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Answers to YOUR Questions

See what's bugging others. 

And what our experts say.

Investments | Funds | Shares

Are you able to comment on The Investment Company? I wanted an investment trust with an income, so I put £10,000 in there. It does deliver a reliable quarterly dividend but the capital value has dropped by 10% since I invested 2 years ago. Can you comment on its performance? I was considering selling it and moving the money to another fund with a similar return but a better performance. If you could tell me your favourite investment trusts at the moment that would be great.

Fran, Greater London

08 August 2018

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Mark Dampier

The Investment Company is a tiny trust at £17m. At this size I find it hard to believe it can be a going concern.

The original fund manager was a small cap specialist and a good one at that - so I am unclear why he was sacked. The management has gone to a London based broker, Friske, who I don’t know.

UK income funds have generally struggled over the last 2 years, and the market has been in love with tech type stocks. They've tended to shun traditional income funds who look for companies with a market type yield (around 3.8%), which will grow over the years. I have no idea whether Friske have any expertise in running funds.

Looking for alternative bigger, more established names - I would look at Edinburgh Trust, which is currently on a near 10% discount*.

It’s had a difficult time recently, but the fund manager has an excellent long term record. (I have bought some myself).

I would also add Standard Life Equity Income which has performed better and is therefore only on a 1% discount. (I have bought this too!)

I think the two funds complement each other. Edinburgh pays quarterly dividends while Standard Life is twice a year.

 

Holly adds

“If you have a collection of funds or investment trusts, you need to set up an account somewhere to buy them. Most people use an investment platform. Our Best Buys tables will show you which ones we like, and let you filter your search according to what you want.”

 

 

Jargon buster:

Yield -

Some companies (and shares) generate spare and excess cash which they choose to ‘divvy up’ and pay out to shareholders. As dividends.

This means that some investments can generate an annual income as well as hopefully going up in value.  For example, if a £100 investment pays out £3 a year, it is said to have a yield of 3%.

 

*Discount -

Investment trusts are slightly weird creatures – they are companies themselves and their business is buying and selling shares. So let’s say I set up Holly Trust PLC. I buy Apple, British Airways and HSBC. Their shares are £100 each. So the trust has £300 in it. 300 people buy shares at £1 each. Now imagine a month later the shares haven’t moved in price. All of the shares I have are still £100 each. A few people are fed up because they think Holly Trust PLC is rubbish. So they sell out. This pushes the shares in Holly Trust PLC down to 90p. So you have this weird situation where the total value of the shares in Holly PLC is actually less than the value of the shares that Holly PLC owns. This is trading at a discount. The opposite is when everyone loves it and the investment trust is worth more than all its underlying holdings – then this is trading at a ‘premium’.

 

 

Just be aware...

We are not regulated to give personal financial advice - This isn’t full-fat regulated financial advice. Boring Money is a publisher and not regulated by the FCA. 

This means we can't help with specific personal circumstances or recommend specific investment products. It also basically means that if we say something daft, you have no recourse to come back and complain.

We’re only allowed to give you a steer or share an opinion or tell you the facts - That said, we promise that our answer to you is an independent unbiased perspective with no commercial gain to make. If you need regulated financial advice, you can find a good adviser via sites such as Unbiased & Vouchedfor.

Funds

I am very keen to introduce my 20 year old son to funds and the potential that they can offer over the long term, he is only 20 but I have managed to get him to start investing with Nutmeg; he has a LISA and a Robot savings account. He’s paying £100 a month into the LISA and £50 a month into the savings account. I read Holly's piece in the Sunday Times and was reassured that I have monies in all the funds that she recommended. I am thinking of suggesting to [my son] to open up a Vanguard 100 % Equity and a Lindsell Global Equity Fund and drip feed monies in each month with a 'DD'. I use H&L and although they are a bit 'plumy' on the phone I quite like their website and the costs are OK. So I was thinking of H&L for [my son]. I would be telling him to open these two funds and regularly invest and forget about them for 10 years !

R, Greater London

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Holly Mackay

The first thing to make clear is that I am not regulated to give financial advice. And I don’t know your full circumstances. This means you have no recourse if I tell you things which lead to poor outcomes and you have no comeback. And if your son is carrying expensive debt for example then investing is a bad idea……you get the picture. So with all that in mind – here is what I would say if it were a cousin of mine. Happy to help but important to set the scene!
 
Right.
 
He could just put it all into the Nutmeg LISA- -but he does have to be very sure that he will buy a house. Or we won’t need it till he retires! So it’s a bit of a risk to put all his eggs into this basket at such as young age.

However if he is dead set on buying a house, paying more into his existing LISA makes sense as he’ll get the Government top ups too.

If he isn’t sure then he can keep paying the £100 into the LISA and pay the other £50 a month into an ISA as he is, which gives him access to the more flexible robo savings if he needs them. But again – that £100 a month has to be for a first property OR retirement.

You have identified an allocation of £25 a month to the Vanguard and £25 to Lindsell Train Global Equity.  I think both are strong options.

Fees are a thing to watch. Given that he will ‘set and forget’ I would suggest he uses Charles Stanley not Hargreaves. They are not as good overall IMHO BUT he will pay 0.25% not 0.45%. And they are certainly good enough! He can buy these two funds here. If you prefer to stick with the service you know, Hargreaves are great and the service is very good and they are a FTSE 100 company. So as strong as they come. This is your choice to make.

The final thing I’d say is that the Vanguard fund has professionals looking over it and constantly tweaking and adjusting. So you can truly set and forget. With the Lindsell Train fund, you need to check in every 6 months to 1 year to make sure that they haven’t lost their way. A simple way of doing this is to leave this to the experts – and check that it remains on the Hargreaves Lansdown preferred funds list (or any other platform’s preferred funds lists). If it heads South, they will remove it. I personally like the fund and I rate it – but things change so with this option you do need to keep an eye on it. An alternative is to see how it is doing compared to the average or index but this can be difficult to assess as ‘underperforming’ for 6 months or so doesn’t always mean a rushed decision to sell up is the right one. These are long-term plays.

Once he has more than £500 saved he could always just open up an ISA with Vanguard directly and save the whole £50 a month here. It would be easier and the overall costs would be lower. You remove the potential outperformance of the Lindsell Train fund BUT you get simplicity, and also remove the risk of a more expensive fund underperforming. So that’s a choice he’ll have to make – the certainty of lower fees and average performance against the potential for higher performance alongside the risk of paying more for duff performance.

 

 

Just be aware...

We are not regulated to give personal financial advice - This isn’t full-fat regulated financial advice. Boring Money is a publisher and not regulated by the FCA. 

This means we can't help with specific personal circumstances or recommend specific investment products. It also basically means that if we say something daft, you have no recourse to come back and complain.

We’re only allowed to give you a steer or share an opinion or tell you the facts - That said, we promise that our answer to you is an independent unbiased perspective with no commercial gain to make. If you need regulated financial advice, you can find a good adviser via sites such as Unbiased & Vouchedfor.

Investments | Funds

What funds could my millennial children invest in?

Anthony, Greater London

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Holly Mackay

Your kids have a few decent options.

Nutmeg is a nice digital option which has good visualisation and is good to track on a mobile. You need a minimum of £500 to get going as a minimum plus regular savings of £100 a month. The charges are about 1.15% all-in but they will build and manage all of the investments. Even if your kids don’t put their money there, I’d suggest they check it out and do the ‘risk profiling’ journey.

If those minimums are too high, then you can get going on an investment platform. Charles Stanley Direct and Fidelity are the cheapest options for smaller amounts and you can start here with direct debits from £50 a month. If your kids do think money is boring, they won’t want to faff around initially with choosing and research all sorts of funds. So I suggest what we call a multi-asset fund. At this early stage, the most important things are just to get started and to keep costs low. So I would suggest the Vanguard LifeStrategy funds. The only choice they will need to make is how spicy they want this to be. They could have the most spicy 100% equity option or a much less spicy 40% equity version, for example. This will depend on their feelings about risk and the timeframe they are investing for. Given you mention ten years plus, and their ages, I would consider the more spicy versions.

If they buy a Vanguard LifeStrategy fund on Charles Stanley Direct, for example, this will cost about 0.49%. That is a very cheap way to invest! The visualisation will not be as good as with Nutmeg.

Finally, I think financial markets are weird at the moment. No-one knows what Brexit will mean. Government bond yields are crazy low – less than 0.7% for a 10 year bond. Interest rates are at historic lows. The FTSE will have some volatile times ahead. They will need to prepare for their £100 to turn into (possibly) £80 and (hopefully) into £120 and then back down again – it’s the nature of the beast! But over 10 years we work on the historic belief that the market will outperform cash.

Good luck

 

 

Just be aware...

We are not regulated to give personal financial advice - This isn’t full-fat regulated financial advice. Boring Money is a publisher and not regulated by the FCA. 

This means we can't help with specific personal circumstances or recommend specific investment products. It also basically means that if we say something daft, you have no recourse to come back and complain.

We’re only allowed to give you a steer or share an opinion or tell you the facts - That said, we promise that our answer to you is an independent unbiased perspective with no commercial gain to make. If you need regulated financial advice, you can find a good adviser via sites such as Unbiased & Vouchedfor.

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