Spring 2017 suggestions for advanced investors
This article assumes that its reader already has some basic fund investments and is looking to add something new to their collection.
Basic or core investments include UK tracker funds (run by computer, see our guide here) or UK funds of shares managed by humans with the aim of growing your money or earning an income on it. Once you’re happy that you’ve got the UK growth and income sectors covered, you could consider widening into different areas.
That might mean choosing a Europe or US fund, or even going as far afield as Asia through an emerging markets fund. This is good for spreading your nest egg between baskets and you might get a boost in returns. However, there is more chance of losing money by doing so because you have a different currency and some companies (and stock markets) are not as well-regulated as in the UK.
Bonds (the government and company IOU variety) are more difficult to understand than shares. Their return is linked to general interest rates which are unattractively low currently and many investment professionals aren’t recommending them. Bonds are supposed to be less risky than shares: you can lose money but probably not the whole house. For this reason, they’re an important part of any properly balanced portfolio and, boring as they are, they should form part of yours.
Remember you should have a cash cushion worth three to six months of salary (or living costs) before considering investing. Don’t forget to use up your Isa tax-perk allowance and that small, regular amounts (eg a monthly plan) avoid the situation where you dump a large sum in the market just before a downturn.
We’ve asked fund experts Jason Hollands at Bestinvest and Sian Thomas at Hargreaves Lansdown for some recommendations to help you build your portfolio. I’ve listed just the names of the funds but, if you want more information, go to either of these firms’ websites (www.bestinvest.co.uk or www.hl.co.uk) where there’s stacks of data on them all. Our experts have put in tracker funds too where appropriate because they really save on costs over the long term.
I’ve listed the categories roughly in risk order. Everyone gets very het up about risk and what it means but it’s actually common sense. Are you going to put £50 in Tesco shares and £5,000 in some tiny tech firm in India you’ve never heard of but might be the next Apple? No, it’s the other way around and that’s how you should treat your portfolio. Put most of your eggs in a (relatively) known quantity like UK firms and a few which you don’t mind being broken in more exotic places. Then general rule of thumb for sectors such as emerging markets is no more than 5% of your whole portfolio.
I firmly believe it’s possible to manage your own money using funds but (WARNING KLAXON) if you’re really not confident choosing yourself, pay for someone to help you or at least start you off. See our guide to finding a financial adviser here.
FUND IDEAS FOR SPRING 2017
1. UK Growth
Jason picks: Liontrust Special Situations, JO Hambro UK Opportunities and Fidelity Index UK (tracker).
Sian picks: Franklin UK Mid Cap, Standard Life UK Smaller Companies and HSBC FTSE 250 Index (tracker).
2. UK income
Jason picks: Evenlode Income and Standard Life UK Equity Income Unconstrained.
Sian picks: Threadneedle UK Equity Income, Marlborough Multi Cap Income and Legal & General UK 100 Index Trust (strictly a growth tracker but pays dividends in line with index of about 3.5%).
Jason picks: TwentyFour Dynamic Bond and Henderson Strategic Bond.
Sian picks: Fidelity Moneybuilder Income, Invesco Perpetual Tactical Bond and BlackRock Corporate Bond Tracker.
Jason picks: Jupiter European and Threadneedle Europe Select.
Sian picks: TM Sanditon European, FP CRUX European Special Situations and Legal & General European Index (tracker).
Jason picks: T Rowe Price US Smaller Companies Equity and Vanguard S&P 500 UCITS ETF (tracker fund bargain at 0.07% of your investment as annual fee).
Sian picks: Legg Mason IF Royce US Smaller Companies and Legal & General US Index (tracker).
6. Global growth
Jason picks: FundSmith Equity and Scottish Mortgage Investment Trust.**
Sian picks: Lindsell Train Global Equity and Legal & General International Index Trust (tracker).
7. Global income
Jason picks: Artemis Global Income.
Sian picks: Newton Global Income.
8. Emerging markets
Jason picks: Fidelity Emerging Markets and JP Morgan Emerging Markets Investment Trust.**
Sian picks: Stewart Investors Asia Pacific Leaders, Jupiter Asian Income and BlackRock Emerging Markets Equity Tracker.
* There aren't so many well-run US funds about which is why our experts generally favour trackers in this sector.
** These funds are investment trusts, essentially a company which invests in other companies rather than a pooled fund. The differences are minimal and concern the price you get for buying and selling your investment. Check out the guide here for more information.