One of the most straightforward routes to building wealth is investing a fixed amount every month. The sum does not need to be large; what matters most is making it a habit and staying consistent over time.
For example, if you put away £100 a month and earned interest of 8 per cent, your pot would grow to £18,417 after ten years. Leave it invested for 30 years and it could reach £150,030 — even though only £36,000 of that total would have come from your own contributions.
Using a stocks and shares Isa can make the strategy even more powerful, because any returns are completely tax-free. These accounts can be opened through an investment platform, and platforms generally let you set up automatic monthly payments so the money is invested without you having to think about it.
The next decision is where to put the money. Keeping things simple is often a sensible starting point. In fact, you could begin with a single fund that spreads your cash across shares and bonds in companies around the world.
Vanguard’s LifeStrategy range is one example. The funds cost 0.2 per cent a year and hold different mixes of shares and bonds, depending on how much risk you are comfortable taking. BlackRock offers a comparable range called MyMap, with an annual cost of 0.17 per cent.
If you invest using a stocks and shares Isa, all returns are completely free of tax
Another simple option is a global index fund, which aims to mirror the performance of stock markets worldwide. The Fidelity Index World Fund, for instance, costs just 0.12 per cent.
If you later want to expand your investments, one of these broad funds can act as the foundation of your portfolio, with more specialist funds added around it. This is known as a ‘core and satellite’ approach. As you introduce satellite holdings, you can ask for your £100 monthly payment to be split, with most of it going into the core fund and smaller amounts directed into each additional investment.
Here, our panel of experts share their ideas for satellite holdings at different stages of life.
Young starter
If you start investing in your 20s you will thank yourself later, says Juliet Schooling Latter, research director at FundCalibre. That’s because you have longer for your investments to benefit from the effect of compound interest.
‘The younger you are, the more risk you can afford, so I’d look to corners of the market that are volatile short-term but offer the greatest growth over decades,’ she adds.
She tips emerging and frontier markets funds such as Artemis SmartGARP Global Emerging Markets Equity and T. Rowe Price Frontier Markets Equity.
Emerging market funds invest in countries such as China, India and Brazil, while frontier market funds invest in the likes of Nigeria, Peru and Bangladesh.
Rob Morgan, at Charles Stanley Direct, mentions BlackRock Global Unconstrained Equity, which focuses on finding good-quality growth businesses.
It has returned 48.9 per cent over three years and has top holdings that include ASML, which makes equipment used to manufacture computer chips, as well as Amazon and Google parent company Alphabet.
Middle aged
Morgan says an easy route into investing in middle age is a global tracker fund which gets you immediate diversification – and which in reality is largely focused on US and technology firms.
That’s because these sectors feature many of the world’s biggest companies.
If you want to keep your exposure to them in check, Morgan says: ‘For a steadier option less reliant on the US and the tech sector – which are a big part of global trackers – JOHCM Global Opportunities Fund offers a balanced portfolio focused on durable businesses with strong balance sheets and consistent cash generation.’
Top holdings include US energy network firm Sempra and German stock exchange company Deutsche Boerse. It has returned 38.1 per cent over three years.
Schooling Latter suggests BNY Mellon Multi-Asset Balanced, which is up 40.1 per cent over three years and holds stocks including US mining firm Applied Minerals, Alphabet and Taiwan Semiconductor.
Eyeing retirement
Many older investors gradually move from focusing on growing investments to prioritising preserving their value. This requires a more cautious approach.
Morgan says: ‘Troy Trojan fund takes a flexible approach to preserving the real value of wealth against the ravages of inflation.’
This fund has returned 22.8 per cent over three years and has holdings that include Invesco Gold ETC – which tracks the price of gold – Visa and Alphabet.
Ian Aylward, at AJ Bell, says if you’re close to or in the early years of retirement, a bond fund might be more suitable. ‘The M&G Global Corporate Bond fund may be worth considering,’ he adds.
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