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Best strategy to diversify and grow wealth?

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
gunnerb2939
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Best strategy to diversify and grow wealth?

#373654

Postby gunnerb2939 » January 6th, 2021, 1:40 am

Hello everyone,

I am new to Lemonfool and investing in general.

I am a 25 year old uk resident and grew up with little money and not a lot of financial knowledge, however over the last 6 years I have worked hard and saved up £20k and tried to learn as much as I can about finances and business.

I have recently began investing little amounts in the stock market and have had some success.

If anyone has any advice about which strategy would be best to grow my finances both in the stock market and in the business world I would be very grateful.

Good day to you all and many thanks.

Adamski
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Re: Best strategy to diversify and grow wealth?

#373685

Postby Adamski » January 6th, 2021, 8:15 am

Welcome to the forum. At 25 obvs. investing in your career is a priority, plus the things RVF mentions.

But for interest, in terms of investing strategy. I adopt core-satellite investing, so have a core of passive index funds, the main part, and satellites of actively managed funds. A number of us, list our portfolios on the Portfolio Management section of the forum.

TUK020
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Re: Best strategy to diversify and grow wealth?

#373700

Postby TUK020 » January 6th, 2021, 8:53 am

gunnerb2939 wrote:Hello everyone,

I am new to Lemonfool and investing in general.

I am a 25 year old uk resident and grew up with little money and not a lot of financial knowledge, however over the last 6 years I have worked hard and saved up £20k and tried to learn as much as I can about finances and business.

I have recently began investing little amounts in the stock market and have had some success.

If anyone has any advice about which strategy would be best to grow my finances both in the stock market and in the business world I would be very grateful.

Good day to you all and many thanks.


Gunnerb
I would second much of what has been said here, but with a slight change of emphasis. At 25, you probably have a lot to save for and deal with before you get close to worrying about pension. Like buying a house, starting a family etc etc. The following is advice I give to my kids around similar age.

1. Clear any debt.
2. Keep an emergency fund (ideally >3 months spending). The purpose of this is to avoid having to sell equities at the wrong time/withdraw funds from ISAs if something happens (lose job/car blows up etc).
3 Only worry about pension if a) you need to put any in to get matching funds in an employer scheme, or b) if you are in the higher rate tax band (>£50k earnings). If you are fortunate enough to have the opportunity of contributing to a Defined Benefit plan, grab it.
4. Fund a Lifetime ISA (max £4k/yr from you, government adds £1k). There are Stocks and Shares LISAs (HL offer one) that will allow you to invest in equities with this pot. There are penalties if you withdraw this money for use other than either first house purchase, or pension withdrawal. This assumes that you would like to buy a house/flat at some point.
5. Fund a Stocks and Shares ISA for the remaining. (you might want to do 4k LISA this tax year, then another 4k in April, and the remainder 12k in an S&S ISA).
6. If you have surplus over the 20k/yr limit on ISAs then look at SIPPs. This also means that you are probably into higher rate tax band, which increases the attractiveness of pension saving. The problem is that this then gets locked 30-35 years, and the government is bound to move the goalposts/rules on this several times before you get access to it.

As to what you invest in, advice given above is either low cost ETF index funds or international growth ITs, or a mix.
HTH

Wuffle
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Re: Best strategy to diversify and grow wealth?

#373705

Postby Wuffle » January 6th, 2021, 8:59 am

Clear EXPENSIVE debt.
The fungibility of money means a cheap mortgage rate leverages everything you are invested in though it isn't immediately obvious at first.

W.

Hariseldon58
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Re: Best strategy to diversify and grow wealth?

#373707

Postby Hariseldon58 » January 6th, 2021, 9:00 am

Some good advice so far, learning about investing would be my priority, it's not about trading, thats tempting in the early days :D


In no particular order...

Investing Demystified by Lars Kroijer
Smarter Investing by Tim Hale
Guide to Investing Strategy by Peter Stanyer
Rational Expectations, Asset Allocation for Investing Adults by William Bernstein
The Intelligent Investor by Benjamin Graham
The Long and the Short of It by John Kay
Winning The Losing Game by Charles Ellis
The Most Important Thing Illuminated by Howard Marks
Unconventional Success by David Swensen
A Random Walk Down Wall Street by Burton Malkiel
Mastering the Market Cycle by Howard Marks
Against The Gods by Peter Bernstein
Fooled By Randomness by Nassim Taleb
The Black Swan by Nassim Taleb
Antifragile by Nassim Taleb

TUK020
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Re: Best strategy to diversify and grow wealth?

#373709

Postby TUK020 » January 6th, 2021, 9:01 am

Wuffle wrote:Clear EXPENSIVE debt.
The fungibility of money means a cheap mortgage rate leverages everything you are invested in though it isn't immediately obvious at first.

W.

good qualification

Urbandreamer
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Re: Best strategy to diversify and grow wealth?

#373736

Postby Urbandreamer » January 6th, 2021, 10:17 am

I agree with all the above. However that's not a weak statement.

Currently, if you work a total 35 years (or personally claim child allowance for some of those years) you will get a guaranteed income at some point in the future. If you can increase your income then you can put more aside. Buying a house is something many of us do, and provides another form of diversification. Just try and pay the mortgage off early. Paying that debt off is a guaranteed return.

In my opinion the stock market is a great place to grow your wealth, but the above are great diversifiers. Achieving true diversification while investing in equities is VERY difficult. It also really hurts performance. Check the charts of almost any equity or index tracker over the last year and you will see that most/all show a large fall at the end of Feb 2020. I say all, but that is because you are not going to stumble upon the ones that didn't. The one that I know about has a five year performance that, well lets just say it's not great. They are an investment company and had few equity investments at that point.

Personally I would accept the market risk seeing my diversification elsewhere. I don't mean that you should put everything in Rolls Royce or some other company that you love. Instead invest in a range. RealyVeryFoolish made different selections than I would have, but there is nothing wrong with his list.

There is a LOT of debate about strategy. Currently good ones are momentum, growth and defesives. However times change. I remember when value and recovery investing were top dog, making the best returns. Some argue that it's a waste of time trying and that a passive tracker or ETF is best. It's not what I do with my money, but I can't argue that they shouldn't invest that way with their own.

In truth it doesn't really matter what you choose to do. Simply making the effort will get you 80-90% of the way there. Just don't over trade or invest heavily in single companies without a lot of research.

PS I have read many of the books mentioned. Don't place any of them on an alter and worship it. Many of them disagree with others in the list and some describe what worked well at other times but is now often a recipe for poor performance. They are still worth reading though.

tjh290633
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Re: Best strategy to diversify and grow wealth?

#373803

Postby tjh290633 » January 6th, 2021, 12:19 pm

I started at about your age, in 1958. There wasn't a lot of choice then that I knew of so I went for a Unit Trust. Knowing what I know now I would have gone for one of the global ITs, using a saving scheme. I was saving £3 a month, which was about 5% of my then salary. My first house was bought in 1961, when the mortgage cost me just over £11 a month, about 15% of my pay, but we did get tax relief.

You should be able to save some into a share ISA alongside a mortgage, although it is harder these days. Diversify after you have built up a decent size holding into another IT, and so on. Increase the amount you save as it becomes affordable.

The important thing is to start early and keep at it, reinvesting the dividends to get the benefit of compounding.

Charges and fees do matter, and you may decide to move ISA managers if the percentage gets too high. Keep an eye on it.

TJH

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Re: Best strategy to diversify and grow wealth?

#373873

Postby stevensfo » January 6th, 2021, 2:54 pm

tjh290633 wrote:I started at about your age, in 1958. There wasn't a lot of choice then that I knew of so I went for a Unit Trust. Knowing what I know now I would have gone for one of the global ITs, using a saving scheme. I was saving £3 a month, which was about 5% of my then salary. My first house was bought in 1961, when the mortgage cost me just over £11 a month, about 15% of my pay, but we did get tax relief.

You should be able to save some into a share ISA alongside a mortgage, although it is harder these days. Diversify after you have built up a decent size holding into another IT, and so on. Increase the amount you save as it becomes affordable.

The important thing is to start early and keep at it, reinvesting the dividends to get the benefit of compounding.

Charges and fees do matter, and you may decide to move ISA managers if the percentage gets too high. Keep an eye on it.

TJH


Not much to add apart from another book: Own the World, by Andrew Craig. Very easy read and emphasises the importance of investing globally.

Just to expand on TJHs comment about starting early: I didn't know a thing about investing till discovering The Motley Fool when I was about 36, while worrying about a very large gap in my overall pension contributions. I was earning absolute peanuts as a lab technician but still managed to stick away a small amount each month into a Halifax Sharebuilder account. Looking back, I realise that although the sums were small, I was slowly acquiring the routine and 'discipline' of putting something aside each month, and also making some silly mistakes that I eventually appreciated as an important learning experience. I think that this routine paid dividends later (no pun intended) as I kept at it through thick and thin till the dividends to be reinvested first matched and then overtook the initial contributions started years before.

Steve

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Re: Best strategy to diversify and grow wealth?

#374975

Postby LooseCannon101 » January 8th, 2021, 9:33 pm

Knowing what I know now - I am 57, I would look at the long-term returns and investing strategy of various investment trusts before deciding what to buy. At 25 I had never heard of investment trusts as only unit trusts (funds) were advertised in the general press. Diversification can best be achieved by buying a selection of investment trusts covering the whole world economy. Alternatively, one or more global investment trusts may suffice.

By long-term I mean the total return (dividends reinvested) over at least 20 years and preferably longer. Check out the share price over this period. This is likely (warning - not guaranteed!) to be the profile over the next 20 years. You'll see a lot of ups and downs - sometimes quite aggressive. This is to be expected as Mr. Market (see The Intelligent Investor) goes from manic to depressed and vice-versa.

Watch out for hidden fees e.g. management, administration,..etc. which can severely impact on one's returns. This site is especially good for finding specific information on any investing topic.

As has been mentioned, we all have our own investing strategy. Mine is ultra-simple - living below one's means, saving cash and steadily buying shares in a highly-diversified global investment trust (using an ISA) to be held 'forever'. I always keep 6 months living expenses in a bank account, my mortgage has been paid and I have no other debts. 'Forever' should be considered at least until state retirement age.

Others might choose index-tracking exchange traded funds (ETFs) instead of Investment trusts.

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Re: Best strategy to diversify and grow wealth?

#374980

Postby JohnB » January 8th, 2021, 9:58 pm

1) Decide whether you want to be a passive investor minimising costs, or an active one doing market research yourself or paying others to do it via Investment Trusts and active funds. At 25 I'd diversify across world stock markets, but ignore bonds, gold etc.

2) Fees and charges can be a huge drag, and they are much more understandable than the market. Ditto tax advantage schemes like LISA, LISA, SIPP

3) The most important tip, don't let your lifestyle inflate with pay rises. If you remain frugal, and invest money from promotions, you will be amazed how quickly your wealth with grow.

4) For every purchase, have in the back of your head 'I'll have to spend X minutes at work for that'. And if you like shiny things, make sure you've fully played with the old ones before you get more.

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Re: Best strategy to diversify and grow wealth?

#374982

Postby Dod101 » January 8th, 2021, 10:18 pm

JohnB wrote:1) Decide whether you want to be a passive investor minimising costs, or an active one doing market research yourself or paying others to do it via Investment Trusts and active funds. At 25 I'd diversify across world stock markets, but ignore bonds, gold etc.

2) Fees and charges can be a huge drag, and they are much more understandable than the market. Ditto tax advantage schemes like LISA, LISA, SIPP

3) The most important tip, don't let your lifestyle inflate with pay rises. If you remain frugal, and invest money from promotions, you will be amazed how quickly your wealth with grow.

4) For every purchase, have in the back of your head 'I'll have to spend X minutes at work for that'. And if you like shiny things, make sure you've fully played with the old ones before you get more.


I understand the sentiment but at the age of 25 as a new investor, no one could possibly know whether the want to be an active or a passive investor.

My advice would be to get stuck into growth investing at that age. See where it takes him. He can afford to do outrageous things and might even do well from doing so. If not it will be a lesson learned. Points 3 and 4 are very good I think but the main thing is to get into the stockmarket and learn by experience. Even if a 25 year old is very keen and he read all the books mentioned, at the end of the day he may be no wiser. Practical hands on experience with real money at stake is the only way to learn.

Dod

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Re: Best strategy to diversify and grow wealth?

#374988

Postby AleisterCrowley » January 8th, 2021, 10:42 pm

Repeating much of the above;

Spend less than you earn. Never pay a penny on credit card/bank loan interest
Invest 'automatically' every month (you'll get used to it if you set up a regular investment just after your pay goes in)
Don't let your expenditure drift up too much with each pay rise - channel some into investments
Use your ISA allowance
Minimise costs, they are a real drag on performance - check out the various platforms
Be aware of pensions , even if retirement seems a long way off (I'm pleading guilty here - I could have £1000s more if I'd got in the BT final salary earlier) - do some research, particularly re taxation

What to invest in?
Avoid individual shares, particularly if they are very popular.
Time spent analysing shares is probably wasted, you are up against the much bigger guns
Go for a cheap index tracker..

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Re: Best strategy to diversify and grow wealth?

#374991

Postby JohnB » January 8th, 2021, 10:52 pm

Lars Krojer's book is not hard to understand with any level of investing experience. If the OP agrees with the author's argument, that personal investors rarely have an 'edge', and while institutional investors might, but find it hard to pass that advantage on after fees, then they should invest in trackers.

If they disagree with the argument, then its a long climb to understand the market and hope to generate that edge. And an inexperienced active investor is likely to make more mistakes than an experienced one.

The OP should consider whether investing should become a hobby, or just something to keep an eye on.

oh, and hie the to monevator.com and read the articles there.

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Re: Best strategy to diversify and grow wealth?

#374995

Postby AleisterCrowley » January 8th, 2021, 11:22 pm

I was going going to recommend Monevator, but have done so several time recently and people will think I'm getting a percentage...

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Re: Best strategy to diversify and grow wealth?

#375402

Postby TUK020 » January 10th, 2021, 10:05 am

AleisterCrowley wrote:I was going going to recommend Monevator, but have done so several time recently and people will think I'm getting a percentage...

I have done so several times recently. I'm not on a percentage!

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Re: Best strategy to diversify and grow wealth?

#375408

Postby Dod101 » January 10th, 2021, 10:15 am

The answer a couple of years ago would have been to have bought Scottish Mortgage IT. Instant diversification and it would have grown your wealth......by almost three times.

For the next couple of years?

Dod

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Re: Best strategy to diversify and grow wealth?

#375453

Postby Hariseldon58 » January 10th, 2021, 12:49 pm

Urbandreamer wrote:


PS I have read many of the books mentioned. Don't place any of them on an alter and worship it. Many of them disagree with others in the list and some describe what worked well at other times but is now often a recipe for poor performance. They are still worth reading though.


I should have added your comment to my list of books ! There is a theme that Passive Investing is a good starting point, some areas of investing do well in a certain period and not others, its worth being aware of this...

eg Ben Graham was investing in a particular period and you really cannot do now what he was doing in the 50's and 60's however there is much wisdom there which is applicable in any time frame. The more one reads and reflects upon what came before can help form a judgement on what may come next.

XFool
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Re: Best strategy to diversify and grow wealth?

#375486

Postby XFool » January 10th, 2021, 2:19 pm

AleisterCrowley wrote:I was going going to recommend Monevator, but have done so several time recently and people will think I'm getting a percentage...

Psst! Reminds me. Your cheque's in the post...

AleisterCrowley
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Re: Best strategy to diversify and grow wealth?

#375490

Postby AleisterCrowley » January 10th, 2021, 2:43 pm

well, as you asked;
https://monevator.com/

That's another 75p in the bank..... ;)


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