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£5k investment for 25 years
Dave S
Posted: 13 March 2018 09:12:58(UTC)
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I've opened a LISA with A J Bell and I currently have £4k sitting in the account in cash. The government will add a further £1k at the end of the tax year so I'll have £5k to invest in total.

The on line questionnaires suggest my attitude to risk is average & I won't be eligible to access the funds for approximately 25 years.

How would you invest this money taking the factors above in to account & would you invest it all at once or invest it over a period of time? I've read a fair bit about pound cost averaging but I'm not sure if that would apply to higher investment amounts.

I have the option to top up the investment by £5k per year for the next 15 years so if I get this right, it should be the start of a nice little nest egg for retirement.

Thanks in advance

Dave


Keith Hilton
Posted: 13 March 2018 10:21:44(UTC)
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One of the most important points in achieving good returns is to keep costs as low as possible, so I would start by building a core holding in a low cost world tracker, such as Vanguard FTSE All-World ETF (VWRL) or iShares Core MSCI World (SWDA).

You might also wish to consider the Vanguard Lifestrategy series which will balance the equity holdings and bonds to a set percentage e.g. Lifestrategy 80 - which is 80% equity, 20% bonds. However, the charges on the AJB LISA are uncapped for funds, but are limited to £30 per year for individual shares and ETFs. For this reason alone, I would recommend the use of ETF's or Investment Trusts, rather than unit trusts or OEICS.

As for timing the market, with such a long term horizon, it's unlikely to make any significant difference whether you invest it all now or drip-feed. History says that it's "Time in the market, not timing the market" which counts. However, my naturally cautious nature would suggest drip-feeding over several months.
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Redundant (Old Timer?)
Posted: 13 March 2018 10:26:06(UTC)
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Dave,

With such a small amount and a 25yr horizon I would not worry about pound averaging now. If I were you I would pick 5 investment trusts and put £1000 in each. Then next year I would add to each and only after 5 years in those trusts would I consider expanding the portfolio.

I suggest you look for a UK IT; a Global IT; a Europe (ex UK) IT; an Asian one and possibly an emerging market one. After 5 or 6 years, subject to what happens with interest rates you may want to consider something in bonds.

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Mickey
Posted: 13 March 2018 10:26:20(UTC)
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Hi,
I prefer Investment Trusts so would plonk the 5k into one of the Global IT's such as the usual favourites, Scottish Mortgage, Monks etc. Take a look at this list for ideas

As years progress you could add others or look at specialist Trusts such as Allianz Technology and others.

Pound Cost averaging is one strategy, I think doing this relies on the market falling not rising, so take an opinion and decide if it is for you or not.
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Alan Selwood
Posted: 13 March 2018 13:42:26(UTC)
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I would start with a core holding, and when there is 60% or more in core holdings, start adding some peripherals.
If you are likely to be able to add similar amounts each year, that does £/cost averaging automatically, so stick it all in in one go.

Despite the low cost appeal of trackers, I would pay up and get selective management, because returns tend to be better, and over 25 years, the compounding effect should make the cost worth it.

I could happily invest 5 years at £5,000 p.a. into Fundsmith Equity Fund, and then look at some Far East ideas, where currently people are expecting future growth to be.
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Micawber
Posted: 13 March 2018 17:11:37(UTC)
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Most people think their attitude to risk is average or low risk. But really, the risk depends on whether you *need* the money (to live) or just *want* the money. Over the longer term, a bit more risk will give better returns. That doesn't mean silly risks e.g. startups in gold mines or wonder materials etc etc. But you could go for sectors like smaller companies, fintech, robotics & automation, biotech and others where there are suitable collective investment vehicles (funds, ITs or EFTs) to invest in.

£5k per year is not really sufficient to think in terms of a pf of individual company shares IMO.
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Raj K
Posted: 13 March 2018 17:26:06(UTC)
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I would be £1500 each in Fundsmith and Lindsell Train global Equity (which gives you high quality companies across US, UK, Japan and Europe) and £2000 in global smaller companies investment trust FCS. Once you start building these core and learn more I would then start on adding themes of your choice!

I made the mistake of choosing too many funds and investment trusts and have been in the process of whittling down as I have learnt more!.

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mcminvest
Posted: 13 March 2018 20:29:54(UTC)
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Raj K;58651 wrote:
I would be £1500 each in Fundsmith and Lindsell Train global Equity (which gives you high quality companies across US, UK, Japan and Europe) and £2000 in global smaller companies investment trust FCS. Once you start building these core and learn more I would then start on adding themes of your choice!

I made the mistake of choosing too many funds and investment trusts and have been in the process of whittling down as I have learnt more!.


I made same mistake and also whittled down fairly pronto, amazing how much you learn in as little as 6 months, especially on charges with too many funds. I think every one has given you sensible advice, add as you go
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sandid3
Posted: 14 March 2018 06:02:43(UTC)
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The top performing UT/Oeic sectors since March 1993 were:

1995% European Small Cos
1410% Tech & Telecoms
1360% China & Greater China
1280% North Am Small Cos
1250% UK Small Cos

After those, there is a drop to all the big markets (US, Eu, UK, Asia, etc) at around the 600%-800% level.

There is no obvious reason why things should be any different for the next 25 years. Therefore the obvious thing is to put half into a Global Small Cos fund and half into a Global Equity fund.

For the Gl Sm Cos fund I would go for a fund with a big fund size and a big company behind it: link here

I would steer clear of the index fund and pick Invesco or Std Life. Ignore the nonsense about charges - the performance speaks for itself. For small cos a big fund manager can pick the best regions on economic grounds. (There is one IT fund from F&C. It did well over 10yrs but no better over 5yrs.)

Those top five sectors are volatile but if you are really going to close your eyes for 25 years, that won't matter. Tech & Telecoms boomed and bust around 2000 but still came out a winner. A global small co fund will pick up some tech and asian companies.
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Dave S
Posted: 14 March 2018 10:47:41(UTC)
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Thanks for the responses all, really appreciate you taking the time to share your views.

Dave
B B
Posted: 14 March 2018 13:12:37(UTC)
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Some good advice here. However, with a 25 year time span, may I suggest that you first take a look at what Lars Kroijer has to say, it may surprise you.

http://www.kroijer.com/

B
Tyrion Lannister
Posted: 16 March 2018 19:38:20(UTC)
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With a 25 year time horizon, I'd split it 4 ways:

VWRL £2,000
FCS £1,000
HSL £1,000
JMG £1,000
King Lodos
Posted: 17 March 2018 07:24:58(UTC)
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40% Lindsell Train Global
40% Fundsmith
10% Vanguard Lifestrategy 80
10% Vanguard Emerging Mkts Index

Over 25 years, there's a reasonable chance the active funds (top two) won't have the same managers – or won't be around.

If in doubt, I'd just transfer into Lifestrategy 80 .. Passive (or mostly passive) funds like those from Vanguard are the easiest long-term decisions, because they'll always do as well as 80% of things out there, and you don't have to rely on a manager making smart decisions (they just passively track the returns made by the market).

Personally I'd avoid niches (like smaller companies or specific countries), unless you want to monitor your portfolio, because macroeconomics can have such a strong influence on whether those investments do well, and if you're looking at active funds, they're really dependent on the manager and investing style, both of which might change over 25 years
FarmerDoc
Posted: 18 March 2018 10:46:23(UTC)
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I would agree with the suggestion to go down the passive route within an ISA to hold for the long term. Choose your platform carefully. A flat fee platform may seem "expensive" initially but, if you continue to invest regularly and reinvest all dividends, once your portfolio grows beyond £50-60K this will prove to be a lower cost solution.

I concur with the suggestion to watch Lars Kroijer's videos but this might be of interest as well -

https://www.youtube.com/...bw&feature=youtu.be

You really can't go wrong with Varguard VWRL or one of their Life Strategy Funds. By all means keep reading and researching active funds such as ITs but, as John Bogle, founder of Vanguard says, why look for needles when you can buy the whole haystack.

Good luck.
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King Lodos
Posted: 18 March 2018 12:10:02(UTC)
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Well if you go passive you're presumably best off going with Vanguard's own ISA account.

I'd agree – it's a much easier decision going passive, and you know you own the assets .. You're buying the market as it is – and no one's going to make any decisions on your behalf (LifeStrategy makes *some* – but Vanguard are very conservative and have a good record with their active funds anyway).

On the other hand, funds run on passive principles – minimal trading, low cost, not making predictions, etc. – have a very good chance of outperforming, because it's costs that really kill active fund returns
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