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(I am aware that any advice given in this thread does not constitute professional financial advice.)
I'm considering entering into the dark world of investment, as interest rates are so low at the moment. However, I have no idea where to start. Do any forum users have experience of investment, things to avoid etc?
Should I, for example, start with a Stocks and Shares ISA? Are investment funds a good idea? High street bank vs City bank? Etc etc
Initially I'd be looking at investing around £1000; once comfortable with whatever system I choose, more money could be invested.
Maybe you need to clarify a few more things:
- Are you in it for the long term, or are you happy for short term speculation?
- Do you want to guarantee the safety of your original investment?
- Do you want to actively manage it every day/week/month, or leave it well alone for someone else to manage?
- Are you saving for something?
- Do you have a decent pension scheme running? (as the govt pays the tax on any contribution to a personal pension, that can be a good safe long term investment)
- Do you have a decent pension scheme running? (as the govt pays the tax on any contribution to a personal pension, that can be a good safe long term investment)
Are you looking for some long term growth to beat bank deposit rates?
What exposure to risk are you comfortable with?
There is a LOT of information out there, and a lot of conflicting information.
If you fancy some long term growth to beat bank rates and are ok with exposure to stock markets, then an index fund is a good idea. There are thousands to choose from, but try and pick one with decent returns and low costs. 0.15-0.5% per annum.
Disclosure! I like US equity funds, but not everyone like the same ice cream. You pay your money and buy your apples.
If you are not comfortable with the idea that you may lose capital, then you need to look at sovereign debt. The UK issues some nice index linked stuff that you can get access to via other funds.
FWIW, I would avoid Crypto/Wine/Art/Whisky/Stock-picking/Rare Cars/Steiff bears/Stamps/NFTs/Gold/Silver/Copper/Platinum/Oil/Coffee/Wheat or ANYTHING else that is specialist unless you can pass 1 of two tests.
1. You are deeply passionate about these products and are willing to learn a lot about them
or
2. You understand these markets and subject with a knowledge and insight that gives you an edge on the millions of other competitors in these spaces.
That being said, the world is your oyster. The sooner you start, the sooner you will find what is right for you and the sooner you can accrue returns.
Buy some Premium Bonds,with the current awful interest rates you wont get much return on most small investments,at least with a few Bonds you stand a chance ( not much admittedly ) of a win and you won't lose your dosh ( except via inflation )
which I have been following myself for 30 years or more myself. An index fund has low running costs because it's mechanical and doesn't need input from a fund manager, put it in an ISA to avoid tax, and I'd say make a regular monthly investment if you can rather than an occasional lump sum because this approach further reduces the risk (of your putting a large amount of money in the day before a huge fall).
After a while it's the reinvestment from dividends that matters as much if not more than the regular monthly sums, so choose an investment in which the dividends are reinvested rather than paid out.
My experience is that it then takes the best part of a week to get money out, so it's not quite as immediate as a deposit account, but part of that is because the people who manage these things make money by hanging on to your money and clearly don't have enough of an incentive to part with it quickly.
Increase your monthly amount when you get a pay rise, reduce it to match other changes in your circumstances.
Far, far better returns for me and anyone else over the time I've done it than a savings account and the risk is low but not zero of course.
For short to medium term I agree with Acey that Premium Bonds are worth considering. No risk to your investment and if you need access to the cash you can sell some with a reasonably quick turnaround.
For a long term, and this will obviously be for future reference; if you are in a job with a pension scheme get in as soon as you are able to, it's never too soon to start and although stating the obvious the more you (and your employer) put in the better it will be. Retirement seems a long time off until you get there!
And once you're in the pension scheme, if they have an "Additional Voluntary Contribution" (AVC) scheme that's a good way to save and accumulate a fund because what you pay in attracts tax relief. That is, your taxable earning is your gross earnings, less whatever you pay into your pension, and also less what you put into an AVC, so if a basic rate taxpayer puts £100 into an AVC their take home will only reduce by £80. Very useful for anyone nearing retirement age as that immediate 25% growth is hard to match elsewhere; live off your other savings if you can in the last year or so and pump up your pension pot. Having said that, any government could remove the tax exemption on contributions to AVCs.
Good advice on pensions too; I did both. I spent my last working years avoiding paying 40% income tax because of my pension contributions, effectively for every £1 I put into my pension I would only have taken home 60p if I hadn't. There is always a lot of talk about reducing this 'benefit' but it's not happened yet. Obviously you pay income tax on your pension when you take it, which is where I'm at now.
EDIT In the absence of AVCs (but with an employer pension scheme), I once set up a separate Stakeholder Pension to which I contributed for about 5 years. This attracted similar advantage of not paying income tax on the money I put into this.
You would need to complete an annual self-assessment tax return to sort out the tax if you make contributions to a pension outside your employer (who would otherwise correctly report your taxable income on your behalf) but I've been doing a self-assessment tax return for 20+ years now and it's no bother, nowadays I submit it on April 6th each year ....
Buy some Premium Bonds,with the current awful interest rates you wont get much return on most small investments,at least with a few Bonds you stand a chance ( not much admittedly ) of a win and you won't lose your dosh ( except via inflation )
The effective interest rate on premium bonds is about 1%. However, unless you have enough invested to be near the upper limit then your likely return will most likely be far lower.
Premium Bonds are the UK's most popular savings vehicle, but MoneySavingExpert's detailed analysis shows returns don't add up for many compared with savings.
Thanks all.
I already have some Premium Bonds, which I bought almost exactly two years ago; so far my actual interest rate has been approximately 0.8%. I suspect I'll buy a few more in the near future.
Longer term, would the general consensus be a stocks and shares ISA (probably from one of the high street banks)?
A lot of what's been said upthread makes a lot of sense, although I disagree about premium bonds for the reason simonw alludes to - whilst the average return is a bit less than 1%, it consists of a tiny number of big winners, a few decent winners and an awful lot who win nowt.
The thing I haven't seen mentioned (apologies if it has and my scan reading skipped by) is dividends. Whilst in general terms putting all of your money into shares in one or two companies is riskier than spreading it across thousands of firms by investing via a stocks & shares ISA, if those companies are fundamentally sound and the dividend yield is good, they may be worth considering.
For example, last year I bought shares in Tesco. I considered them better positioned than their competitors to manage the pandemic, as they have fingers in very many pies (big out of town Tescos, smaller convenience store Tescos, One Stop, the Booker and Makro cash and carry businesses, Londis convenience stores, the Premier fascia as a franchised convenience business, and significant involvement in non-store shopping thanks to home delivery and delivered wholesale). The share price isn't setting the world alight, but the full year dividend is 9.15p a share, which given today's closing price is 297.35p it means an effective interest rate of 3.1% (a bit higher for me as I bought in at 231.3p). Obviously there's no guarantee that they'll always pay the same dividends (they may go up, go down, stay the same or not be paid at all) but Tesco is a cash rich business so I consider that risk to be tiny
A lot of what's been said upthread makes a lot of sense, although I disagree about premium bonds for the reason simonw alludes to - whilst the average return is a bit less than 1%, it consists of a tiny number of big winners, a few decent winners and an awful lot who win nowt.
The thing I haven't seen mentioned (apologies if it has and my scan reading skipped by) is dividends. Whilst in general terms putting all of your money into shares in one or two companies is riskier than spreading it across thousands of firms by investing via a stocks & shares ISA, if those companies are fundamentally sound and the dividend yield is good, they may be worth considering.
For example, last year I bought shares in Tesco. I considered them better positioned than their competitors to manage the pandemic, as they have fingers in very many pies (big out of town Tescos, smaller convenience store Tescos, One Stop, the Booker and Makro cash and carry businesses, Londis convenience stores, the Premier fascia as a franchised convenience business, and significant involvement in non-store shopping thanks to home delivery and delivered wholesale). The share price isn't setting the world alight, but the full year dividend is 9.15p a share, which given today's closing price is 297.35p it means an effective interest rate of 3.1% (a bit higher for me as I bought in at 231.3p). Obviously there's no guarantee that they'll always pay the same dividends (they may go up, go down, stay the same or not be paid at all) but Tesco is a cash rich business so I consider that risk to be tiny
There's various apps available. I use Freetrade to pick individual stocks. No fees and very easy to use. But I'd not recommend putting £1,000 into one company! I use it to just have a bit of fun. My total investment via Freetrade is only a few hundred in a dozen odd companies that I thought seemed interesting.
The easiest way is via an online account with what's called an execution only broker. If you Google you'll find plenty. They're called execution only because that's all they do - no advice, just following your instructions. They have varied fee structures and you'd need to work out which was best for you. I use x-o.co.uk because they don't charge a platform fee and its a flat £5.95 a trade. Once your account is set up and you've deposited money, you select what you want to buy and if you're happy with the price away you go. They then hold the shares for you in what's called a nominee account - it means you don't get sent a share certificate or dividend paperwork, it's all online. Any dividends get put in your cash account on the day they're due
But please, be aware this is what I do, and it works for me. Your circumstances won't be the same as mine, so do your own research
Remember to factor their trade charge into your sums. Obviously because its fixed per transaction, the smaller the trade the bigger the percentage.
Thanks all.
I already have some Premium Bonds, which I bought almost exactly two years ago; so far my actual interest rate has been approximately 0.8%. I suspect I'll buy a few more in the near future.
Longer term, would the general consensus be a stocks and shares ISA (probably from one of the high street banks)?
That would be my suggestion. I've had one with a bank for over 10 years, and, rather than having invested a lump sum, I put in a fixed amount each month. That means that, on the occasions when the market dips, your £X the next month gets you more shares. There are risks - when the covid pandemic kicked in, the total value of my investment dropped by around 1/3rd. Since then, it has crept back up and is now worth more than it was 2 years ago (even taking off my monthly investment each month since then). The bank charges a management fee and the investiment is spread over various funds which again reduces the risks - if one market is performing badly, hopefully the others won't be.
Before going with anyone, especially with a high street bank, for a stocks and shares ISA I would strongly advise researching the fees charged.
My suspicion is that they would be high compared to others, but I don't know that for sure. Vanguard in post #4 gets good press for relatively low charges. I myself am with Fidelity for mine, recently moved from Legal & General.
I'm not saying that banks are too expensive, simply that I suspect that they are, and I'd advise looking around first.
I have used x-o in the past and can recommend them. Low fixed fees makes a significant difference to long term outcomes. Banks have a nasty habit of charging a % which takes chunks out of your capital and prospective gains. At least a fixed fee of £5.95 can be written off in your head as a pint at the pub.
Id advise a fund over stock-picking because stock-picking can easily result in lost capital and can put you off long term, which is not what you want. Ideally you become a long term investor and grow your net worth.
However, if you insist on picking stocks, although it has been out of fashion for a few years (thanks Apple/Amazon et al, The FAANG's as they are known) my best advise to you is to buy Dividend stocks.
Now that inflation is back, Dividend stocks are back in fashion. Fashion doesn't matter of course, but what does matter is this.
Regular. Predictable. Income.
If i had £1000 burning a hole in my pocket I would buy, Shell, but that's me. You may feel different.
Fortunately, there are more than a few fantastic businesses to choose from in the UK. You can look internationally of course, but these are stocks you can go and buy right now on x-o and wrap in an ISA.
A lot of what's been said upthread makes a lot of sense, although I disagree about premium bonds for the reason simonw alludes to - whilst the average return is a bit less than 1%, it consists of a tiny number of big winners, a few decent winners and an awful lot who win nowt.
You need a fair holding so the wins average out to outperform a lot of savings accounts. I expect there is more money in premium bonds now since the treasury forced NS&I to tank their rates on Income Bonds. For the risk averse it might make sense and there is always the chance of a big prize.
The problem now is that it is going to be very hard to beat inflation.
I find saving far too much hassle, even just having to move money arround to get the best bad rates on savings.
This might sound wholly irresponsible, but if I was at University and had a spare £1000, I’d be looking to invest it in several bloody good nights out.
This might sound wholly irresponsible, but if I was at University and had a spare £1000, I’d be looking to invest it in several bloody good nights out.
My advice is remember that investments are long term. In the short term, you may well see the value fall. The key is not to panic and bail out at a low point.
I spent a few years dealing with complaints about allegedly mis-sold investments and this was a common theme. People didn't understand the risk or how the investment worked (so they were mis-sold) - and as a result they panicked and sold when the market was at the bottom.
If you are likely to need the money in the short term, then investments are not suitable.
For example, last year I bought shares in Tesco. I considered them better positioned than their competitors to manage the pandemic, as they have fingers in very many pies (big out of town Tescos, smaller convenience store Tescos, One Stop, the Booker and Makro cash and carry businesses, Londis convenience stores, the Premier fascia as a franchised convenience business, and significant involvement in non-store shopping thanks to home delivery and delivered wholesale). The share price isn't setting the world alight, but the full year dividend is 9.15p a share, which given today's closing price is 297.35p it means an effective interest rate of 3.1% (a bit higher for me as I bought in at 231.3p). Obviously there's no guarantee that they'll always pay the same dividends (they may go up, go down, stay the same or not be paid at all) but Tesco is a cash rich business so I consider that risk to be tiny
I bought shares in Morrisons at the start of the pandemic. I thought they were under-valued and was impressed with how they were scaling up their home delivery options in a capital light way. I did very well out of that deal; I bought when prices were low due to the pandemic, they paid out reasonable dividends and then last year they were the subject of a take over which resulted in a very nice profit - I made a return of over 60% in less than two years. But none of this was guaranteed and I invested with an understanding of the risks.
I actually put the money into Tesco - I doubt the share price will increase substantially as they're probably as big as they can get now, but they should produce a steady income stream through dividends for all the reasons mentioned in the post above. For now it is cash that I don't need, producing a better income than it would in the bank.
On the other hand, I work in banking and in the good old days bank shares were the gift that kept on giving. The price went up and up, and dividends were good. They the financial crisis happened, issues like mis-sold PPI began to surface and the share prices dropped like a stone. I know one person who worked for the Halifax, who put all his spare cash into Halifax shares through an employee share scheme. He lost thousands and thousands of pounds - most of his savings - almost overnight. I know similar stories from friends who used to work at RBS.
For a first time investor with £1k, I would not recommend investing directly in shares. It's far too high risk. I would only do it if you would be willing to spend the £1k on lottery tickets!
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One thing I meant to add - please be really, really careful when looking at investments online. There are an awful lot of convincing scams at the moment, some of which use the names/logos of genuine firms. Double and triple check before you send any personal information or money. Make sure whichever firm you choose are FCA regulated, and make sure that you are on the firm's genuine website and sending money to the firm's genuine bank account.
There's various apps available. I use Freetrade to pick individual stocks. No fees and very easy to use. But I'd not recommend putting £1,000 into one company! I use it to just have a bit of fun. My total investment via Freetrade is only a few hundred in a dozen odd companies that I thought seemed interesting.
+1 for Freetrade here. I use it in exactly the same way, it's a bit of a fun and I only put money in there that I don't need immediately or need a guaranteed profit on (which is a good job considering my global clean energy ETF is -30% since I invested last year! )
My portfolio is generally speaking up at about a 3% profit, having started in February 2021 If you'd invested at the start of COVID in 2020 you'd be talking serious profits.
I did make a minor profit on my 1 (yes, singular 1) Morrisons share of a quid or so when they got brought out and I do get disproportionately excited about dividend day when I get about 7p.
On a serious note, it could be worth it giving it a few weeks and see what happens with interest rates. I've got 2 separate fixed savers at 1.36 and 1.31 per cent which whilst not amazing are much better than the average high Street bank easy access. Depends on your risk appetite, need for money access and when you want to enjoy any returns/profit/interest I guess.
Ps. None of the above is financial advice, just my own experiences.
+1 for Freetrade here. I use it in exactly the same way, it's a bit of a fun and I only put money in there that I don't need immediately or need a guaranteed profit on (which is a good job considering my global clean energy ETF is -30% since I invested last year! )
Yes it's fun but I've been very hit and miss with my picks! Got some Royal Mail shares which have tanked (-14.99%) but my First Group shares are doing quite well (+24.38%).
More generally back to the OPs general thrust most of my investments (that I control, my pension is obviously an investment but I have no real control over that!) are with Vanguard however in a Stocks and Shares ISA which I've got invested in a FTSE Global Index tracker ETF. Which I intend to hold for the foreseeable future and so far as managed a 22% rate of return since I opened which beats out not only any savings account but at the moment inflation! Been quite happy to say least. Especially as it's basically fire and forget after my initial lump sum I just drop a bit more in there every month and otherwise don't have to think about it which is what I'm after really.
At the risk of causing offence, I assure you none is meant, I am surprised at the number of folk in premium bonds and cash savers.
1% is, well, its not great to put it mildly. Given inflation is now posting 7% officially, (IMHO its more like 15% but we went over that in another thread) 1% means you are hurtling backwards in purchasing power by at least 6% per annum.
Now I appreciate the stock market is not for everyone, but, over time it does tend to keep pace with the wider economy and hedge against inflation owing to the fact many of the constituents of the stock market are able to translate inflation in to higher gross and net income and pass that on to the markets via equity prices and dividends.
If you want zero risk then sure, cash savers are an option, but you have nearly as little risk in sovereign debt, which at least yields some returns against inflation.
I find it peculiar that so many folk get upset about interest rates on cash accounts (family members in particular) when they have just missed out on a 12 year boom in equities that has made the 1920s look sedate.
They never stop to compare how much they have actually lost adjusting for inflation on the cash account method over those 12 years but are quick to point out the stock market goes down as well as up.
Isn't that just a cognitive blind spot for those who are unhealthily risk averse?
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