OK, we've looked at pensions and ISAs, but how do we actually invest within them? Well, in the previous blog series I talked about funds, which are collective investments where you pool your money together with thousands of other investors to obtain buying power, cost reductions and get diversification – spread of assets.
I’m going to cut to the chase and say that for most people reading this, you will be best served with a passive multi-asset fund. These are funds which spread your money around for you, across different asset classes such as equities, bonds and alternatives, and across the world into different countries. They are essentially an off-the-shelf portfolio done for you – perfect for lazy investors like me.
They will spread the money wider, better and more cheaply than you could ever do yourself, which is reason enough for most of us to choose them. These funds tend to be named according to their risk profile, so you might see words like Balanced, Adventurous, Defensive and Conservative in the fund names.
Sometimes they’re just numbered 1-5 or 1-7, which is less helpful. Try to find one which matches your risk profile and your timescale. Rather than labour the point here, I have a whole podcast episode dedicated to helping you choose a passive multi-asset fund, which you can find here.
Don’t Meddle!
Once set up, it’s so important that you resist the urge to second-guess yourself and tinker with the funds you’ve put in. Investing is for the long term, so fiddling with it and moving stuff around is likely to be counterproductive.
If you choose a pension and an ISA and set your payments up on autopilot, and if you opt for an off-the-shelf multi-asset fund like I’ve suggested, then you shouldn’t need to tinker anyway, it should largely look after itself.
The biggest difficulty is that, as you get more interested in finance, that you’re more likely to be distracted by what’s going on in the world and how it might affect your money. No-one listens to the closing value of the stock markets at 5:30 on Radio 2 if they don’t have any money invested. Once you start to build wealth, then it’s funny how interested you suddenly get!
Good investors learn not to have their heads turned by short-term news. If investing is for the long term, then what does the short-term matter? Ignore the news, keep your head down and watch your wealth grow.
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