pay are lower than the rate of inflation (the rise in the cost of living) currently so you’re actually losing money in real terms.
Shares offer a better return on your money than cash but they can go down in value as well as up. It’s sensible then to spread the risk between lots of different shares and invest small amounts regularly for the long term.
This is why many people put their money into pooled funds where a human manager (or sometimes a computer) does the investing for you. You’ll pay a fee for the privilege: more to a human (0.5% to 0.75% of your investment) than a machine (less than 0.1% is possible).
The trouble is that there are zillions of funds out there. Some are better than others so how do you choose? We’ve asked a couple of experts, Justin Modray at Candid Financial Advice and Gavin Haynes at Whitechurch Securities for their current recommendations which are listed below.
The easiest way to run the account is online via a fund platform. We like (in alphabetical order) AJ Bell, Bestinvest, Fidelity, Hargreaves Lansdown and Interactive Investor. Sign up as an investor and remember to select the option to use your Isa tax-perk allowance if you haven’t already done so elsewhere. If you’re investing close to the end of the tax year (5 April) you might consider a lump sum to meet your full allowance: up to £20,000 in 2018-2019. If you’re in a new tax year, you could set up a regular saving of much smaller amounts (eg a monthly plan) which also helps to smooth out the risk factor. You can start from £25 a month.
Remember you should have a cash cushion worth three to six months of salary (or living costs) before investing in shares.
The platforms will offer you a selection of funds. Pick which one you want, and how much you want to invest in it. You’ll probably have to give details of the bank account you want the cash taken from or sometimes you can send a cheque. Click to invest. Easy!
If you want to grow the value of your money in UK shares:
a. Marlborough Special Situations: Run by veteran manager Giles Hargreave, this fund invests mainly in the shares of smaller fast-growing companies such as tonic-maker Fever Tree.
b. Fidelity Index UK: This is a computer-run ‘tracker fund’ which blindly follows the ups and downs of the FTSE All-Share index. As its name suggests, the index covers most of the firms listed on the UK stock exchange.
a. JOHCM UK Dynamic: Fund manager, Alex Saviddes, goes against the pack by looking for unloved shares he thinks will recover in price. He’s been quite successful unearthing hidden gems.
b. HSBC FTSE Mid 250 Index. This tracker fund follows the fortunes of the next 250 largest companies after the top 100 largest in the FTSE 100 index. Being medium-sized, they have the potential for more growth than the big firms.
If you want income from UK shares (you can spend or reinvest):
a. Franklin UK Equity Income: By picking large UK firms which pay regular, high dividends to shareholders, such as Shell and Unilever, this fund hopes to deliver a higher yearly income than you would get from investing in a basket of general shares.
b. Chelverton UK Equity Income: Companies which can pay juicy dividends to shareholders as well as increase the value of those shares are the focus of this fund.
a: Schroder Income Maximiser: There are 30 to 40 different shares in this fund along with some whizzy ‘derivatives’ which pump up the yearly income to about 7%. Normal funds would pay about 4% currently. You do sacrifice a little growth in the value of your money for the boosted income though.
b. Vanguard FTSE UK Equity Income Index: This is a supercheap tracker which follows a specially made index of large UK companies paying attractive yearly dividends.
If you want to invest worldwide:
a. Fundsmith Equity. Provocative and (usually very) vocal manager Terry Smith selects international shares with long-term growth potential such as PayPal and Intercontinental Hotels.
a. Vanguard FTSE Developed World Index. Follow the ups and downs of American, European and some Asian shares with this low-cost tracker. Companies include Apple and Exxon.
Last updated 15 March 2018.