A friend collared me over the holidays and asked for a bit of help kicking off his investment portfolio.
Maybe it’s my age but quite a lot of people I grew up with are now in a position to start putting some money away but don’t know how to get started. With London house prices now around 14.5 times the average salary in the capital, and deposits often topping £100,000, I can see why we’re all keen to get going.
That said, I was too busy fending off questions on bitcoin, and too full of mince pies to say any of this to my friend at the time so I’ll lay out some key points for him now:
How do I invest?
A few things first. Investing can be as simple or as complicated as you like. I prefer it when it’s clear and I don’t need to Google every other word, so let’s try to keep it in that area.
Before you start you need to make sure you’re ready. If you’re laden with debt from personal loans or you don’t have an emergency cash buffer built up, they’re worth sorting out first. See if you are ready to invest here.
If you are, your first port of call should be your tax-efficient accounts. You keep all the gains you make in an Individual Savings Account (ISA) and you can put in £20,000 during this tax year. ISAs are useful for any goals you have up until you reach 55 years old - for anything after that, a Self-Invested Personal Pension (SIPP) could help. If you’ve filled your Investment ISA this year and you’re happy with your pension contributions, have a look at what an Investment Account can offer.
Once your account is open you’ll have to choose which investments to put your cash into. Let’ have a look at the options.
What should I look for?
Whether you have a firm goal in mind or not, it should be five years or more before you think about taking any money out. Historically, markets have risen over time and the more time you give them, the more your portfolio can rise and iron out any kinks along the way.
This is where some people’s conceptions of investing might change - it’s not about the short term. Trends, fads and hot stocks hold no interest for the long-term investor. For us, gradual changes in the world, the economy and specific businesses over at least 3-5 years is more the norm.
Initially, it’s all about getting the balance right in the assets you hold. How you react to ups and downs in the market, how long you plan to invest for and what your goals are will all help show you what the right mix is for you. This has a greater bearing on your long-term performance than anything else.
I’ll go into more detail on these asset types in my next article but taking our risk quiz is a good way to show you what blend of assets might work for you.
Where do you find your investment ideas?
The truth is that most of us leave the unearthing of investment opportunities to the professionals. Fund managers pool money from many investors like you and me, and buy company shares, bonds etc. on our behalf. The collection of shares they end up with is their fund. Behind these funds are teams of analysts meeting company bosses and following the markets daily to constantly try to spot the next opportunity.
You can either find out all about the managers and the way they approach investments to give you an idea of the funds to put in your account, or you can use your personal tolerance for risk to help you on the way.
Hopefully the first few steps are a bit clearer now. Next time we’ll look at the pros and cons of the assets on offer, and how not to discuss them with a mouth full of Christmas pudding.
The value of investments and the income from them can go down as well as up and investors may not get back the amount invested. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment. You need to be realistic about how tolerant to risk you are and to be aware of your capacity to withstand loss of capital, should markets go down. Eligibility to invest into an ISA or SIPP and the value of tax savings depends on personal circumstances and all tax rules may change. You will not normally be able to access money held in a pension till the age of 55. Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity. Fidelity Personal Investing does not give investment advice. If you are unsure about the suitability of an investment, you should speak to an authorised financial adviser.