I wrote a post a while back about how investing scares me, and in some respects, my feelings on it haven’t changed. Yet I know, deep down, that I truly want to achieve our dreams (see ultimate dream 1 and ultimate dream 2), then I need to get over my fear and get investing, especially for the longer term.
In that post, I talked about how I needed to do more research, more reading and generally gain more knowledge about investing. I am definitely the type of person who wants to know every little detail about something before taking the next step. As this involves our hard earned cash, I want to be even more sure that I have some idea about what I’m doing so that (hopefully) I don’t lose it by being reckless or getting out of my depth in something I don’t fully understand.
I think I have come up with a strategy that I am more comfortable with. I read a lot of financial blogs, some of which are focused mainly on investing and dividend income. Whilst I find it fascinating how their portfolios grow and fall, how their dividend payments increase month by month, year on year, and how it really does make a massive difference to their incomes and, in turn, their financial freedom. Most of the ones I read are based in the US, where there are a extensive range of accounts and platforms to choose from, or so it seems. Many of them don’t mention any recurring costs within their portfolio, once they have paid the fees incurred by buying the shares in the first place.
I have been doing some comparisons with various UK platform options, for both individual shares and funds, and in 99% of cases, the fees and recurring costs for owning individual shares massively outstrip the gains made by the market and the dividend income received. In fact, I did one comparison and if I bought funds instead of individual shares, I would have £50,000 more at the end of a 10 year period, which is insane! I think, in the end, that comparison has made me re-think what I thought would be my original investing strategy to a new one.
My investment strategy, as basic as this might sound, is to invest in around 20 different funds. I think that this will be a manageable number, as I can keep an eye on things but it shouldn’t get too complicated. I can also see if and when things change, either for better or worse, and act accordingly. I have already started to research and make notes on various funds that I think should do well (as well as you can know, I guess?).
My task over the next couple of weeks is to open a S&S ISA and set up a standing order so I can finally begin this journey. I’m still very apprehensive about it, but I’m going to take things slow and see where it takes me.
What do you think? Anyone really experienced want to give me any advice? I’d really appreciate it!
You pay money every year to hold stocks in the UK? It’s so interesting to learn how things work around the world!
We’re focusing on paying off our mortgage now instead of investing, but still have a few mutual funds (which have an MER, so we pay to hold them).
20 mutual funds sounds like you’ll have a lot of overlap of what’s owned. Instead of picking a number of stocks, maybe shoot to get a certain amount of diversity of stocks held.
Certainly no expert here – which is why we have chosen to go with the less user intensive index fund investing. We focus on finding the money to send. Then let the investment drive itself for the most part.
Astonishing though the difference in fees. So very glad you did your homework on this one!
I’m not the one with experience simply because my husband handles all of our investing. Whew! I’m so glad he knows what he’s doing! The big thing is to just start!
I feel so intimidated by investing, but Jan is the month I’m starting! I’ll really excited, and I’m going to start with some managed funds just to dip my toes in.
Good luck! Looking forward to hearing how you get on 🙂
There is really no need to invest in so many funds, you can be adequately diversified with a single fund in the UK! Without meaning to sound cheeky, your strategy isn’t a strategy, it’s a finger in the air 😉
Things to consider:
1) If you transfer your ISA, you’ll be looking at a charge *per fund* for an in specie transfer to another provider. This is a massive cost.
2) It’s going to be very expensive to invest in that many funds. Most brokers will allow you to make a minimum of £500/fund as a lump sum transaction, or £50/month as a regular contribution. This leaves you exposed to dealing costs and a ‘bitty’ portfolio.
3) You need to address your investing timeframe, your risk tolerance, your expectations of reasonable returns etc.
See, this is where I might go wrong! Perhaps I still don’t know what I want from investing – why isn’t there some easy way of getting taught all of this? I wish I knew someone in “real life” who could help me out. I do keep going back to the Vangard Lifestrategy (?) one but even then, I’m still unsure.
How did you become so knowledgeable about stocks and shares?
The easy answer to that one is I’m not 🙂
I’ve done the research and have decided that I don’t have the skills required to pick stocks or fund managers. The only logical choice remaining was index investing.
That leaves me free to research tweaks such as how to reduce my costs, making sure I use the right broker and of course, finding ways to put aside more money for investing!
This is my favorite advice when it comes to investing: “Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1.” I think the the problem now is how to know you fully understand any investment more complex than cash.
Nicola,
Glad you’ve finally settled on an investing strategy that you think works for you. A quick couple of questions though:
1) Do you have to pay recurring costs on owning individual shares? That’s just ludicrous!
2) Personally I feel 20 funds would be way too much. Why not opt for a simpler allocation? Do you think you’ll have far superior returns by going with 20 instead of just three funds?
Best of luck,
NMW
We are really boring with our investments. We mostly buy Vanguard index funds. It is not an exciting strategy but it’s solid for the long-term. We also invest in real estate but that is something I feel pretty comfortable with.
May I say quite a bold strategy for a noob investor!
Why not just chuck all your money into a Vanguard Life Strategy fund and have done with it? It diversifys over a large amount of markets and investments and keeps your annual charges pretty much as low as you can get, plus less dealing fees as only one fund to invest into and it automatically rebalances…
See monevator for more info: http://monevator.com/vanguard-lifestrategy/
I’ve just opened an ISA with Charles Stanley Direct, who seem to be one of the best for purchasing funds like this as there is no dealing fee, and only 0.25% yearly management fee! Who were you thinking of going with just out of interest? And any idea of what the 20 funds will be, if you stick with this strategy?
Cheers, good luck, and welcome to the world of investing 🙂
I was thinking of Charles Stanley too! And I’ll have a look at Vanguard – thanks for pointing that out 🙂