Funds vs. Shares
Discussion
Chaps,
I'm a newbie to this investing game. Previously, I've shoved all our spare cash (OK, not all of it but a lot of it) into an investment scheme run by Towry Law. BUT I am now beginning to realise that this hasn't been the best financial move; while they have done OK in years gone by my savings have decreased in value over the last year and I am looking at alternatives.
As I said, I'm an investing novice, but it seems that I can invest in shares or in funds. Shares cost you to trade, and your eggs are in fewer baskets - you may do well or you may do badly, but your outcome is tied up in only one company's success (or otherwise). Funds are run by people who are expert investors and the risk is spread around; they will invest in companies on your behalf, using their skill and experience to choose wisely. As they trade larger amounts of shares their cost-to-trade becomes a lower percentage of the total value, but they charge a management fee for what they do.
On this basis, given that I have a (small) pot of cash and need to know what to do with it, am I best advised to look at funds? Or have I missed something?
If this is the case, where are good places to find out about investing in funds? Google (as always) throws up a load more results than I need, and most of them seem to be pap. Moneyspider seems to give reasonable write-ups, although their main aim seems to be managing a group of funds (which is not what I want them to do.)
I appreciate that this is a fairly ill-formed post, and my ignorance is probably writ large across it, but where would you suggest I should be looking to invest? Not individual investments, more types of investment?
Background: aged 35, married, no dependents, wife works and covers the bills comfortably, I've recently finished a business which did well, and am starting something else which will make a lot less money and none of that soon. I am taking on board the usual advice to pay off mortgages and credit cards first.
Oli.
I'm a newbie to this investing game. Previously, I've shoved all our spare cash (OK, not all of it but a lot of it) into an investment scheme run by Towry Law. BUT I am now beginning to realise that this hasn't been the best financial move; while they have done OK in years gone by my savings have decreased in value over the last year and I am looking at alternatives.
As I said, I'm an investing novice, but it seems that I can invest in shares or in funds. Shares cost you to trade, and your eggs are in fewer baskets - you may do well or you may do badly, but your outcome is tied up in only one company's success (or otherwise). Funds are run by people who are expert investors and the risk is spread around; they will invest in companies on your behalf, using their skill and experience to choose wisely. As they trade larger amounts of shares their cost-to-trade becomes a lower percentage of the total value, but they charge a management fee for what they do.
On this basis, given that I have a (small) pot of cash and need to know what to do with it, am I best advised to look at funds? Or have I missed something?
If this is the case, where are good places to find out about investing in funds? Google (as always) throws up a load more results than I need, and most of them seem to be pap. Moneyspider seems to give reasonable write-ups, although their main aim seems to be managing a group of funds (which is not what I want them to do.)
I appreciate that this is a fairly ill-formed post, and my ignorance is probably writ large across it, but where would you suggest I should be looking to invest? Not individual investments, more types of investment?
Background: aged 35, married, no dependents, wife works and covers the bills comfortably, I've recently finished a business which did well, and am starting something else which will make a lot less money and none of that soon. I am taking on board the usual advice to pay off mortgages and credit cards first.
Oli.
zcacogp said:
Funds are run by people who are expert investors and the risk is spread around; they will invest in companies on your behalf, using their skill and experience to choose wisely.
Don't bet on thisI prefer passive investing in general, investing in specific companies on a case by case basis very rarely. The only active fund I hold is fundsmith - they're worth a google imo.
Somewhatfoolish said:
The only active fund I hold is fundsmith - they're worth a google imo.
Interesting! I had the pleasure (!) of meeting Conrad Ray a month or so back at a social event and it was the conversation with him that prompted the line of thought that led to this thread ... Suffice it to say that I have just (literally today) put a reasonable amount into Fundsmith and will be watching the performance with interest. And am wondering whether to shove a whole load more in there as well, or whether to spread it around other funds as well - in which case, which one? Or maybe I should buy some shares instead?
And, like the true sheep that I am, without an original idea in the world, I thought I would ask my good friends on PistonHeads!
Oli.
If you don't have any particular expertise it is a reasonable assumption that the price of a particular share is about right - it certainly reflects the market's best judgement, more or less. The key is to have a reason to believe that you know better than the market.
For a gazillion reasons - if you have a bit of time reviewing some of the research @ https://www.vanguard.co.uk/adviser/adv/adviser-sup... is well worth it - most fund managers will not beat the market on a risk adjusted basis, particularly net of fees:- it therefore makes sense to invest passively as much as possible in whatever is the lowest fee way of doing this. Then you know you will just slighly underperform the market every year - but after a few years you will have outperformed almost everyone.
In any case far more important than a particular fund is asset allocation. There may also be important tax considerations you need to take into account and so on.
I am a trader but what I do has nothing to do with investing so the above advice should be read as coming from a reasonably well informed amateur.
For a gazillion reasons - if you have a bit of time reviewing some of the research @ https://www.vanguard.co.uk/adviser/adv/adviser-sup... is well worth it - most fund managers will not beat the market on a risk adjusted basis, particularly net of fees:- it therefore makes sense to invest passively as much as possible in whatever is the lowest fee way of doing this. Then you know you will just slighly underperform the market every year - but after a few years you will have outperformed almost everyone.
In any case far more important than a particular fund is asset allocation. There may also be important tax considerations you need to take into account and so on.
I am a trader but what I do has nothing to do with investing so the above advice should be read as coming from a reasonably well informed amateur.
When investing in funds make sure that you are actually "spreading it around a bit". By that I mean that abc fund could have the same 30 shares in it as xyz fund so you think you are diversified but actually you are not!
Currently I am in (shares):
Lloyds
Barclays
St James's Place
Berkshire Hathaway
Betfair
(Funds):
Orchard Wealth
Mansion Student Accomodation
Fidelity Income/Dividend fund just launched can't remember name
Fundsmith before it becomes too big and performance goes rubbish
Don't be afraid to go in to smaller funds, just because a fund has £billions in does not make it any more 'safe' or 'better' than one that has £10 million in.
I also tat with property which is too illiquid for my liking and bet/trade on Betfair/Betdaq which is the best performer of all as there is no tax to pay!!
Currently I am in (shares):
Lloyds
Barclays
St James's Place
Berkshire Hathaway
Betfair
(Funds):
Orchard Wealth
Mansion Student Accomodation
Fidelity Income/Dividend fund just launched can't remember name
Fundsmith before it becomes too big and performance goes rubbish
Don't be afraid to go in to smaller funds, just because a fund has £billions in does not make it any more 'safe' or 'better' than one that has £10 million in.
I also tat with property which is too illiquid for my liking and bet/trade on Betfair/Betdaq which is the best performer of all as there is no tax to pay!!
Passive investing is when the fund (or whatever) is designed to hug the benchmark or similar, rather than there being an active investor making decisions. So for example, a passive FTSE 100 fund would invest in all 100 companies in the FTSE 100 in proportion to their makeup in the index. Because this is such a simple strategy to implement, and does so little trading day to day, it doesn't need to charge anything like an actively managed fund.
The reasoning behind it is basically as I said - the price of any stock is almost certainly "about right", so there's little point in thinking too hard. Any large deviation from fair value would almost surely be picked up by "smart money" well before any retail fund would pick it up - and it has to be a decent deviation to justify the huge difference in fees.
There are various other reasons that, counter intuitively, passive funds tend to outperform active funds; the link I gave you will help
The reason I like fundsmith is that if the manager sticks with the marketing material, most of those reasons will not apply. In particular he'll hardly be changing the makeup of the fund, and he'll be looking for very specific companies - and it'll be concentrated roughly perfectly.
A piece of advice I always give people who want to get interested in this stuff - open a futures account with around five grand minimum, and start trading front month STIRs. You can make money doing that fairly easily, so long as you dedicate entire days to trading, and you will learn a lot.
The reasoning behind it is basically as I said - the price of any stock is almost certainly "about right", so there's little point in thinking too hard. Any large deviation from fair value would almost surely be picked up by "smart money" well before any retail fund would pick it up - and it has to be a decent deviation to justify the huge difference in fees.
There are various other reasons that, counter intuitively, passive funds tend to outperform active funds; the link I gave you will help
The reason I like fundsmith is that if the manager sticks with the marketing material, most of those reasons will not apply. In particular he'll hardly be changing the makeup of the fund, and he'll be looking for very specific companies - and it'll be concentrated roughly perfectly.
A piece of advice I always give people who want to get interested in this stuff - open a futures account with around five grand minimum, and start trading front month STIRs. You can make money doing that fairly easily, so long as you dedicate entire days to trading, and you will learn a lot.
Edited by Somewhatfoolish on Tuesday 6th March 23:55
Something that I have not bothered to work through is tax implications. i.e if you invest direct in shares then the dividend is taxable income. The beauty of a fund is that the dividend does not get taxed but the kicker is you pay management fee. Ultimately capital gains get you anyway.. It does also point at low dividend shares where you hope the capital growth pays instead; not something happening in current market but that capital is building up somewhere... Something about funds is they need a real focus i.e. not those with "global" in the name; they tend to drift IMHO.
I'll let the real pro continue..
I'll let the real pro continue..
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