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First steps in investing

Investment discussion for beginners. Why you should invest your money, get help getting started
Madmike
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First steps in investing

#218637

Postby Madmike » May 1st, 2019, 8:42 am

Hi All,

I’m new to the site and investing game. I’d like to get my feet wet and looking for a little bit of advice.
Here’s a bit of info about myself. I’m 39 yo, no debts or credit cards, 19 years left on my mortgage. I’m in work pension scheme with Now Pensions ☹️. I’ve read up on investment strategies a bit and decided to give it a go. As I lack a sound knowledge I think passive investing is a way forward. I’ve narrowed down my options to index trackers/ ETFs. I want to invest £1000-2000 to begin with followed by 200-250 regular monthly investments. I’ve got 3 months worth of wages emergency fund for rainy days also.
Here are the choices I’m leaning towards:
1. HSBC FTSE 100 units ETF/ IShares FTSE 100 ETF,
2. IShares Core S&P 500 ETF.
3. Global/ all markets tracker of some sort.
I’d like to use Halifax share platform and keep investments in their ISA. I prefer dividends to be automatically re-invested to enhance the potential growth. Will also have some spare cash to buy extra when prices are low.
Shall I only pick one option to start with or shall I combine all of the above? Although I’m open for other options (REITs, unit trusts etc).
I’ll appreciate any feedback/ advice/ suggestions.

Many thanks in advance.

starquake
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Re: First steps in investing

#218652

Postby starquake » May 1st, 2019, 9:29 am

Personally I'd avoid 1. - I'm not a fan of ftse100 trackers, too many "similar" businesses in ftse100, so it's not that diversified imho.

2 isn't a bad option

For 3, would suggest Vanguard Lifestrategy 60,80,100 depending on your split here (low management costs!). Mostly as it's global, passive, all markets.

I started where you were a few years ago, and would recommend you dripping as you say monthly, even the initial investment using the lower regular investment costs and bear in mind by doign this you won't make "much" money in year 1, it's all about compounding this game!.
I'd also suggest you look at global funds such as Lindsell Train (fund not ETF as the ETF is overpriced) or Fundsmith Equity ACC funds - as these have outperformed all you have suggested by many percentage points last 7 years - so I wouldn't bet against them - yes higher management fee, but out-performance of market by 10% would double your money a lot quicker. I started fundsmith late in the game, but in last year my drip feeds to that investment have returned over 17%... so I'm happy paying Terry Smith his 1% given my passive trackers have managed 8-9% in same ;)

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Re: First steps in investing

#218658

Postby tjh290633 » May 1st, 2019, 9:42 am

Basically I think you are on the right lines, aiming for collective investments to start. However my choice, knowing what I know now, 60 years on, would be to use one of the global investment trusts, either F&C or Witan, rather than a tracker fund. I have used both, in bare trusts for my grandchildren, and the results have been very good.

Do reinvest the dividends. After a few years you may want to diversify some and put your regular contributions plus all dividends into a different share, with a different emphasis.

TJH

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Re: First steps in investing

#218666

Postby starquake » May 1st, 2019, 10:08 am

I now for reference "try" to follow rules on my £250 month:

1/ half to go to passive tracker of some description, I change this annually.
2/ half to go to active fund (fundsmith) or individual share holdings, as once I'd build my main holdings of passives, I started experimenting with strong undervalued dividend payers... Which *can* outperform say fundsmith.

I also agree on ETF versus regular fund in priniciple - these are very good - I only hold 2 OIEC's - Fundsmith and Vanguard lifestrategy, but ~ 4 ETF's.

Oh and another top tip is follow investors on twitter ;) You'll find many top tips/sample portfolios amongst the pump and dump people - and look at going to Mello and other small company investment events. If you don't want to be more active yourself just stick with passives as per previous post, maybe with some fundsmith. ;)

Madmike
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Re: First steps in investing

#218686

Postby Madmike » May 1st, 2019, 11:34 am

Many thanks for all replies and suggestions. Taking into account all the above, my first portfolio would look like this:
1. Vanguard FTSE All World ETF/ or Fidelity Index World W Fund/ or IShares Core MSCI World ETF (with Vanguard being most diversified)
2. F&C IT/ Fundsmith Equity Acc
50/50 split. Is it worth throwing S&P 500 in the mix or maybe just stick to one from the above?
Also do you guys know if any of the funds listed are available through Halifax platform (preferably free from dealing fees)? I’d like to stick to one platform/ ISA for the sake of simplicity.
Thanks again

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Re: First steps in investing

#218688

Postby Alaric » May 1st, 2019, 11:41 am

Madmike wrote:Also do you guys know if any of the funds listed are available through Halifax platform (preferably free from dealing fees)?


Anything widely known and mainstream such as the funds mentioned should be available on a popular platform such as Halifax.

If buying ITs, ETFs or individual company shares you won't be able to avoid dealing fees. With OEICs, you might, but beware that platforms make a regular charge as a percent of value in these circumstances. This may affect your plans to buy a small amount each month. You can still put a smallish amount into an ISA or dealing account each month, but maybe don't invest until a reasonably size sum has accumulated.

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Re: First steps in investing

#218689

Postby hiriskpaul » May 1st, 2019, 11:57 am

Madmike wrote:1. HSBC FTSE 100 units ETF/ IShares FTSE 100 ETF,
2. IShares Core S&P 500 ETF.
3. Global/ all markets tracker of some sort.

The simple and very important answer is that nobody knows which of those options will work out better for you, but you will doubtless find a limitless number of opinions. Over the last 10 years, option 2 would have been the best choice by far, followed by 3, then 1, but that is no guide to what will happen in the future. So how to choose? Well if you choose the FTSE 100, you are implicitly saying that you think the FTSE 100 will do better than companies in the global market outside the FTSE 100. On what basis are you making that decision? What do you know that the rest of the market does not? I hope I am not being offensive in saying that I very much doubt you know whether the FTSE 100 will outperform the global market in future or have any rational basis for making that decision. I certainly don't know and I don't trust anyone who thinks they do. The same argument goes for the S&P 500, so absent any meaningful way to make a decision*, stick with the global tracker. That way you are guaranteed global market returns for a modest cost.

Picking a subset of the global market, such as the S&P 500 or FTSE 100, means taking on the risk that you will underperform the global market. There is no point taking that risk without good reason. Rational investors don't take risks unless there is an expectation of being rewarded for doing so.

In making a product choice, I would suggest you look into OEICs as well as ETFs as there is no extra charge for holding or dealing in these with Halifax. One reason to consider OEICs is that you have to buy integral amounts of ETF shares, but you can buy fractional units with OEICs. That makes OEICs more efficient when investing small amounts. For example, the Vanguard global ETF VWRL costs about £66 per share, so a £200 investment might get you 3 shares, but sometimes only 2. With an OEIC, the entire £200 would be invested. Another reason to choose OEICs is that they can sometimes have lower overall running costs. For example, the HSBC FTSE All-World Index Fund (code MDAABG at Halifax) has an OCF of 0.19% compared with 0.25% for VWRL. The HSBC has other cost advantages as well, such as an accumulation version that eliminates frictional dividend reinvestment and currency conversion costs you would experience with VWRL.


* There is some statistical evidence to suggest you might get better returns that the market as a whole by considering valuations, such as book value, or "CAPE10" metrics. On the basis of such valuations, the US market is distinctly more expensive than non-US markets, so you might want to underweight the US market. I have been doing this for years and so far the strategy has completely failed. On the other hand, some argue that the market knows all about this statistical evidence, said thank you very much, adjusted share prices accordingly and destroyed any edge that might once have been available to the few who had that information.


p.s. Personally I would advise against investing in hot funds like Fundsmith. At any point in time there will always be a set of funds that appear to be really good. And then they stop being good. A recent example, there are many others, is Woodford. He had demi-god status before he set up on his own, but anyone who backed him over the last few years would not even have kept up with the FTSE allshare, let alone the global market. It is essentially the same argument I made about taking a subset of the global market - you are taking on additional risk with no expectation of additional reward. In fact there is now overwhelming evidence that taking the risk with actively managed funds is more likely to produce a worse performance than the market. Higher risk, negative expected reward!

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Re: First steps in investing

#218720

Postby Madmike » May 1st, 2019, 1:44 pm

hiriskpaul wrote:
Madmike wrote:1. HSBC FTSE 100 units ETF/ IShares FTSE 100 ETF,
2. IShares Core S&P 500 ETF.
3. Global/ all markets tracker of some sort.

The simple and very important answer is that nobody knows which of those options will work out better for you, but you will doubtless find a limitless number of opinions. Over the last 10 years, option 2 would have been the best choice by far, followed by 3, then 1, but that is no guide to what will happen in the future. So how to choose? Well if you choose the FTSE 100, you are implicitly saying that you think the FTSE 100 will do better than companies in the global market outside the FTSE 100. On what basis are you making that decision? What do you know that the rest of the market does not? I hope I am not being offensive in saying that I very much doubt you know whether the FTSE 100 will outperform the global market in future or have any rational basis for making that decision. I certainly don't know and I don't trust anyone who thinks they do. The same argument goes for the S&P 500, so absent any meaningful way to make a decision*, stick with the global tracker. That way you are guaranteed global market returns for a modest cost.

Picking a subset of the global market, such as the S&P 500 or FTSE 100, means taking on the risk that you will underperform the global market. There is no point taking that risk without good reason. Rational investors don't take risks unless there is an expectation of being rewarded for doing so.

In making a product choice, I would suggest you look into OEICs as well as ETFs as there is no extra charge for holding or dealing in these with Halifax. One reason to consider OEICs is that you have to buy integral amounts of ETF shares, but you can buy fractional units with OEICs. That makes OEICs more efficient when investing small amounts. For example, the Vanguard global ETF VWRL costs about £66 per share, so a £200 investment might get you 3 shares, but sometimes only 2. With an OEIC, the entire £200 would be invested. Another reason to choose OEICs is that they can sometimes have lower overall running costs. For example, the HSBC FTSE All-World Index Fund (code MDAABG at Halifax) has an OCF of 0.19% compared with 0.25% for VWRL. The HSBC has other cost advantages as well, such as an accumulation version that eliminates frictional dividend reinvestment and currency conversion costs you would experience with VWRL.


* There is some statistical evidence to suggest you might get better returns that the market as a whole by considering valuations, such as book value, or "CAPE10" metrics. On the basis of such valuations, the US market is distinctly more expensive than non-US markets, so you might want to underweight the US market. I have been doing this for years and so far the strategy has completely failed. On the other hand, some argue that the market knows all about this statistical evidence, said thank you very much, adjusted share prices accordingly and destroyed any edge that might once have been available to the few who had that information.


p.s. Personally I would advise against investing in hot funds like Fundsmith. At any point in time there will always be a set of funds that appear to be really good. And then they stop being good. A recent example, there are many others, is Woodford. He had demi-god status before he set up on his own, but anyone who backed him over the last few years would not even have kept up with the FTSE allshare, let alone the global market. It is essentially the same argument I made about taking a subset of the global market - you are taking on additional risk with no expectation of additional reward. In fact there is now overwhelming evidence that taking the risk with actively managed funds is more likely to produce a worse performance than the market. Higher risk, negative expected reward!


Many thanks for detailed answer. I’m likely to stick to global index. Are there any obvious advantages of HSBC product discussed over VWRL (other than costs/ dealing fees)?

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Re: First steps in investing

#218728

Postby Pendrainllwyn » May 1st, 2019, 2:02 pm

Madmike wrote:Many thanks for all replies and suggestions. Taking into account all the above, my first portfolio would look like this:
1. Vanguard FTSE All World ETF/ or Fidelity Index World W Fund/ or IShares Core MSCI World ETF (with Vanguard being most diversified)
2. F&C IT/ Fundsmith Equity Acc
50/50 split. Is it worth throwing S&P 500 in the mix or maybe just stick to one from the above?
Also do you guys know if any of the funds listed are available through Halifax platform (preferably free from dealing fees)? I’d like to stick to one platform/ ISA for the sake of simplicity.
Thanks again
Just fyi - 54% of Vanguard FTSE All World ETF is invested in the US market so the S&P 500 will already have a big influence on your returns. By all means add S&P 500 if you want to be overweight the US. The US is generally agreed to look expensive relative to other markets currently but over the investment horizons you are looking at that may not matter especially since you will be building a position slowly.

Personally I think you are doing the right thing by starting out with funds/trusts. I have drip fed into Vanguard every month for 20 years and it's been one of the best things I have done. But you will learn far more about investing if you invest in single stocks so worth considering at a later date if that interests you.

Pendrainllwyn

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Re: First steps in investing

#218733

Postby hiriskpaul » May 1st, 2019, 2:42 pm

Madmike wrote:Many thanks for detailed answer. I’m likely to stick to global index. Are there any obvious advantages of HSBC product discussed over VWRL (other than costs/ dealing fees)?

Not really. Vanguard might track the index better than HSBC, so the higher OCF might be worth paying, or Vanguard might cut the fee below HSBC. According to Hargreaves Lansdown, VHYL has returned 55.26% over the last 3 years, HSBC 1% less, but over 1 year HSBC beaten VHYL by 0.64%. I don't know if it is the case, but the difference might be explained by HSBC cutting their management fee. There is an ongoing price war with tracker funds. Another explanation might be that VHYL was simply luckier over 3 years with dividend reinvestment.

OEICs are regulated retail investments, ETFs are not, but I would not overemphasize the importance of that aspect when it comes to trackers.

When you buy/sell OEIC units you have no price visibility and have to accept the price offered by the fund manager, set once per day. ETFs are stock market listed and so trade like other shares, so you can trade with price limits, etc. Again, for long term investment, this additional flexibility with ETFs should make no difference.

The HSBC OEIC probably trades closer to net asset value most of the time. There will always be a buy/sell spread with VHYL and VHYL will trade at a small discount or premium to NAV. Slight advantage to HSBC there.

The HSBC fund and Vanguard ETF track the same index and are of comparable size. Size/scale is generally a good thing when it comes to cap weighted trackers. Vanguard hold more component securities at 3201, compared with 3045 for HSBC and 3241 for the index itself. Again, slight advantage to Vanguard there, but I would suggest not something that would outweigh the advantages of the OEIC.

On the whole, for the way you are investing and the platform you are using, I would go for the accumulating version of the HSBC OEIC.

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Re: First steps in investing

#218742

Postby hiriskpaul » May 1st, 2019, 3:03 pm

Sorry, not VHYL, I was talking about VWRL, but to late to correct the post.

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Re: First steps in investing

#218746

Postby Madmike » May 1st, 2019, 3:20 pm

Really appreciate time and effort you guys have spent answering my questions. A massive thanks to all of you. I guess I’ve got to start somewhere and global index tracker ticks most of the boxes. Hopefully few years down the line I’ll gain better knowledge and understanding of markets and I’ll be able to expand my portfolio (industry specific EFTs, REITs etc).

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Re: First steps in investing

#218753

Postby paulnumbers » May 1st, 2019, 3:47 pm

Madmike wrote:Hi All,

I’m new to the site and investing game. I’d like to get my feet wet and looking for a little bit of advice.
Here’s a bit of info about myself. I’m 39 yo, no debts or credit cards, 19 years left on my mortgage. I’m in work pension scheme with Now Pensions ☹️. I’ve read up on investment strategies a bit and decided to give it a go. As I lack a sound knowledge I think passive investing is a way forward. I’ve narrowed down my options to index trackers/ ETFs. I want to invest £1000-2000 to begin with followed by 200-250 regular monthly investments. I’ve got 3 months worth of wages emergency fund for rainy days also.
Here are the choices I’m leaning towards:
1. HSBC FTSE 100 units ETF/ IShares FTSE 100 ETF,
2. IShares Core S&P 500 ETF.
3. Global/ all markets tracker of some sort.
I’d like to use Halifax share platform and keep investments in their ISA. I prefer dividends to be automatically re-invested to enhance the potential growth. Will also have some spare cash to buy extra when prices are low.
Shall I only pick one option to start with or shall I combine all of the above? Although I’m open for other options (REITs, unit trusts etc).
I’ll appreciate any feedback/ advice/ suggestions.

Many thanks in advance.


If you go down the passive route, I think it’s worth considering Vanguard as a broker, at least for the first few years. Fee’s for the first year on the amount you’re talking about should be less than £7. Something like £36 for halifax

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Re: First steps in investing

#218767

Postby nmdhqbc » May 1st, 2019, 5:13 pm

paulnumbers wrote:If you go down the passive route, I think it’s worth considering Vanguard as a broker, at least for the first few years. Fee’s for the first year on the amount you’re talking about should be less than £7. Something like £36 for halifax


I personally don't see much advantage to buying every single month. For me iWeb @ 4 x £5 a year is quite a low cost place to start to save the bother of switching over when Vanguards percentage fee gets expensive.

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Re: First steps in investing

#218820

Postby Urbandreamer » May 1st, 2019, 8:39 pm

To me, starting is the most important thing.

Active, passive or combined rather than "high conviction", it doesn't really matter. The important thing is to start. After that you start finding your own way. It is important to find an investment methodology that you are happy with, but how can you do so without experience and practice.

FWIW, I'm a fan of active investment and stock picking. However others like passive and or market tracking. Neither is "right", just right for those that choose their road.

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Re: First steps in investing

#218864

Postby Madmike » May 2nd, 2019, 8:03 am

starquake wrote:I now for reference "try" to follow rules on my £250 month:

1/ half to go to passive tracker of some description, I change this annually.
2/ half to go to active fund (fundsmith) or individual share holdings, as once I'd build my main holdings of passives, I started experimenting with strong undervalued dividend payers... Which *can* outperform say fundsmith.

I also agree on ETF versus regular fund in priniciple - these are very good - I only hold 2 OIEC's - Fundsmith and Vanguard lifestrategy, but ~ 4 ETF's.

Oh and another top tip is follow investors on twitter ;) You'll find many top tips/sample portfolios amongst the pump and dump people - and look at going to Mello and other small company investment events. If you don't want to be more active yourself just stick with passives as per previous post, maybe with some fundsmith. ;)

Forgive me my ignorance but what is the reason for changing your tracker annually? I’ve been under impression that it’s more of “buy and forget” type of investment.

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Re: First steps in investing

#218997

Postby hiriskpaul » May 2nd, 2019, 3:22 pm

Madmike wrote:Forgive me my ignorance but what is the reason for changing your tracker annually? I’ve been under impression that it’s more of “buy and forget” type of investment.

The only reason to change to a different world tracker would be if you found a significantly cheaper one. Once you have more invested, say £100k+, you might want to split your tracker into multiple geographical trackers, US, Europe, UK, Japan, etc. If you do that, but weight according to the world index, you can get the OCF down below 0.1%. It does of course introduce more complexity and puts up the incremental investment cost as you have half a dozen funds to buy instead of one. Another reason to sell might be if at some point you wanted to invest in other funds, such as a bond fund, and wanted to rebalance between funds.

Or you wanted some money to spend! After all, why else are you investing if not for spending at some later date?

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Re: First steps in investing

#219000

Postby Alaric » May 2nd, 2019, 3:37 pm

hiriskpaul wrote:
The only reason to change to a different world tracker would be if you found a significantly cheaper one.


If it's held in a taxed account, harvesting unused annual Capital Gains Tax allowance is another reason, always assuming there are any gains to harvest.

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Re: First steps in investing

#219010

Postby hiriskpaul » May 2nd, 2019, 3:59 pm

Alaric wrote:
hiriskpaul wrote:
The only reason to change to a different world tracker would be if you found a significantly cheaper one.


If it's held in a taxed account, harvesting unused annual Capital Gains Tax allowance is another reason, always assuming there are any gains to harvest.

True. I did not mention that because the OP is using an ISA.

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Re: First steps in investing

#219148

Postby Madmike » May 3rd, 2019, 8:58 am

Thanks for clarification. I had a look at Vanguard’s page and for the amounts I want to invest it works out cheaper than other brokers. I’ve been considering their products anyway. As it’s stands the choices are VWRL or LifeStrategy.
All you guys have been a massive help.


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