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So now it is time to invest

19th April 2016

You have read my previous post, you have made all the relevant decisions about risk, timescale, income of growth etc and now what are you going to do with that money.

So what are your choices?

  • DIY
  • Consult an IFA
  • Consult a specialist fund manager
  • I am an IFA so will deal with the other 2 options first

DIY

Good luck and let me know how you get on. Hopefully some of my comments here will help. But one word of warning - having gone through the risk assessment process with DIY investors it is amazing how their portfolios can be wildly out of the risk profile that we generate with them. For example a so called cautious investor with 100 % of his portfolio in equities.

Stockbrokers, Discretionary fund managers and Wealth Managers

These firms can do an excellent job, but most have minimum investments of six figure amounts and often well into six figures. They will all offer a discretionary service. That means having taken your original brief they will get on with it without further reference to you and report back to you on the regular basis as agreed in that brief. Maybe quarterly or half yearly. Watch out for their charges, some are excellent but other high street names may be expensive at an initial charge of 2 to 3 % and annual charge of 1,5 % or more of the funds under management.

I outsource my investment advice, so having finally agreed a risk score I defer to Moody analytics for advice on asset allocation, It is very important that your funds be split between different asset sectors, and for example with a risk score of 5/10 and a growth portfolio, the current advice would be to split your investment:

  • 17.8 % commercial property = 19 %
  • corporate bonds20.8 % UK
  • equities22 %
  • US Equities7.8 %
  • European equities7.2 %
  • Japanese equities = 5.4 %
  • Asia Pacific equities = 5.4 %

(this also assumes that 16 % of your original funds have been held back in cash)

At my firm we then turn round to Morningstar and they advise how each of these allocations should actually be invested using a selection of unit and investment trusts. For example the fixed interest sector would be invested in Fidelity Moneybuilder, Invesco Perpetual Corporate bond and Kames investment grade bond funds, using overall a total of 19 funds in this case.

So we build a lot of diversification into our portfolios, with in this case 7 different investment sectors, and 19 different funds, each of which may have an average of 50 or more individual holdings.

So your £5,000 investment may be split between 1,000 or so individual holdings.

All of this is regularly reviewed and reported quarterly with frequent advice for (usually small) changes. This puts you in charge because we cannot implement those changes without your approval. All of the above will be administered on an "Investment Platform", which provides us with a service to do all this, and provides you with access to information 24/7.

If you feel you will not want to be bothered with giving permission every 3 months or so then our alternative is a managed fund of funds, where the same process as above is all done within the one fund by the fund of funds manager.

The next article will then address the "investment wrapper" or combination  most appropriate to your circumstances. Should the money go into pensions, ISA's, single premium bonds, general investment accounts etc. and what are the different tax implications?

APFA

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