What to Do with £5k or what to invest it in

[muon]

err, CAPM does not take into account inflation..

sorry my post isnt very clear, my point was that inflation erodses the value of everything and hence you should look at nominal returns alone, what capm does.

Also, inflation may erode the value of everything but the problem is that a savings account pays a fixed interest rate whereas other assets (e.g. property, food etc.) can increase in value over and above the inflation rate, leaving your savings account investment far worse off than the value of the rest of things. If you are investing in something that offers a return under the inflation rate you are losing money. It may not matter when you want to buy other things that have had their prices rise at rates under the inflation, but it will if their prices have risen at, or above, inflation rates (which is very likely!).

Inflation again is irrelevant. See CAPM.

Property and food is more volatile than cash. Not comparable in risk.

 

[TheDean]

Rubbish, you implied he should invest it in something riskier before I joined the thread. My request for you to recommend some was in the context of the OP's question.

That's exacatly what I thought!

Why is passive index tracking high risk? It guarantees that you will not lose more than the market - you are assuming only market risk, thus probably best than any other random investment (unless you have good research discipline and you can identify good opportunities, which the OP does not seem to claim to have).

If you are going to invest in the stock market then a tracker on the S&P500 is probably your lowest risk option (if S&P500 is the benchmark for what kind of portfolio you find appealing/promising, NASDAQ for high tech shares etc.).

Having said that, I'd like to add a caveat in case I (quite possibly) misunderstood you. Investing in an index tracker is possibly the least risky investment IF AND ONLY IF you are want to invest in the stock market. It is NOT the least risky investment if you are willing to consider alternatives (ISAs, Savings, Bonds etc.) in which case I would agree with you.

I was referring to Bonds etc. I don't like passive trackers really, certainly not for the FTSE. Maybe for less than 1% of portfolio in a market like Japan or something. For my money, you want a manager on the ground who can react to market conditions. If the markets crash, you lose it all with a tracker. If you have a good manager (or team in terms of some investment trusts) you will be hurt, but not as significantly (but this again depends on the managers attitude, goals, risk etc)

If you can get the whole £5K into a cash ISA before the 6th of April (current limit on cash ISAs is £5100) you'll be able to add more to it after that date (another £5340 for that tax year). Worth considering because if you miss that deadline you can still put the £5K into an ISA but that's pretty much it until 2012.

A good point. Do remember, that if you don't use your ISA allowance in any given tax year, it is lost forever!

 

[ntg]

sorry my post isnt very clear, my point was that inflation erodses the value of everything and hence you should look at nominal returns alone, what capm does.



Inflation again is irrelevant. See CAPM.

Property and food is more volatile than cash. Not comparable in risk.

Sorry, misunderstood your post. I thought you were referring to his money in respect of what he could use it to buy after the investment period when you were comparing different investment choices and their returns (hence inflation is irrelevant in that context).

Carry on!

 

[ntg]

I was referring to Bonds etc. I don't like passive trackers really, certainly not for the FTSE. Maybe for less than 1% of portfolio in a market like Japan or something. For my money, you want a manager on the ground who can react to market conditions. If the markets crash, you lose it all with a tracker. If you have a good manager (or team in terms of some investment trusts) you will be hurt, but not as significantly (but this again depends on the managers attitude, goals, risk etc)

When compared to out-of-stockmarket investments then a passive tracker can be riskier. However, when investing in the stock market a passive tracker is the least risky option. I'm not saying that it will lose the least money, just that it has the least risk. Obviously a good active manager (which the OP can't get due to his low investment amount) could potentially outperform the market - but the risk that comes with that is higher than just tracking the market. All things considered it's a risk/reward issue.

 

[UK-AL05]

That's exacatly what I thought!



I was referring to Bonds etc. I don't like passive trackers really, certainly not for the FTSE. Maybe for less than 1% of portfolio in a market like Japan or something. For my money, you want a manager on the ground who can react to market conditions. If the markets crash, you lose it all with a tracker. If you have a good manager (or team in terms of some investment trusts) you will be hurt, but not as significantly (but this again depends on the managers attitude, goals, risk etc)



A good point. Do remember, that if you don't use your ISA allowance in any given tax year, it is lost forever!

There been a lot of research, and over a long amount time only but the very best fund managers actually beat index trackers. Then you have to take away higher management fees, which eat away at the gains. A really good fund manager might be able to avoid a big loss if the macro-markets falls, on the other hand he could loose even if everyone else is gaining. Index trackers can very good, generally only loose, if everybody on average is loosing for obvious reasons. So really depends if you have trust in the global economy. The only way to make massive gains, is to invest in smaller up and coming companies but thats very risky.


You also have to consider that index funds, tend have a lot of same types of industry in them. I.E FTSE 100 has a lot oil & finance companies in there.

http://www.fastcompany.com/magazine/128/made-to-stick-the-myth-of-mutual-funds.html

 

[Tysonator]

ISA Account or on line saver account give best interest at the moment 3% apx
The new ISA accounts will be out late march / begining of April

 

[TheDean]

Obviously a good active manager (which the OP can't get due to his low investment amount) could potentially outperform the market

Of course the OP can get an active manager?! What on earth are you talking about? As I said, Sebastian Lyon is an Alpha manager and his track record speaks for itself.
http://www.taml.co.uk/factsheets/tf_performance.asp?mode=agree

There been a lot of research, and over a long amount time only but the very best fund managers actually beat index trackers. Then you have to take away higher management fees, which eat away at the gains. A really good fund manager might be able to avoid a big loss if the macro-markets falls, on the other hand he could loose even if everyone else is gaining.

http://www.fastcompany.com/magazine/128/made-to-stick-the-myth-of-mutual-funds.html

This is why you do your research and find the best fund managers.....or pay someone to manage your funds for you (but at £5k, this is impossible)

 

[UK-AL05]

Of course the OP can get an active manager?! What on earth are you talking about? As I said, Sebastian Lyon is an Alpha manager and his track record speaks for itself.
http://www.taml.co.uk/factsheets/tf_performance.asp?mode=agree



This is why you do your research and find the best fund managers.....or pay someone to manage your funds for you (but at £5k, this is impossible)

And the very best, tend to be reserved for stupidly rich clients.

 

[ntg]

Of course the OP can get an active manager?! What on earth are you talking about? As I said, Sebastian Lyon is an Alpha manager and his track record speaks for itself.
http://www.taml.co.uk/factsheets/tf_performance.asp?mode=agree



This is why you do your research and find the best fund managers.....or pay someone to manage your funds for you (but at £5k, this is impossible)

Sorry, I though you were referring to get someone to manage his funds.

 

[wildman]

street, crack

with the upcoming austerity measures about to kick in I foresee the prices of crack going up due to increased demand and low overall availability. In times such as we are going through I think more and more people will turn to crack, liquor and fags. Therefore cash in on cheap crack prices now, save the stash and sell for profit, just like in EVE when they introduced PI, everyone horded NPC POS fuels like robotics and then made a killing

 

[TheDean]

And the very best, tend to be reserved for stupidly rich clients.

Not true at all. Have you any real idea what you are talking about?

Sorry, I though you were referring to get someone to manage his funds.

Nope. This would be impossible, but good places for the OP to start would be citywire.co.uk & trustnet.com - In fact there is someone deciding what to do with £10k at the moment on the Citywire forums. Start there!

 

[Energize]

If it's long-term investment (12 months+ let's say) I don't see why an index tracker would be as risky as some are claiming. All FTSE indices have trended up since 2008 with annual growth of 22% in 2009 and 9% in 2010. Predictions of the FTSE100 breaking 6000 last year were accurate and stock markets, by and large, have recovered whilst still remaining volatile in the short-term.

Personally I wouldn't invest all my assets in one fund, which is all I meant by that. But yeah it's not exactly all on black as some would believe.

 

[Theophany]

Personally I wouldn't invest all my assets in one fund, which is all I meant by that. But yeah it's not exactly all on black as some would believe.

True, but the amount of money we're looking at here is not massive. I'm all for portfolio diversification when you're looking at a portfolio of say £20k+ and it's easier to divide up large sums of money into decent sized chunks, but with just £5k splitting it up into smaller amounts hardly seems like a worthwhile exercise. All you'll be doing is making it more demanding to track the returns of a lot of small investments that likely do not have enormous rates of return.

 

[ntg]

True, but the amount of money we're looking at here is not massive. I'm all for portfolio diversification when you're looking at a portfolio of say £20k+ and it's easier to divide up large sums of money into decent sized chunks, but with just £5k splitting it up into smaller amounts hardly seems like a worthwhile exercise. All you'll be doing is making it more demanding to track the returns of a lot of small investments that likely do not have enormous rates of return.

Transactional costs would be too high if the OP was to split his 5k investment into many different stocks/indexes, prohibitively expensive I'd say.

Any decent return on 5k will require a high risk, otherwise just put them in an ISA I say.

 

[UK-AL05]

Personally I wouldn't invest all my assets in one fund, which is all I meant by that. But yeah it's not exactly all on black as some would believe.

What would you do then? I always think index trackers provide the best risk/reward ratio and in general if your loosing on a index, its that the global economy is messed up but it always tends to recover over the long term. If the FTSE 100 shrinked over a long term, you know things have gotten really really bad.

Some index trackers do place a lot of your money in specific industries, like i said before FTSE 100 is mainly composed of oil & finance. However you can get index trackers that specifically avoid this, or ones that place money between the top companies in various industries avoiding the risk of one specific industry failing.

To me for £5000, a simple, good performing index fund would be best, otherwise things start to get complex.

 

[ntg]

Btw, where is the OP!?!! It seems like we are all debating investment pros/cons when the interested party has left the thread a long time ago!

 

[Irish_Tom]

I'm in exactly the same position as the OP at the moment.

My current plan is to stick it all into the current Santander Cash ISA at 2.85% and add to it until I've got enough to start investing properly.

If the new ISAs in April have a more favourable rate I'll start adding to one of those as well.

 

[TheDean]

Personally I wouldn't invest all my assets in one fund, which is all I meant by that. But yeah it's not exactly all on black as some would believe.

Exactly. You don't want to diversify away returns, but you do want a bit of a spread. Investment trusts offer a cost effective way of doing this.

True, but the amount of money we're looking at here is not massive. I'm all for portfolio diversification when you're looking at a portfolio of say £20k+ and it's easier to divide up large sums of money into decent sized chunks, but with just £5k splitting it up into smaller amounts hardly seems like a worthwhile exercise. All you'll be doing is making it more demanding to track the returns of a lot of small investments that likely do not have enormous rates of return.

Not true. It's certainly better to split than to watch a pointless tracker of the FTSE. I have no idea why everyone is so obsessed with trackers!

Transactional costs would be too high if the OP was to split his 5k investment into many different stocks/indexes, prohibitively expensive I'd say.

Any decent return on 5k will require a high risk, otherwise just put them in an ISA I say.

Total rubbish. Again - you have no idea what you are talking about, please don't muddy the waters.

Below shows initial charges to funds below (if you know where to go). All have a minimum of £500 investment I beleive. It may even be £250 minimum.

First State Asia Pacific Leaders Acc 0%
M&G Global Basics A Acc 0%
M&G Global Dividend A Acc 0%
Neptune Emerging Markets A Acc 0.75%
Neptune US Opportunities 0.75%

Please recognise the above are not recomendations, just examples, and you should do your own research or consult a professional. You may get back less than originally invested.

 

[Craig1981]

Well, it's rather brutal here. Right now we are advising all our clients to put everything they've got into canned food and shotguns.

 

[UK-AL05]

Exactly. You don't want to diversify away returns, but you do want a bit of a spread. Investment trusts offer a cost effective way of doing this.



Not true. It's certainly better to split than to watch a pointless tracker of the FTSE. I have no idea why everyone is so obsessed with trackers!



Total rubbish. Again - you have no idea what you are talking about, please don't muddy the waters.

Below shows initial charges to funds below (if you know where to go). All have a minimum of £500 investment I beleive. It may even be £250 minimum.

First State Asia Pacific Leaders Acc 0%
M&G Global Basics A Acc 0%
M&G Global Dividend A Acc 0%
Neptune Emerging Markets A Acc 0.75%
Neptune US Opportunities 0.75%

Please recognise the above are not recomendations, just examples, and you should do your own research or consult a professional. You may get back less than originally invested.

Why is a pointless tracker of the ftse? If it makes money, its not pointless. You don't have track ftse either, you can track various industries or try diversify in top companies in various industries.

Those are initial charges? Don't they normally have a standard annual fee as well? and then performance charges if they actually do well?

You will have educate me more on actively managed funds. Is there an easy way to work out the final return after all the charges? Looks like i'm going to have start up excel.

You have to careful about some professionals, the companies they work for make a lot of money from management fees thus a lot of marketing goes into them. I have one i trust though. I'm usually a low maintenance, steady return kind of guy.