YOUR hard-earned money can grow faster over time if you invest it wisely rather than leaving it to dwindle in a low rate savings account.
And now the government is encouraging more people to switch from savings to investments.
Starting out can be daunting – there is always a risk that your investments can go down, as well as up.
But some investments are better suited to beginners than others.
Putting cash in a fund is one way to help bring down risk for investors.
These investments will see your money spread across multiple holdings, rather than having all your eggs in one basket.
Dan Coatsworth, head of markets at AJ Bell, says: “Investing doesn’t have to be complicated when you use funds, and you’re never too old to get started.
“There are some easy steps for anyone whose interest has been piqued by the government’s push to get more people investing their money rather than letting it sit in cash.”
“Beginning with funds rather than shares is a much simpler way to begin your investment journey as you won’t need to spend hours researching individual companies.”
A tracker fund is a good way for beginners to start investing, according to Dan.
These funds typically have lower charges and simply ‘track’ different markets.
Here we look at three types of funds that beginner investors could choose from…
Global equity tracker funds
Global equity tracker funds will mirror the performance of a global index such as the FTSE World which contains stocks from around the world. If the index goes up by up 5% in a month, the relevant tracker fund should broadly do the same.
Dan says: “Global equity tracker funds are the natural starting point for a new investor as you’re not making a call on a specific industry or part of the world.
“These funds provide low-cost exposure to companies around the world, with representation from a wide range of sectors.
“It’s like buying an assorted box of biscuits – you get lots of different varieties inside a single tin, and they provide a broad range of flavours. There’s something inside to please everyone.”
If you had invested £600 – equivalent to £50 a month – in the Fidelity Index World over the last 10 years, you would have made £12,488.78, according to calculations from AJ Bell.
Global bond tracker funds
If you are risk adverse investor, bond funds could be ideal.
Corporate bonds are issued by companies who want to borrow money or government bonds are a way for the government to do the same.
You can choose from corporate bond funds, government bonds or a mixture of the two.
Developed market government bonds are typically seen as the lowest risk.
Bonds are a way of helping cushion against the risk of a stock market sell-off, according to Dan.
He says: “When shares fall, bonds often fall less and recover faster, helping to smooth the overall investment journey.
“That might suit someone in their 40s or early 50s approaching retirement, those already in retirement, or more anxious individuals.
“They don’t guarantee to protect your money, but they can have defensive qualities.”
If you had invested £600 – equivalent to £50 a month – in the Vanguard Global Bond Index over the last 10 years, you would have made £6,361.34, according to calculations from AJ Bell.
Multi-asset funds
A multi-asset fund is a mixture of the equity and bond funds. They’re sometimes referred to as ‘all-in-one’ funds.
Dan says: “Multi-asset funds come in different shapes and sizes, where you can decide the level of risk to take.
“For example, you can sometimes get versions that come in 100%, 80%, 60%, 40% or 20% equity, with the remainder held in bonds.
“The more cautious you are, the greater the proportion you might want in bonds.”
If you are happy to ride out the ups and downs of the stock market, avoid having too much in bonds as a proportion of the overall portfolio as your returns will likely be much lower.
If you had invested £600 – equivalent to £50 a month – in the Vanguard Lifestrategy 80% Equity over the last 10 years, you would have made £10,225.62, according to calculations from AJ Bell.