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Beginner Investment Tips: First Time Funds for an Online Stocks and Shares ISA

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A Sunday Times series in which finance and investment experts explain how they would invest £10,000 if they were starting an online stocks and shares ISA or SIPP, this week focused on funds. The expert to provide her insight into how she would invest £10,000 was Julia Schooling Latter of Chelsea Financial Services, the execution only fund supermarket.

The good news is she believes that the market correction in February means now is a good time to kick off an ISA or SIPP as prices are cheaper than they were at the beginning of the year. And while we might also be in for further drops and volatility, that could even be an advantage for an investment portfolio with a long term outlook. Returns are ultimately better when investments are made when markets are going down, as long as the funds don’t need to be accessed before a recovery can take hold.

Julia would split her initial £10,000 over 4 different funds, with the presumption that over the medium term additional investments would also be distributed between those funds according to the same ratio. So what were her fund picks?

She would allocate 30%, or £3000 of the £10,000 theoretically available to her in the Rathbone Income fund. She argues that while income funds may not be the obvious choice for beginner investors, this one’s strong track record of growing dividends year-on-year mean it should be an exception. Reinvesting the income generated from the fund should lead to strong compounded returns over the long term. While the fund is made up of London-listed equities such as Shell, Unilever and GSK, these big FTSE 100 companies generate most of their revenues internationally so Brexit risk shouldn’t be a factor. Rather, if their share price is dragged down by Brexit fears, further investment then should provide strong rebound returns when share prices return to their fundamentals. The fund charges an annual fee of 0.96%, which is paid, like the others in the list, on top of the platform fees of an ISA or SIPP provider.

Julia’s next £3,000 would go into the Baillie Gifford Global Discovery fund managed by Douglas Brodie. The fund’s focus is smaller companies involved in technology innovation and development as well as healthcare. It also has an international approach to its picks, so risk is spread geographically. However, most of companies held by the fund are based in developed markets such as the USA, UK and Europe. This fund is higher risk, higher reward than the first and would be hoped to drive the portfolio’s capital growth. The annual fee charged by the fund is 0.64%.

The next £3000 is allocated to the Schroder Asian Alpha Plus fund which, as the name suggests, is focused on Asian equities. While generally more volatile, Asian markets are considered by most analysts to currently offer better value than US, European and UK equities currently. Major holdings include Chinese online retail giant Alibaba and Taiwan SemiConductor Manufacturing. This one is a little pricier, however, with annual fees 1.28%.

The last £1000 is the riskiest part of the portfolio, which Julia believes is one big advantage to being a new investor. It presumably means time is on your side and the investment portfolio has potentially decades ahead of it. This means a little more risk can be taken on and the final fund, the T Rowe Price Japanese Equity, focuses only Japanese companies. These are much cheaper currently than stock markets of other developed markets and Japan-focused funds have delivered among the best returns recently. However, despite recent growth analysts still think the market offers great value and that the Japanese economy’s return to growth still has plenty of fuel left in the tank after decades of stagnation. This particular fund’s focus is on smaller Japanese companies and the annual fee is 0.85%.




Risk Warning:

Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.

There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.

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