There are many factors to consider when you start investing – such as what to invest in and how much it will cost. But what many people might not realize is that one of the most important considerations is your age.
How old you are determines how long you have to invest, and that can help decide how much investment risk you should take.
Ryan Hughes of pension provider AJ Bell says: ‘The rule of thumb is that the longer timeframe you have the more risk you can afford to take.
‘But, of course, you should never take more risk than you are comfortable with. There is no point investing in a way that will give you sleepless nights.’
Beginning as young as possible can give you a head start. For many people, the investment journey may begin as a child. Parents and grandparents can squirrel away up to £4,128 a year tax-free for children through a Junior Isa.
Not only will starting early give the investment pot longer to grow, it can also get youngsters into a good savings habit for later life. Grandparents who invest £50 a month into a Junior Isa from a child’s birth could see the investment grow to more than £17,500 by age 18 if it grew at 5 per cent a year.
The younger you are, the more risk you can afford to take – for if there is a stock market crash there is more time for your money to recover.
Hughes says of savers starting in their 20s: ‘Investing for retirement could involve someone investing for 40 years, so higher-risk investments such as emerging markets and technology stocks could be appropriate.’
He suggests Fidelity Index World as a core investment choice for a young person’s portfolio. The fund is a cheap way to invest in stock markets worldwide and has returned 47 per cent over the past three years.
He also likes fund Invesco Perpetual Asian which focuses on companies based in China, South Korea and Hong Kong, such as electronics firm Samsung and internet specialist Baidu. It has returned 68 per cent over three years.
A racier choice is Polar Capital Technology fund, which aims to tap into key technology trends. It invests in internet giants such as Amazon and Facebook, plus lesser-known outfits with growth potential such as semiconductor maker Advanced Micro Devices.
The fund has returned 100 per cent over three years.
Rob Morgan, investment analyst at Charles Stanley, likes Franklin UK Smaller Companies fund. He says: ‘Investors sometimes overlook smaller companies. But they tend to be more dynamic and quick to react to growth opportunities.’
The fund, which has returned 45 per cent over three years, aims to find fast-growing companies.
The manager likes software companies and support services firms such as Clipper Logistics and shipping company Clarkson.
Mid-life Money Management
When you reach your 40s, it is time to start taking a more conservative approach.
As you get closer to retirement you may want to start being more cautious and reducing the proportion of your portfolio which is equity-based.
Michael Martin of investment house Seven Investment Management likes Troy Trojan fund as an ‘all-weather option’.
The fund, which has returned 22 per cent over three years, invests in a mix of company shares, government bonds and gold. This should mean the fund offers steady growth regardless of what the economy is doing.
He also likes Fundsmith Equity fund, run by veteran City investor Terry Smith. His strategy is to invest in companies which are so successful you never need to sell the shares.
The fund favors firms with strong brands such as Pepsico and Microsoft – with two-thirds of its money in US firms. It has returned 87 per cent in the past three years.
Another favorite is Lindsell Train Global Equity fund which invests in ‘boring’ firms renowned for paying a good income.
An increasing number of people keep their money invested even after they stop working. But investment choices should be cautious and focus on paying an income. Hughes says: ‘Generating income is vital. A good quality equity income fund can fulfill this purpose.
He likes Evenlode Income fund, which currently yields 3.4 per cent. The fund invests in firms such as Johnson & Johnson and AstraZeneca, which consistently grow their dividends.
Another favorite is Newton Global Income which invests in dividend-paying firm across the globe. It has a focus on larger businesses such as Microsoft and Unilever and currently yields 3.2 per cent.
A fixed income fund is a sensible choice for income. These invest in government and company bonds. Henderson Fixed Interest Monthly Income invests in the debt of companies including Barclays and Nationwide Building Society.
For many investors, the idea of picking their own investment funds can be daunting. There are now some 2,500 funds available through fund supermarkets such as Fidelity and Hargreaves Lansdown.
Deciding which ones are right can prove challenging. Multi-asset funds are a good one-stop solution.
Charles Stanley’s Morgan says: ‘Multi-asset funds invest across different areas, mixing shares and bonds as well as alternative assets such as property. The result is a diverse portfolio in a single fund, which is helpful for those looking for a low-maintenance investment choice.’
He likes Investec Diversified Income fund as an ‘uncomplicated, conservatively-run’ choice.
Another strategy is to pick a multi-manager fund. These invest in other funds using their expertise to find the best mixture of fund managers to generate returns.
Seven’s Martin likes Jupiter Merlin Balanced which invests in funds such as Woodford Equity Income and Fundsmith Equity.