Welcome to City Tax Direct. We're a small team of London based Tax Accountants who are here to help your business thrive. We take the headache out of your tax returns allowing you to do what you do best. Business.
Contact us now!

Just get those first investments rolling and over time they will snowball

Each week we ask an expert for tips on how to invest £10,000. Today we start a four-week series on beginning your first investment portfolio.

With interest rates approaching eight years of record lows and inflation rising sharply, more of us are looking for ways to earn better returns than we can achieve with cash savings. The worry for many, though, is investing when stock markets are close to record highs.

Kicking us off is Tom Stevenson of the fund manager Fidelity International. He has three children, aged 16, 20 and 23, and has helped all of them to start investing.

“I’ve had quite a few conversations with my children about how to set out on the investment journey,” he said. “My opening gambit is always the same: just do it. The magic of compounding means that time is a young investor’s best friend, and I’m making the assumption that our rookie investor is indeed young.”


Tom Stevenson firmly believes in investing when you are young

Stevenson, 53, from East Grinstead in West Sussex, added: “Young investors have other reasons to be grateful. With a long time horizon, they don’t need to worry unduly about the inevitable ups and downs of the stock market. They can ride out the market dips, which are the price we pay for the superior long-term performance of shares over safer assets such as cash. This means they can afford to invest in apparently higher-risk investments, such as emerging-market shares.”

He pointed out that there is no obligation to invest the whole £10,000 in one go: “Drip-feeding the money in reduces the risk of investing everything at the top of the market. This is particularly important when share prices have been rising for a long time or have enjoyed a rapid recent rally and may be ripe for a correction.”

Stevenson recommends dividing the money into four pots and investing these over the course of a year.

“One final advantage of having a lump sum to kickstart your investing career is the ability to diversify your portfolio from the outset,” he said.

“My suggested funds for the novice investor have been chosen to spread the risks across different geographies and investment styles. Over time, different approaches will come in and out of favour — sometimes cautious, sometimes more aggressive — and timing the changes is impossible. It is far better to put your eggs in a variety of baskets.”

Here Stevenson explains his selections.

Stewart Investors Asia Pacific Leaders (up 28.5% over a year)
The Asia Pacific region will be the driving force of economic growth in the years and decades to come. I would allocate £3,000 to this fund.

Stewart Investors has a long track record in the region and takes a long-term approach, looking for the best companies with the highest-quality management and strong balance sheets.

This is a real stock-picker’s fund, which means it can often diverge from the country and sector allocations of the underlying index against which it is judged, known as the benchmark.

This fund’s biggest exposure is to Indian and Taiwanese shares. Its annual charge is 0.88%. [This is paid on top of the charge levied by the platform or broker you use to make the investment. Different fees may have been negotiated with other platforms. The same applies to Stevenson’s three other picks.]

Rathbone Global Opportunities (up 26%)
This fund, while global, has significant American exposure and concentrates on technology stocks, including Amazon and Facebook, as well as consumer names such as Visa. Its geographical and sector biases make it particularly suitable for a long-term “buy and hold” investor.

The manager, James Thomson, has a focus on companies with a sustainable growth story and is prepared to pay for quality. He likes to find under-the-radar or out-of-favour businesses. I would allocate £2,000 to this fund, which has an annual charge of 0.79%.

Old Mutual UK Smaller Companies (up 21.3%)
My old friend Jim Slater, the well-known investor who died in 2015 at the age of 86, used to say that elephants don’t gallop. What he meant was that larger companies find it much harder than smaller ones to grow their earnings at a significant pace.

For long-term investors wishing to benefit from compound growth in earnings, year in and year out, smaller businesses are a great hunting ground.

Dan Nickols has run Old Mutual UK Smaller Companies for more than a decade. He blends a big-picture view of the economy with company-specific analysis. He also looks for shares with the potential to sustain earnings growth — and where the market has failed to recognise the potential.

I would invest £3,000 here. The annual charge is 0.94%.

JOHCM UK Dynamic (up 30.8%)
A more contrarian approach to long-term investing is taken by Alex Savvides, the manager of this fund. He is an experienced investor who thinks the stock market is often bad at spotting the implications of corporate change.

This, he believes, provides opportunities for shrewd investors who can avoid falling into “value traps” — buying into something that looks undervalued when in fact there are good reasons for its low share price.

The fund invests only in UK shares and its top holdings include BP, Barclays and Morrisons. The final £2,000 goes here. There is an annual charge of 0.74%.

Leave a Reply

Your email address will not be published. Required fields are marked *