Choose your ingredients
The next challenge is deciding what you want to invest in, and how. This menu of options will help you weigh up the cost, quality and convenience of various approaches, and the level of skill involved. Whether to add a pinch or a peck of risk is up to you.
A READY MEAL
For nervous cooks looking to invest, online robo investment platforms, such as Nutmeg, Moneyfarm and Netwealth, are the investment equivalent of a microwaveable meal, offering a quick and easy way to get started.
You’ll be asked a series of questions online to determine your investment goals, how long you’re prepared to lock your money away for and (crucially) your appetite for risk. One, two, ping – within a few clicks, a computer algorithm will serve you up the investment portfolio the platform recommends for you.
Typically, robo platforms will blend together a huge selection of global investment ingredients that will spread your risk across many different areas of the stock market, which can be purchased as an easy ‘all-in-one’ solution. For this, most charge annual fees of around 1% of your pot and require a minimum opening investment of £500 or more. Many investors set up a direct debit to make a regular monthly investment (you can pay in as little as
Robo platforms blend global investments that will spread risk
£25 a month), ‘drip feeding’ money over time rather than investing it in one big lump, in order to ride out any ups and downs. This is a simple, convenient way to invest – but if you need some professional guidance, it’s often possible to pay extra for a session with a financial adviser.
THE SPICE IS RIGHT
A cheap, no-frills option, tracker funds (also known as passive funds or index funds) go up and down with different investment indices, such as the FTSE 100. Ready-made tracker fund ranges, including Vanguard Lifestrategy, Blackrock Consensus and Legal & General’s Multi-strategy, allow investors to blend the spice of global equities
(another name for shares) with the cooling raita of bonds (less exciting but reliable, as they pay a low rate of guaranteed income). To give you an idea: if a fund containing 100% equities is a vindaloo, one with 80% equities and 20% bonds is more like a madras, and dropping the equity ratio to 40% would be the korma equivalent. Check out fund websites for more information, and how to adjust the proportions.
It’s also possible to select funds yourself through investment platforms, such as Hargreaves Lansdown or Fidelity – also known as fund supermarkets. Another investment staple to consider is multi-asset funds, which aim to spread risks across an even broader range of ingredients; this could include equities, bonds, property, cash and commodities such as oil and gold. Again, there are plenty of risk-adjusted, ready-made solutions; HSBC’S Global Strategy multi-asset funds range from One (‘cautious’) to Five (‘adventurous’), so there’s something on the menu for everyone. Tracker funds and multi-asset funds can have annual fees as low as 0.1 to 0.2%.
A FANCY FOOD BOX
Pound for pound, you’d expect to pay a bit more for the ingredients inside a recipe box such as Gousto, as they’ve been selected and measured out by a skilled expert. The same goes for actively managed funds and
investment trusts, where a fund manager picks what they believe to be a gourmet selection of quality shares. In return for their expertise, you can expect to pay higher investment fees (around 0.75% to 1.25%) – although there’s no guarantee of a better result.
Most funds focus on a theme, such as shares in companies with exposure to a certain geography, such as the US, or a particular industry sector, such as tech, and plenty have eco credentials (funds that are branded ESG target companies with a good Environmental, Sustainability and Governance record). Others focus on income, targeting shares in companies that pay regular dividends to their shareholders.
Fund managers’ websites explain why they think their investment strategy could be the recipe for success – but you’d be wise to take them with a pinch of salt. Although some, such as Fundsmith and Scottish Mortgage, have delivered exceptional growth in recent years, cheaper passive
funds have performed more strongly than large numbers of active funds, and for a much lower cost.
AN OTTOLENGHI RECIPE
When you build up more experience as an investor, you may feel confident enough to put together your own
portfolio containing more specialist ingredients – buying individual shares in companies you think will rise above the rest. This is much riskier than spreading your money across many different investments in a fund. Nevertheless, many investors (including Fiona Whiston – see below, left) enjoy taking a more creative approach. You will pay a fee of £6 to £12 when you buy and sell shares via online investment platforms.
ALTERNATIVELY… GET THE CATERERS IN!
Amateur cooks may wish to turn to the professionals if the task ahead is too daunting. Like hiring a caterer, paying for the services of a financial
adviser or wealth manager is the most expensive option, but could be a wise investment for those who have inherited money, or have a lump sum from a divorce settlement.
Most advisers will offer a free taster session and hopefully the information in this article will give you the confidence to grill them about different investment options, and the fees they will charge.