The final thing you need to decide before we get into the nitty-gritty of the underlying investment, is how much you’re going to invest and in what fashion. Do you have a lump sum to invest? If so, great! You should also consider a monthly investment too, if you’re not already. It’s a great discipline to get into.
Choose Your Method
You need to start investing with a monthly amount which you think you can sustain, but might be a little bit of a push for you. You can always dial it down, but once you get into the fun of investing, you’ll probably want to go the other way and increase what you’re putting in!
Better not to be too comfortable with the amount you’re putting in. If it isn’t hurting a little, it’s not high enough! So decide, lump sum and/or monthly.
Choose a Fund
This is a subject which could fill out a podcast on its own, at the very least. And books have been written on the subject.
Now, I have actually done a guide on how to choose a multi-asset portfolio fund. I go over the methodology of using three online tools on your platform and other sites to whittle down the long list of possible options to just a handful and there are downloadable worksheets there too…
But what exactly is a multi-asset portfolio fund, and why do I suggest that all new investors use them to get started? To answer that, I have to give you a very brief lesson in how investments work. Let’s see if I can do this in just a few paragraphs!
Investing involves buying assets. Assets are things that do two things: their value goes up and sometimes down, and usually they also produce an income in some form. Investors usually use this income to buy more assets. That’s called compounding.
Because assets go up AND DOWN in value, you need to make sure you are buying quite a few assets, AND assets of different kinds.
This is called diversification, and is one of the main ways you reduce the risk of your investments going down and really damaging your wealth. If you hold one asset and it fails, you lose everything. If you hold 1,000 assets and one of them fails, you’ll hardly feel it.
Different KINDS of assets behave in different ways. So a share might move up and down in a different way to a bond (doesn’t matter too much what these mean for now). And a bond might behave differently to a property, say, or gold.
SIMILAR assets in DIFFERENT geographies can also behave differently. So a share in a company in the US, might move up and down differently to a share in a company based in Vietnam, or India, or Brazil.
Multi-asset investing, then, BLENDS different kinds of assets from all over the world. And a multi-asset portfolio fund does all this work for you. They tend to come in flavours depending on how much risk you want to take.
Generally speaking, it is shares, or equities that are the drivers of growth and risk, in a portfolio of assets. So the more of your money invested in equities, the higher the potential growth and the higher the risk. You might find a portfolio fund with 40% shares. That means 60% will be in bonds or other stuff, and all of it should be spread all around the world.
For beginners, this is ALL YOU NEED. One multi-asset portfolio fund is enough for any starter portfolio. You can get fancy and blend funds down the line when you have more money and more experience.
Oh, and given the choice, opt for the Accumulation version of any fund, as many will also have an Income version. Accumulation versions automatically reinvest the income produced by the fund, whereas Income versions spin it out into cash.
Listen to my podcast on how to choose a multi-asset portfolio fund, follow the steps in that, and then move on to the next post.
