|Now you have just got to do it
There is nothing much to be said about investing in cash. Look at
any number of other sources of advice.
Equities: fundamental rules
To invest in equities there are only three rules:
- you must minimise costs,
- you must have some diversification
- you must use your tax reliefs.
Notice there is no rule about stockpicking or value
investing or 'buy low, sell high' or any of the other mantras that
so interest amateur investors. Provided you diversify you do not
need to worry about any of this for Simple Investing. This ought
to be a relief.
The way you go about following the fundamental rules
will depend on your wealth and other personal factors. Here are
The easiest way to invest in equities is through an investment product
like a unit trust. But once you do this you are paying the costs
of the product provider. You need to be sure that they are worth
Many savers find themselves driven towards inappropriate
products because they assume that direct investing is too difficult
or too expensive or only for the wealthy. This is no longer true,
and you should break this mindset by making
a plan using only direct investments. Once you have done
that you might consider whether indirect investments would be cheaper
and/or provide better diversification.
Note that tax plays no part in this decision: you
can only get tax advantages from wrappers,
not from products. Taxation of products is different, not
better or worse.
Direct investment vehicles
Even if you think you know what, e.g., an ISA is we suggest you
You will probably need a SIPP
provider, an ISA
provider and an execution-only broker. They are as easy to set up
and operate as an online bank account. Pay particular attention
to the costs of each account, and whether you would save money by
using just one provider.
The best and most complete broker comparison table
comes once a year in Investors Chronicle.
Your first decision is how much to put in a SIPP and
how much in an ISA. The tax advantages of a SIPP are enormous, but
you are locked in until retirement. Only you can decide if the one
is worth the other. An ISA gives less tax benefit but is more flexible
(you can always take your money out). You will also want to consider
whether any of your ISA allowance should be invested in cash.
Whatever equities you have left will be invested through
your brokerage account.
To achieve adequate diversification you need at least 10 and preferably
20 different shares. So, imagine your equity investment is divided
into 20 equal parts (not 20 in each of the three wrappers, but 20
in total). Assume you will sell each share after 5 years and buy
another one. Calculate your costs. Turn this into an average annual
Refine & Execute
Now you are ready to go. You can evaluate the cost and convenience
of product alternatives against your base plan of direct investment.
- You may want to buy a few well-diversified
trusts instead of 20 shares: fine, see if it's cheaper, or
if you feel more comfortable.
- You may find you do not have the spare cash
for an ISA yet: fine, that's your decision.
- You may find that the costs of equity investment
are higher than you thought and you'd like to revise your plans:
fine, that's what planning is for.
- You may........
But remember this. You should aspire to direct investment
in your own accounts. That will always be the cheapest and best
way of investing in equities with any reasonable amount of money.
Unless you understand how to do that at the beginning how can you
work towards realising this aspiration?