You don’t need huge sums of money to get investing. Whether you have £50 a month to begin with or want to invest a windfall of £10,000, there is no time like the present to get your money working harder.
Over the long term, investing money in the stock market should produce far greater returns than you’ll get from even the best savings accounts. But for beginners, the question is: how should I invest?
We’ve put together four different investment scenarios and asked the experts how they would invest the cash. The answers should help beginner investors of any age and any financial background plan for their family’s future by offering hints and tips on how and where they should invest their cash.
As always, if you are in any doubt, make sure you seek independent financial advice to help you make the right decisions. If you don’t have a personal recommendation from friends or family, you can visit Unbiased.co.uk to help find an adviser in your area.
£50 a month
Where you should invest depends on why you are investing, over how long and the amount of risk you are willing to take.
When investing on a monthly basis, it is best to have a clear understanding of what you are actually saving the money for. If your aim is to build up emergency funds or you’re saving for something specific and expect to spend the money within the next three to five years, savings accounts and cash individual savings accounts (Isas) are probably the best way to go.
You should aim to make regular deposits into a cash Isa, where all interest will be paid tax-free.
Justin Modray, director of Candid Financial Advice, says the golden rule is the same however much you invest: make sure you don’t bite off more risk than you can chew.
“If you can invest for five to 10 years or more and sleep soundly through potential downturns along the way, then the stock market is generally a good place to start for long-term investing,” he says. “An added potential advantage of monthly investing is that it helps smooth the ups and downs of markets.” For more on this read Should I invest regularly or pay in a lump sum?
Modray says beginner investors with £50 a month should opt for a single investment fund and consider switching future contributions into another fund once they have built up a reasonable amount of money. See our latest Investment Doctor article for ideas on how to add funds if you increase your regular monthly contributions.
For those who want to adopt a more cautious approach and don’t want all of their money going into the stock market, Patrick Connolly, a certified financial planner at Chase de Vere, rates Royal London Sustainable Diversified Trust. This fund invests in companies which benefit society and spreads risk by investing into UK corporate bonds alongside shares.
Modray says the Vanguard LifeStrategy range of funds offer a cheap and convenient way of investing your money across global stock markets and fixed-interest investments such as government and corporate bonds. There are five options, ranging from 20% stock market exposure to 100%, so they should suit most needs.
Peter Chadborn, director and adviser at Plan Money, recommends a fund with a cautious objective for someone starting out with just £50 a month: “We require a low-cost, globally diversified, risk-controlled solution and, of course, good consistent past performance.
"To meet these criteria, I would suggest the Vanguard LifeStrategy 60% Equity fund.”
If you are happy to have all your money in higher-risk company shares, Connolly recommends a “good low-cost UK tracker fund” that will give broad exposure to the UK stock market. He likes the HSBC FTSE All Share Index fund.
For those who are happy to take greater risk, then exposure to more volatile areas such as emerging markets can be considered. “These have the potential to perform very well over the long term,” adds Connolly. “A good choice is the JPM Emerging Markets fund.”
£250 a month
Modray says: “Larger sums of money make it practical to put together a basket of funds that gives you exposure to several asset types that are unlikely to all move in the same direction at the same time. It can also make sense to add further diversity by combining cheap stock market tracking funds with active managers who invest quite differently. At the very least, I’d suggest exposure to UK and overseas stock markets, fixed interest and commercial property.”
Darius McDermott, managing director at Chelsea Financial Services, suggests the following strategy. “For cautious investors – perhaps someone making the transition to investing in other asset classes other than cash for the first time – I would suggest a mix of a more defensive UK equity income fund and a targeted absolute return fund.
“An equity income fund is a way of getting exposure to the stock market but at the same time should be less volatile than a growth-orientated fund.”
Whichever funds you go for, review your fund choices regularly, at least once a year and preferably every six months.
In the UK Equity Income sector, McDermott likes the Artemis Income fund. He says the managers invest for both income and growth.
In the Targeted Absolute Return sector, he favours SVS Church House Tenax Absolute Return Strategies, which he says is “one of the few funds in the sector to target an absolute return from diversification and risk management alone”.
Modray says: “The Vanguard FTSE UK All Share tracking fund is a good bedrock for low-cost exposure to the UK stock market. Lindsell Train UK Equity and Marlborough Special Situations would nicely complement this.
"Both funds also invest in the UK stock market, but very differently from the FTSE All Share index. Mr Train has excellent stock picking track records while Marlborough focuses on medium- and smaller-sized companies.
“Likewise, Vanguard FTSE Developed World ex UK offers very cost-effective tracking exposure to overseas stock markets with Fundsmith Equity being a good diversifier.
"Fundsmith invests long term in a handful of companies with good prospects, and tends to look very different to the index, making it a good diversifier alongside the Vanguard fund."
“I like Royal London Sterling Extra Yield Bond and Artemis Strategic Bond for fixed-interest exposure. Royal London tends to be the more aggressive of the two funds, so it can work well holding both side by side.
“Commercial property funds come in two flavours, those that buy physical property and those that buy property company shares. To help diversify stock market exposure, I prefer physical property and the L&G UK Property fund does a good job of this.”
Like most funds of this type, it is currently suspended during the Covid 19 crisis. As an alternative he suggests funds that invest in the shares of property companies.
"iShares Global Property Securities Equity Index is a low cost way to track the global commercial property market by holding a basket of large property company shares. This style of fund tends to move more closely with stock markets than physical property funds in the shorter term, but is still a sensible hold for long term property exposure."
£10,000 lump sum
All our experts state that your attitude to risk is one of the most important things to consider before you invest your £10,000. “You must ask yourself: how much risk am I prepared to take? How long am I investing for? What are my investment goals?” says McDermott. For more on this read What is investment risk?
He says a medium-risk person looking for capital growth across a minimum 10-year investment horizon could consider weighting their portfolio towards 40% in the UK, 20% in the US, 15% in Europe and 5% each in Asia, Japan and other emerging markets, as well as 10% in so-called absolute return funds.
All our experts said that investors should look to tax-efficient investments as a first port of call. That means using your Isa allowance of up to £20,000 for the 2020/21 tax year. Plus if you are prepared to lock the money away until you’re at least 55, then you could consider pensions, which give an upfront boost to your investment via income tax relief on contributions.
Rebecca O’Keeffe, head of investment at online investment platform interactive investor, says that investors can take a look at ii’s Super 60 list for a selection of high quality funds, investment trusts and ETFs, encapsulating strategies and markets across the active and passive range to generate possible ideas for their portfolio.
“In terms of specific fund choices, for those who do not have time to monitor their investments, Terry Smith’s global equity fund, Fundsmith Equity, is a top performer, with an unconstrained mandate, allowing the fund to invest where it wants, when it wants. Fundsmith has been interactive investor’s most-bought fund across 2016, 2017, 2018 and 2019. The fund has performed very well since it launched in 2010 by investing in a wide range of global investments across different asset classes and sectors.
“For investors who are looking for exposure to UK markets then Lindsell Train UK Equity and CFP SDL UK Buffettology are both compelling options, with their respective fund managers operating a high-conviction, low turnover approach.
“Investors looking further afield could consider emerging markets, though this is a high risk, potentially high return approach. JPM Emerging Markets trust is one of the largest global emerging market trusts and boasts highly competitive returns over three, five and ten years. It invests in a range of emerging markets including China, India, South Africa and Brazil.”
ii most bought funds 2019
|2||Lindsell Train Global Equity|
|3||Vanguard LifeStrategy 80%|
|4||Vanguard LifeStrategy 60%|
|5||Lindsell Train UK Equity|
|6||Vanguard LifeStrategy 100%|
|7||AXA Framlington Global Technology|
|8||Vanguard US Equity Index|
|9||Baillie Gifford Global Discovery|
|10||Vanguard FTSE Developed World Ex UK|
Source: interactive investor, May 2020.
ii most bought investment trusts 2019
|2||City of London Investment Trust|
|3||Finsbury Growth & Income|
|4||Schroder UK Public|
|7||The Renewables Infrastructure Group|
|9||F&C Investment Trust|
Source: interactive investor, May 2020.
Connolly says a good choice could be Miton Cautious Multi Asset, which spreads risks by investing in shares, fixed interest, gold and property REITs. It tries to get the balance between capital growth and capital protection.
“If you’ve already got an investment portfolio in place and are happy to take greater risks, then good choices could include Liontrust Special Situations, which invests in UK shares, or Rathbone Global Opportunities, which invests in under-the-radar companies with the biggest exposure to US shares,” he says.
£50,000 lump sum
“How and where to invest £50,000 is very dependent on a number of factors – time horizon, attitude to risk and objective – whether that’s income, growth or a bit of both,” says Sheridan Admans, investment research manager at The Share Centre.
Connolly adds: "If you don't have any, or many, other investments, then you shouldn't take too much risk. If you take big risks and your investment falls by 20%, which is entirely possible, then your £50,000 will only be worth £40,000," he warns.
Connolly believes the best way to spread risk and help to protect your money, is to invest in different asset types. "So perhaps put some money in shares, some in fixed interest and maybe some in other asset classes.
"Then also spread risk within each of these assets by picking different types of investments in different geographical regions. So for example, with shares you can invest in large and small companies, in different types of businesses and in different parts of the world," he says.
Connolly suggests those looking to spread risk by diversifying could consider investing through a multi-asset fund such as, Royal London Sustainable Diversified Trust, Premier Multi-Asset Distribution and Miton Cautious Multi Asset
However, for those looking for income, he suggests a diversified income stream from a mix of property, strategic bond and equity income funds that use covered call options to enhance the income provided.
“I like the VT Gravis UK Infrastructure Income fund which has been designed to be resilient in difficult economic environments and has a decent yield that should also be more resilient than many other assets. Invesco Monthly Income Plus is a good strategic bond fund to consider and Royal London Corporate Bond is ideally placed to make the most of new bond issuance. Schroder Asian Income Maximiser is an equity income fund, which alongside investments in Asian companies, uses high-risk derivative instruments to generate additional income. Finally, if investors want a one stop shop for diversified income, then M&G Episode Income and Close Managed Income are good options."
This article was first published on 26 June 2014 but fund recommendations have been updated.
This article was originally published in our sister magazine Moneywise, which ceased publication in August 2020.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.