9 tips for investors at the start of 2019

Three of interactive investor's in-house experts look at the strategies, funds and tips that investors might consider to get their investments in shape this year. 

New Year resolutions typically focus on personal health, but another resolution would be to take a close look at your finances; there may be more ways to improve your future financial health than you think.

interactive investor looks at the strategies, funds and tips that investors might consider to get their investments in shape, including commentary from Head of Personal Finance, Moira O’Neill; Head of Investment, Rebecca O'Keeffe; and Head of Markets, Richard Hunter.

1.    Identify your risk profile

Moira O'Neill, Head of Personal Finance, interactive investor says: "The most important thing is to get your risk profile right. You might be happy to embrace double digit returns in the good times, but can you take the rough with the smooth? The FTSE 100 was down 12.5% last year – could you tolerate that again this year, or worse?

"When it comes to fund selection, there are literally thousands to choose from, and sadly many of them are all too similar. So, if you can identify your risk profile you are well on your way to nailing down a fund that can best suit your needs. 

"If you have a high risk appetite or a very long time scale of 10 years or more, you may be perfectly suited to a high risk fund that invests in shares only. But if you are more risk averse or have a shorter time scale of five to 10 years, you may want to look at a combination of shares, bonds and commercial property to help take at least some of the sting out of stock market volatility. And if you don’t have a long-term view of at least five years and preferably 10, you should not be investing at all."

2.    Starter investors: Get started with low-cost tracker funds

Rebecca O'Keeffe, Head of Investment, interactive investor says: "New investors often stop before they start due to the sheer range of potential alternatives. For those that are struggling to get past square one, low-cost tracker funds might be a good alternative. 

"The Vanguard LifeStrategy 80% Equity Fund is a good starter fund for those who haven't invested in a fund before but feel ready to start building an equity market portfolio. It offers a one-stop solution to the world's equity and bond markets, with an 80/20 equities to bonds split which is ideal for those setting off on their first investment journey. With an annual charge of just 0.22% a year, the fund gives you broad exposure to a range of global markets at very low cost.

"The longer your investment horizon, the more equity risk you should be happy with.  But in times of upheaval, some people might prefer a greater balance between equities and bonds. For those who want less equity market risk, the Vanguard LifeStrategy 60% Equity Fund is another good starter option, with 60% equities and 40% bonds."

"For investors who are looking to invest in the UK, Fidelity Index UK fund aims to track the FTSE All Share and costs just 0.06% a year."

3.    Passive investor? Consider adding some active funds

Moira O'Neill says: "As we head into a more uncertain outlook for the stockmarkets, investors who have traditionally used passive funds to keep their costs low might want to diversify risk by looking to active funds. These charge a bit more but rather than just following the market up or down, they aim to beat it. There's always the risk that an active fund underperforms the market though, so you need to choose carefully. interactive investor’s Super 60 select list of funds can help with your selection.

• ii Super 60 investments can be found here

"My pick is F&C Investment Trust, which offers both global and asset class diversification and has increased its dividend each year for 47 years and counting. With a 150-year history, it has also seen more than its share of ups and downs – from world wars, the Great Depression, the tech boom and bust, and beyond. It has weathered it all and delivered excellent long-term returns."

4.    Review your 'global' funds

Rebecca O'Keeffe says: "Whilst global funds make good one-stop investments, it's still important to do your homework. Review how global your global fund actually is. For example, there are four investment trusts in the AIC Global sector with more than 65% of their assets in the UK. Whilst this might be fine for some, it might not meet everyone's definition of a truly global fund. 

"Similarly, many global funds have a heavy US bias, and whilst this might be with good reason, it is still worth checking that you are comfortable with the level of international diversification."

5.    Look for stocks with stability and diversity

Richard Hunter, Head of Markets, interactive investor says: “The easiest way for DIY investors to build a defensive portfolio is to look at stocks on a case-by-case basis, such as companies with stable cash generation and good geographical diversification. Businesses with strong cash generation tend to be the ones paying a higher dividend yield and remain something of a jewel in Britain’s crown in the current interest rate environment (not to mention the UK's Brexit uncertainty). 

"One such example, for me, is Prudential (LSE:PRU) Alongside its great geographical diversification in the US for baby boomers, the UK and Europe for general investor needs and in Asia for health and investment insurance, it has been riding on the fact that the younger generation needs to save for its own retirement. 

“M&G/Prudential's recently announced demerger, when it comes into force later this year or early next, will most likely leave both companies as FTSE 100 constituents, which remains, as far as market consensus is concerned, a resolute ‘buy’ despite some hits to the share price."  

6.    Hold on to your hat for potential currency volatility

Rebecca O'Keeffe says: "When it comes to potential fluctuations in the value of sterling, it's place your bets time: No Brexit? May's deal? Delay? Hard Brexit?  Between these four possible outcomes lies a huge difference in the potential outlook for the pound in 2019 and investors may well need to hold on to their hats. 

"If Brexit can be avoided, the pound should soon recover to 1.40+ against the dollar. But on a hard Brexit, something closer to parity versus the dollar would be a distinct possibility. May’s deal or a significant delay is probably somewhere in the middle.

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"There is an inverse relationship between the strength of the pound and the sterling valuation of many of the larger UK-listed international companies with strong overseas earnings - a weak pound would boost the sterling valuation of UK multinationals and may well be a reason why so many fund managers are optimistic on the prospects for UK equities next year."

7.    Reviewing your pension plan

Moira O'Neill says: "January is the perfect time to take a deeper dive into your pensions, based on your personal circumstances and attitude to risk. As you get older, you will hopefully be earning a lot more with less hindrances on your income. 

"You may want to start paying more into your pension, and even start to look again at your risk profile – have you been taking on board too little risk? Your pension review made this year may make you aware that you might not have as much as you've forecasted in the past.

"Alternatively, you might decide to turn to capital preservation. If you decide to de risk your portfolio, bear in mind that on average we are living longer and your money needs to work harder for longer, so there’s a careful balancing act."

8.    Review the assets in your pension

Moira O'Neill says: "Too many people don't think of their pension as an investment. But for many, on retirement, it is likely to be the biggest asset they will ever have. So even if you are in a workplace pension, rather than a SIPP, where you are likely to have a better understanding of the individual holdings, take a look at the underlying holdings. If you are in a default fund, it may not offer the potential for growth that you need to help meet your goals and it may not suit your risk profile."

9.    Utilise tax efficiency and check your investment charges

Rebecca O'Keeffe says: "With the turbulent UK political situation, it is more important than ever for investors to be tax efficient with their investments. Over the long term, ISAs provide significant benefits to those investors who are able to accrue large holdings giving the potential to provide a steady income that is free from any further tax. 

"Meanwhile, it has become commonplace for people to check their utility and phone providers, but investors should also check their financial providers' charges."