Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to johnstevens77,Bhoddhisatva,scotia,Anonymous,Cornytiv34, for Donating to support the site

Choosing a safe strategy for a beginner while also learning more

Investment discussion for beginners. Why you should invest your money, get help getting started
gardening
Posts: 3
Joined: May 22nd, 2021, 5:10 pm
Has thanked: 2 times
Been thanked: 1 time

Choosing a safe strategy for a beginner while also learning more

#414198

Postby gardening » May 22nd, 2021, 5:32 pm

Hello all.

I am a beginner investor. Out of my current savings, I would be comfortable with putting around 10k into investing. I then plan on making monthly contributions of around 300 to 500 £.
I am looking to starting to invest soon as I am approaching my 30s and understand the importance of time as the most significant factor. As I am still unexperienced, and it inevitably takes time to learn, I have thought that passive investing could be a good first stop for me. A Vanguard Stocks and Shares ISA seems like a good option for me in view of their large offer in terms of risk options and very competitive fees, and it would give me a good way to start putting my money to work right away (because time is in fact money).

Now as a side, and only for a very minor percentage of my "bankroll" (as a poker player would say), let's say <10%, I would be interested in also doing some investing in a more DIY / hands on way. I don't expect this to be as lucrative as I expect it to be informative / a learning experience, one which may even prove that no, DIY investing is not for me and I am better off with just putting my money into a managed fund. For this, I would be looking at using an online platform; top choices here are Freetrade or Interactive Investor. Some cryptocurrency investing (not trading, which I don't have the time for) may also play a part in this.

Do you see any major flaws with this reasoning? am I in the right mindset as a beginner or have I made some unrealistic assumptions? Is my choice of broker and investing platform sensible if you were just starting out?

Thank you very much!

Alaric
Lemon Half
Posts: 6033
Joined: November 5th, 2016, 9:05 am
Has thanked: 20 times
Been thanked: 1399 times

Re: Choosing a safe strategy for a beginner while also learning more

#414199

Postby Alaric » May 22nd, 2021, 5:41 pm

gardening wrote:Do you see any major flaws with this reasoning?


You don't need to set up your ISA through Vanguard to invest in Vanguard funds. They will also be available for you to hold if you set up the ISA with Interactive Investor and all other or almost all Broker platforms. Also if the annual investment is less than £ 20,000 presumably it would all be sheltered from tax in an ISA and you are only allowed to put money into one ISA each year.

gardening
Posts: 3
Joined: May 22nd, 2021, 5:10 pm
Has thanked: 2 times
Been thanked: 1 time

Re: Choosing a safe strategy for a beginner while also learning more

#414204

Postby gardening » May 22nd, 2021, 6:03 pm

Right, I had forgotten this principle. Clearly it would make sense to put all my efforts under the same wrapper. Thank you!

kempiejon
Lemon Quarter
Posts: 3488
Joined: November 5th, 2016, 10:30 am
Has thanked: 1 time
Been thanked: 1145 times

Re: Choosing a safe strategy for a beginner while also learning more

#414205

Postby kempiejon » May 22nd, 2021, 6:06 pm

Hey gardening welcome to the boards.
Your opening sentences looks like you've done some research. Putting shares into an ISA and/or a SIPP will (for now) protect you from some tax. We need to make our own choices and if I knew at your age what I know now, once I had built a good slug of emergency cash, a global index tracker would be my advice to my younger self. Trackers are low cost as are Investment Trusts if you want a professional manager to do some in depth research, make complex decisions and invest in more exotic regions or prospects than a regular Joe can.
There's a lot of other questions to think about - can you lock the money away indefinitely, will you/do you have a partner, debts, kids, other dependents, a mortgage or pensions. Lifestyles and circumstances change and there's more to investing that just the money but whilst we'reon the money how would you cope if your £10k investment was only worth £5k and your individual picks went down the toilet?

I don't know anything about ii or Freetrade, I use AJ Bell and Halifax both have low cost dealing days £2 per deal, which if you're investing £500 per month would be important to keep fees as a low %age. I started with a tracker and then after a couple of years started spending hundreds a month picking individual shares to learn my way around the stock market. I'd probably have more money if I'd stuck to the tracker - but I learnt a lot and I'm confident now with individual holdings but still have large holdings in trackers in my SIPP.

As for crypto I don't properly understand blockchain technology, I have had the odd look at it but it doesn't feel like investing and the hassle and my ignorance keeps me from going any further.

Dod101
The full Lemon
Posts: 16629
Joined: October 10th, 2017, 11:33 am
Has thanked: 4343 times
Been thanked: 7534 times

Re: Choosing a safe strategy for a beginner while also learning more

#414210

Postby Dod101 » May 22nd, 2021, 7:08 pm

Good for the OP. I think though that he needs some 'hands on' experience as soon as possible. First though, I would say that a tracker is probably a good basis for starters. Then I would select a couple of ITs and put monthly savings into them for a year or two. Generalist ITs such as Alliance and F &C would be my choice. Read the Annual and half yearly Reports carefully. They will give a good education. Also read some of the earlier Shareholder Letters from Berkshire Hathaway. They are excellent in setting out the principles of investing. The later letters are not so good.

From that base I would start selecting individual shares and build up from there. He needs to know about investing I think and that takes time. Of course he could just plunge in, make more mistakes than he will anyway, but might make his fortune by the time he is 35.

Dod

Midsmartin
Lemon Slice
Posts: 778
Joined: November 4th, 2016, 7:18 am
Has thanked: 211 times
Been thanked: 491 times

Re: Choosing a safe strategy for a beginner while also learning more

#414220

Postby Midsmartin » May 22nd, 2021, 7:48 pm

I have spent hours, probably thousands of hours, picking shares over the years. It becomes a little addictive. I'm trying to shift to trackers now, but it's hard!

On review, my performance has been broadly similar to the ftse250 over 10+years. That does include my cash and bonds, but I could have bunged the lot into trackers, with an extra bias to small companies. I'd have done ok, and left myself with enough spare time to learn a foreign language, spend more time with my children, cycling, or anything else. There are loads of times I could/should have bought a stock that went sky high, but didn't, because life and indecision get in the way.

From time to time I've struck lucky with a particular share and done substantially better than the ftse250 (Cape , JD sports), but the years when I'm way ahead of the market are rare (eg 2009-10). I've also had periods I've done worse, due to being distracted (what did I do wrong in 2011-13??), uninterested or picking too many trendy penny stocks.

So I applaud your interest in investing. But don't dismiss the idea of staying with those trackers, or some investment trusts. They don't do too badly over the long term.

You'll have much more time on your hands to become a glider pilot, or climb the Matterhorn. To borrow an idea, few people on their deathbed will say "I wish I'd spent more time staring at numbers on a computer screen.". And being in charge of your own stock picking can be remarkably stressful when, for example, there's a pandemic or a financial crisis.

If you still want to taken control, then welcome aboard!

jonesa1
Lemon Slice
Posts: 263
Joined: May 27th, 2019, 9:47 am
Has thanked: 103 times
Been thanked: 142 times

Re: Choosing a safe strategy for a beginner while also learning more

#414222

Postby jonesa1 » May 22nd, 2021, 8:05 pm

If you see investing as a potential hobby, then maybe start with a global tracker fund, in an ISA on a low cost platform. In parallel why not create a virtual portfolio, no real money involved, but run that for a couple of years to see how well you've done against your tracker. It's also worth having a read of the Monevator website to see if you can be persuaded that a passive portfolio is all you ever need, which it probably is, but less fun / stressful (delete as applicable) than active investing. There's a good breakdown of platform charges on Monevator as well: https://monevator.com/compare-uk-cheape ... e-brokers/

NotSure
Lemon Slice
Posts: 916
Joined: February 5th, 2021, 4:45 pm
Has thanked: 679 times
Been thanked: 314 times

Re: Choosing a safe strategy for a beginner while also learning more

#414233

Postby NotSure » May 22nd, 2021, 8:58 pm

If you are happy with basic ETFs/funds while getting started, I think Vanguard are pretty hard to beat for the ISA.

e.g. if in your first year, you make a purchase of £500 pcm, i.e. 12 trades, then your all-in fees for the first year (account management and trading costs) would be around £4.50. Even if you bought 12 different funds, you could also sell the lot for nothing. Plus their OCFs are among the lowest too.

I recommend you closely at their fees though - the OCF does not include their 'internal' costs of trading/spreads etc., so the 'hidden' annual fees can vary considerably from fund to fund. (This is not just for Vanguard).

https://www.vanguardinvestor.co.uk/content/documents/legal/vanguard-full-fund-costs-and-charges.pdf

Edited to add: I would also recommend if you plan to dabble in crypto, then do it a completely separate account to your 'traditional' investments. Crypto is so volatile, it will make your shares look very boring - I think it is best to keep the two completely separate.

JohnW
Lemon Slice
Posts: 506
Joined: June 1st, 2019, 7:00 am
Has thanked: 5 times
Been thanked: 176 times

Re: Choosing a safe strategy for a beginner while also learning more

#415433

Postby JohnW » May 27th, 2021, 1:14 am

Perhaps write yourself an investment policy statement.
https://www.bogleheads.org/wiki/Investm ... _statement

LooseCannon101
Lemon Slice
Posts: 252
Joined: November 5th, 2016, 2:12 pm
Has thanked: 302 times
Been thanked: 147 times

Re: Choosing a safe strategy for a beginner while also learning more

#416120

Postby LooseCannon101 » May 29th, 2021, 7:42 pm

At your age I wished I had chosen a highly diversified global equity portfolio held in an ISA, and bought monthly using pound-cost averaging. Boring strategies do work so long as you have patience and are disciplined. The latter is the strategy I have used for the past 20 years.

The portfolio can be created using a World Equity index tracker. Alternatively, one or more highly diversified global equity investment trusts e.g. F&C will do.

Before buying any asset look under the bonnet and check its contents, running costs and performance over the long term e.g. 20 years.

Cryptocurrencies are worthless unless backed by a government. Check out 'The Greater Fool Theory'.

There is no such thing as a safe strategy. Investing in a highly diversified equity portfolio should increase your wealth, so long as you are prepared for the roller coaster ride. An average total return (dividend re-investment) of 8% will double your money in 9 years. Compounding over several decades will turn relatively small monthly amounts into a large capital sum.

Urbandreamer
Lemon Quarter
Posts: 3121
Joined: December 7th, 2016, 9:09 pm
Has thanked: 347 times
Been thanked: 1025 times

Re: Choosing a safe strategy for a beginner while also learning more

#416129

Postby Urbandreamer » May 29th, 2021, 8:35 pm

gardening wrote:Do you see any major flaws with this reasoning? am I in the right mindset as a beginner or have I made some unrealistic assumptions? Is my choice of broker and investing platform sensible if you were just starting out?

Thank you very much!


Are you sure that you are just starting?

When I started, 30 years ago, I was a lot more green. I "bet" half my wad on Next (the high street shop). Unfortunately I doubled my money quickly. That slowed down the learning process.

Personally I'm not a fan of passive investments, but it's really very, very difficult to argue that someone who invests that way is making a mistake. They just bloody work!

It's taken 30 years to have evidence that while my ability is substandard, I can invest in actively managed funds that do better than I can. The passive guys will ask "how can you pick such funds"? The question is fair. The answer is that I don't know how I do it. So you are as well investing in whatever takes your fancy to learn your strengths.

Meanwhile the index tracker will do what it does.

I think that your plan shows significant maturity. I would just advise continuing to try to pick things yourself when previous choices loose money or even significant money. It's a great hobby, and can actually pay for itself or turn a profit.

scotia
Lemon Quarter
Posts: 3561
Joined: November 4th, 2016, 8:43 pm
Has thanked: 2371 times
Been thanked: 1943 times

Re: Choosing a safe strategy for a beginner while also learning more

#416384

Postby scotia » May 31st, 2021, 3:46 pm

LooseCannon101 wrote:At your age I wished I had chosen a highly diversified global equity portfolio held in an ISA, and bought monthly using pound-cost averaging.
There is no such thing as a safe strategy. Investing in a highly diversified equity portfolio should increase your wealth, so long as you are prepared for the roller coaster ride. An average total return (dividend re-investment) of 8% will double your money in 9 years. Compounding over several decades will turn relatively small monthly amounts into a large capital sum.

Gardening - Could I strongly agree with the above sentiments from LooseCannon.
Since you will be investing modest sums each month to get the pond-cost averaging, check out the cost structure of your selected broker. Generally speaking you may find a costing based on a percentage of your holding is preferable to a commission on each purchase. And you may find that modest purchases of OEICs are more cost effective than ITs.

1nvest
Lemon Quarter
Posts: 4323
Joined: May 31st, 2019, 7:55 pm
Has thanked: 680 times
Been thanked: 1316 times

Re: Choosing a safe strategy for a beginner while also learning more

#416459

Postby 1nvest » May 31st, 2021, 10:26 pm

Buy into something that wont go broke, such as a world stock index fund. Strive to keep costs/taxes low, so build up savings in a ISA. Longer term and stocks are one of the safest choices, better than cash, bonds etc. Dips/dives during accumulation years are a good thing, enables added savings to buy more shares than had prices not dipped/dived. Only when you near retirement should you consider adding bonds, so nothing else really needed to be learnt until then.

NotSure
Lemon Slice
Posts: 916
Joined: February 5th, 2021, 4:45 pm
Has thanked: 679 times
Been thanked: 314 times

Re: Choosing a safe strategy for a beginner while also learning more

#416598

Postby NotSure » June 1st, 2021, 3:16 pm

1nvest wrote:Buy into something that wont go broke, such as a world stock index fund. Strive to keep costs/taxes low, so build up savings in a ISA. Longer term and stocks are one of the safest choices, better than cash, bonds etc. Dips/dives during accumulation years are a good thing, enables added savings to buy more shares than had prices not dipped/dived. Only when you near retirement should you consider adding bonds, so nothing else really needed to be learnt until then.


I have heard some advise that while an allocation to bonds that increases with your age is a prudent strategy, that you can consider your likely future earnings as part of the bond allocation. i.e. while you still have many years of reasonably reliable income in the form of wages, these can count against your bond allocation, so your savings can be skewed towards equities until you get quite close retirement. i.e. what 1nvest posted.

tjh290633
Lemon Half
Posts: 8209
Joined: November 4th, 2016, 11:20 am
Has thanked: 913 times
Been thanked: 4097 times

Re: Choosing a safe strategy for a beginner while also learning more

#416620

Postby tjh290633 » June 1st, 2021, 4:36 pm

NotSure wrote:I have heard some advise that while an allocation to bonds that increases with your age is a prudent strategy, that you can consider your likely future earnings as part of the bond allocation. i.e. while you still have many years of reasonably reliable income in the form of wages, these can count against your bond allocation, so your savings can be skewed towards equities until you get quite close retirement. i.e. what 1nvest posted.

The trouble is that, while bonds may be safer, they are usually fixed interest, so the income from them does not increase. Inflation linked bonds only increase the capital, as the income is derisory.

That is why I would prefer to use Investment Trusts that pay reasonable dividends. Having said that, I am happy to continue with a portfolio which is 100% individual equities, plus a few OEICs which I have held for a long time.

TJH

TUK020
Lemon Quarter
Posts: 2039
Joined: November 5th, 2016, 7:41 am
Has thanked: 762 times
Been thanked: 1175 times

Re: Choosing a safe strategy for a beginner while also learning more

#416820

Postby TUK020 » June 2nd, 2021, 1:00 pm

Three major decisions:
- what 'investment wrapper' to use
- what platform to use
- what to invest in.

Wrapper
Depending on your investment horizon (when you may need access to the savings), your tax position and your assets, you might want to consider:
- SIPP; ties up your money until age 57? Big plus if you are a higher rate tax payer, as you effectively reclaim tax on those earnings. Additional downside is that the government keep buggering around with the rules.
- ISA; wrapper of choice if you may need access to the money in the next 20 years
- LISA; age + contribution limited, but the government add £1k for your contribution of £4k per year. Penalties if accessed for something other than first house purchase, or for pension.

Platform
as an earlier poster recommended, look at the Monevator website for comparison.

Investments
Diversity is important for safety. For individual stocks and shares, you need to be able invest £1-2k per share to be economic, and you need some 15-20 to get adequate diversity. Your budget is probably too small for this at the moment, and not necessarily recommended for beginners.
For a long term investment horizon, you will want diversity across geographic regions and sectors. Probably best accessed by global trackers or global Investment Trusts.

1nvest
Lemon Quarter
Posts: 4323
Joined: May 31st, 2019, 7:55 pm
Has thanked: 680 times
Been thanked: 1316 times

Re: Choosing a safe strategy for a beginner while also learning more

#416864

Postby 1nvest » June 2nd, 2021, 5:08 pm

tjh290633 wrote:Inflation linked bonds only increase the capital, as the income is derisory

Which is still fine if that meets your needs/objectives. If for instance your desire is to have a £10K of inflation adjusted income (maturing bond value) in 10 years time then even 0% income production is fine.

You save/invest in order that you might have the pleasure/benefit spending at a later date what might otherwise have been spent today. If those savings grow at a rate that paces inflation then the purchase power remains the same. If savings growth exceed inflation then great, you might have to only put up £8K today for £10K of inflation adjusted spending in 10 years time. If savings growth lags inflation you might have to put up £12K today for £10K of inflation adjusted spending in 10 years time, but if the portfolio had made a quick 20% gain, £10K risen in real terms to £12K over the year then someone who paid £10K at the start of the year is no different to another who paid £12K at year end for the same £10K of inflation adjusted income in 10 years time. Negative real yields simply reflect high present day valuations/prices. As does a positive real yield reflect relatively low present day valuations/prices.

What you are buying with 'FIXED' is assurance/guaranteed. Retire at 65 and assume a life expectancy of 20 years and perhaps to supplement a 10K pension you might load up a 20 year ladder of inflation bonds (index linked gilts), providing 10K/year of inflation adjusted income. Presently that might cost around £242K to buy £200K of assured total income (-2% real), but if after a good year when the £200K intended for that had risen 21% it still comparatively costs no more/less to buy that assurance.

A alternative might be a inflation adjusted annuity. Live longer than expected and the annuity pooling covers that, at the cost of live shorter and there's less for heirs. Stocks and other choices don't provide the guarantees, often may do better, but not assured to do so. Such that if you'e won the game and have enough there's no need to take risk. Otherwise you're putting your own lifestyle at risk for the potential benefit of heirs. For that you might simply allocate additional amounts above having secured your own future into riskier alternatives such as stocks.

The safest is having enough in safe state/occupational inflation adjusted pensions to cover your spending, in which case it doesn't matter how liquid assets are invested as that's just fun-money. Or failing that having more than enough wealth where if your spending is covered by a 0.5% SWR rate (liquid wealth of 200 times yearly spending) then it doesn't matter how that is invested as it more than likely will see you out (whether stuffed under a mattress or all in stock or whatever). Another risk reduction is to own your own home, where you are both landlord and tenant and it doesn't matter if rents soar or collapse - a home is like a undated bond where the coupon is shelter and where at any time it might be sold to perhaps cover late life care costs.

Most retired homeowners could get by perhaps with two times the state pension, so subscribe to securing that (national insurance). If you can also secure the other half via a occupational pension that index (inflation) links then great, subscribe to that. Strive to buy rather than rent. Those alone might be enough. A factor however is that occupational inflation linked pensions have become rarer - which benefits shareholders at the expense/risk to workers. As such you might have to fill that gap, perhaps via around £180K of total index linked gilt ladder value but subject to valuations at the time might cost more or less, in reflection of whether the portfolio value had in the run up to buying the ladder performed relatively well/poorly. Typically in late life the first partner to pass is cared for by their partner at home whilst the longer survivor ends up in a care home and where releasing the home value covers those costs.

Perhaps owing a £300K home value (national average ??) that avoids having to find/pay £12K/year rent (but that does involve other costs). £9K/year state pension, £9K/year occupational pension or a index linked gilt ladder ... and collectively that's like another earning a £45K/year gross wage that reduces to £30K after taxes that is further reduced to £18K disposable after paying £12K/year rent.

tjh290633
Lemon Half
Posts: 8209
Joined: November 4th, 2016, 11:20 am
Has thanked: 913 times
Been thanked: 4097 times

Re: Choosing a safe strategy for a beginner while also learning more

#416899

Postby tjh290633 » June 2nd, 2021, 7:28 pm

1nvest wrote:
tjh290633 wrote:Inflation linked bonds only increase the capital, as the income is derisory

Which is still fine if that meets your needs/objectives. If for instance your desire is to have a £10K of inflation adjusted income (maturing bond value) in 10 years time then even 0% income production is fine.

You save/invest in order that you might have the pleasure/benefit spending at a later date what might otherwise have been spent today. If those savings grow at a rate that paces inflation then the purchase power remains the same.

Unfortunately you cannot spend the capital twice.

Neither can you predict how long it has to last.

In this case, capital and income are not fungible.

TJH

1nvest
Lemon Quarter
Posts: 4323
Joined: May 31st, 2019, 7:55 pm
Has thanked: 680 times
Been thanked: 1316 times

Re: Choosing a safe strategy for a beginner while also learning more

#417051

Postby 1nvest » June 3rd, 2021, 12:24 pm

tjh290633 wrote:
1nvest wrote:
tjh290633 wrote:Inflation linked bonds only increase the capital, as the income is derisory

Which is still fine if that meets your needs/objectives. If for instance your desire is to have a £10K of inflation adjusted income (maturing bond value) in 10 years time then even 0% income production is fine.

You save/invest in order that you might have the pleasure/benefit spending at a later date what might otherwise have been spent today. If those savings grow at a rate that paces inflation then the purchase power remains the same.

Unfortunately you cannot spend the capital twice.

Neither can you predict how long it has to last.

In this case, capital and income are not fungible.

TJH

You forego capital to assure income. I've recently turned 60 and a inflation adjusted occupational pension has now started, in 7 years time that will be supplemented with a state pension of present day £9K approx. For me, foregoing 6 x 9K (54K) of capital would fill that gap if invested into index linked gilts at 0% real rates. Historically it might have cost just £51K to load up the same income (+2.5% real yields), nowadays it costs more like £57K (-2.5% real yields), but where investment gains have been reasonable/good so the extra cost is negligible to the extent of being irrelevant.

Combined state/occupational pensions along with not having to find/pay rent due to owning a home could be enough ... for a basic/modest retirement. Where the home value could also cover late life care costs. With that base covered the (significant) rest can be invested/spent/passed-on pretty much however we like.

For us and to a even greater extent for yourself Terry is that the cost of Covid lockdown - lost time, is a far far higher cost. I'm reminded of a cartoon where a office worker is rushing past a cemetery uttering "time is money" and on a headstone in the background is written "I'd have given all my money for more time". Spending capital even just the once might be nice, the ideal being having spent the last £1 just prior to passing.
Moderator Message:
Some off-topic posts moved here. If you wish to respond to the last paragraph of this post please do so on that thread, thanks. - Chris
Last edited by csearle on June 4th, 2021, 9:03 am, edited 1 time in total.

gardening
Posts: 3
Joined: May 22nd, 2021, 5:10 pm
Has thanked: 2 times
Been thanked: 1 time

Re: Choosing a safe strategy for a beginner while also learning more

#419337

Postby gardening » June 13th, 2021, 9:02 pm

Thank you all for your extensive inputs.

I am taking it all in, which is taking a while to digest properly. I will make a final post trying to distill it down into something I can take away and use.

Many thanks to all.


Return to “How Do I Invest”

Who is online

Users browsing this forum: No registered users and 7 guests