Getting Started In Investing
March 3, 2010
9. Going Beyond Trackers
Yay! We finally got there.As an first investment, we think an index-tracking fund in an ISA is a great place to start.
We'd recommend that you look at UK index trackers first and ideally, you want one with annual charges of 0.5% a year or less.Here's what was on offer in Spring 2009.
For many people, regular investment in a small number of index-tracking funds will cover a large chunk of their investment needs. However, if you want to do , then you have to be prepared to get your hands grubby.
The first way you can try and beat the market is by investing in managed funds. As we said earlier in this guide, only a minority of managed funds actually do better than trackers, so this is a lot tougher than you might think.
But you may decide that you want a bit more exposure to overseas markets like the US or the emerging BRIC countries (Brazil, Russia, India and China). Or you may want to focus on a particular sector like healthcare or technology.
You can, of course, get trackers that follow other markets and sectors. The ever expanding range of exchange traded funds is a good and cost-effective place to start.
One thing to beware of is investing in an area just because it's done well recently. We're hard-wired to take recent events and extrapolate them far into the future. It's a condition called, er, recent events syndrome. Many new funds are launched on the back of what's done well in the last two or three years, often just as this particular investment runs out of steam.
Buying individual shares
Here at the Fool, we think everyone should own at least a few shares.
As always, it's important to keep your costs down. We've partnered with Halifax to create The Motley Fool Share Dealing service. Ordinary trades cost just £10 and you can also set up a regular investment plan for £2.
We also have two stock picking newsletters — Share Advisor and Champion Shares PRO — that show you how to invest.
Share Advisor recommends two shares every month and is aimed at less experienced shareholders, whilst Champion Shares PRO uses a real-money portfolio, with money invested by the Fool itself, and may be more suited to seasoned investors.
One thing we haven't touched on in this guide is asset allocation, but this is something you need to consider as your portfolio becomes more substantial.
Asset allocation is the process of maintaining a broad spread of different assets. The idea is simple -- by owning assets that do well under different economic conditions, you can make your overall portfolio less volatile but without reducing your overall returns. Read more here.