Secret to making a MINT from SHARES
SToCK market investment can seem scary and complicated, particularly if you have only ever used ordinary savings accounts at banks and building societies.
But if you’re saving for more than five years, for example for retirement, you’ll be missing out on huge returns by keeping your money in cash.
Need convincing? If you had put £15,000 into the average savings account a decade ago, your money would have grown to just £15,478 — a return of 3.2 pc in total.
If you had invested the same amount into the FTSE All Share index, you would have almost doubled your money to £ 29,713, according to calculations by investing firm Fidelity.
So today, Money Mail’s must-read Spring Clean Your Finances series will show you how to master the stock market.
THE WINNING STRATEGY
MOST inexperienced investors have three big fears: what if a sudden stock market crash destroys my nest egg? which shares should I pick? when should I buy and sell?
Do not panic. You can beat all these potential pitfalls with a simple trick. It’s used by all the pros and if you follow the rules, you’ll not go far wrong.
The secret is this: invest regularly in a range of funds managed by a stock-picker with proven expertise and ignore the ups and downs in the market. Here we explain the method in three simple steps:
STEP 1
WORK out how much you have in savings, what you can afford to put aside and how long you’re investing for. If you don’t feel you can invest the money for at least five years — or can’t face the prospect of being left with less than you started with — investing isn’t for you. You’ll find heaps of information about less risky savings accounts on the following pages.
STEP 2
NEXT, set up a direct debit for the same amount each month going into a fund supermarket.
Companies such as Hargreaves Lansdown, AJ Bell and Bestinvest let you set up regular investment plans from as little as £25 a month. Each month your money is spread across your chosen funds.
Drip- feeding investments is better than putting in a lump-sum now and then, as it minimises the chance of you making a bad decision. Trying to time the market is almost always a mistake.
Fidelity estimates someone who invested £1,000 in the FTSE All Share 30 years ago but missed the ten top-performing days because of bad investment decisions would now have £7,215.
But if you had just left your money in the stock market the entire time it would have grown to £13,491.
Having a regular plan means you still invest money when the market falls, so you buy more shares when they are cheap and fewer when they are more expensive, which boosts returns long-term.
STEP 3
Now you need to work out which funds will receive your hardearned cash.
Spread your investment across funds that specialise in different countries and assets. The benefit of this strategy is that if one fund takes a hit, the performance of the others should compensate for it.
It may not always seem like it, but markets typically go up around three-quarters of the time, so if you have money in different markets across the world they are not likely to rise and fall in tandem.
For investors who don’t like the idea of swings in the value of their savings, Adrian Lowcock, of advisers Architas, tips the Fidelity Moneybuilder Dividend fund.
It invests in giant UK companies such as HSBC, drugs maker GlaxoSmithKline and insurer Legal & General, and has turned £10,000 into £10,620 in three years. You also get an income of 3.5 pc a year.
Laith Khalaf, of advisers Hargreaves Lansdown, likes the Trojan Income fund, which has turned £10,000 into £11,720 in three years and pays 4.1 pc income. Among its largest investments are Lloyds Bank, BP and Vodafone.
For more adventurous savers, Mr Lowcock likes Chelverton UK Equity Income, which focuses on faster-growing smaller companies such as convenience store group McColl’s. The fund has turned £10,000 into £12,900 in three years and pays out 4.1 pc.
A high-performing global fund is Lindsell Train Global Equity. It invests in companies in the U.S., UK and Japan including consumer brands such as games giant Nintendo, drinks firm PepsiCo and Toblerone maker Mondelez. The fund manager, Nick Train, famously likes to buy and hold the companies he invests in for many years. It can be years before he invests in a new stock.
The fund has turned £10,000 into £16,750 in three years.
Another top performer is Fundsmith Equity, run by Terry Smith. The fund seeks out household names which have strong track records, but have the potential to keep growing.
Top investments include Paypal and Microsoft and the fund has turned £10,000 into £17,250 in three years.
Savers looking to supercharge their investment returns could consider emerging markets.
Developing economies offer bumper returns, but with the risk of big falls. Typically, you need to invest your cash for ten years.
Mr Lowcock likes the Hermes Emerging Markets fund, which has investments in China, russia and Taiwan. The fund has turned £10,000 into £16,500 in three years by backing South Korean electronics giant Samsung and Tencent — owner of Chinese social media app weChat, which has a valuation of $500 billion.