For many new investors, an Individual Savings Account (Isa) is a natural first step. You can contribute up to £20,000 each tax year, while any investment growth remains free from tax.
Isa savings can also be accessed if an unexpected expense arises. The challenge is choosing from the vast array of available funds and shares, with tens of thousands of options on the market.
The selection becomes easier once you have identified your financial objectives and considered how much investment risk you are prepared to accept.
Think about how long your money can remain invested — a minimum period of five years is often recommended — and decide whether your priority is long-term capital growth or producing a regular income.
A multi-asset fund may suit beginners looking for a straightforward starting point. These one-stop investments spread money across different areas, such as company shares, bonds, property and gold.
Rob Morgan, from investment group Charles Stanley, highlights the Troy Personal Assets investment trust. Around 8 per cent of its portfolio is held in gold, alongside government bonds and shares in major companies such as Diageo and Chubb. Over five years, it has delivered a 19.9 per cent return.
Investors comfortable with greater volatility may prefer a global equity fund, which owns shares in businesses across different countries. “This gives you a diversified base to build the rest of your portfolio from,” says Darius McDermott of ratings agency FundCalibre.
McDermott points to Brunner Investment Trust, whose portfolio typically contains between 40 and 60 global companies, including Visa, Tesco and French energy group Schneider Electric. The trust has returned 63.3 per cent over three years.
For some investors, especially those in retirement, generating income matters more than maximising growth. Funds can pursue this goal in several ways, ranging from bond portfolios to equity income strategies.
Those with a long investment horizon and no immediate need for the money could add more adventurous holdings in an effort to increase returns. Even so, these higher-risk investments are generally best kept to a smaller share of a portfolio.
One option named by McDermott is International Biotechnology Trust, which backs life sciences companies working in specialist fields including cancer treatment. It also invests in private businesses that have yet to list on the stock market. Because these firms are not required to publish as much financial information, they can carry additional risk. The trust has returned 82.5 per cent over five years.
BlackRock World Mining Trust offers another way to tap into the expansion of artificial intelligence infrastructure without concentrating solely on technology shares. Its investments include mining companies supplying materials used in data centres, robotics, electric vehicles and other industries. The fund has gained 83.5 per cent over five years.
Asia also provides exposure to some of the world’s fastest-growing economies, supported by a young and increasingly affluent population. McDermott recommends considering Matthews Pacific Tiger, whose largest holdings include Taiwan Semiconductor, Samsung Electronics and Chinese online marketplace Alibaba. It has returned 24 per cent over five years, including a 37 per cent rise over the past year.
For retirees and others seeking dependable cash flow, income-focused funds may be more appropriate than investments aimed purely at growth.
Equity income funds buy shares in companies that pay dividends and pass that income on to their own investors. McDermott rates the Guinness Global Equity Income fund, which holds businesses including Coca-Cola and Swiss drugmaker Roche. It has produced a 59.9 per cent return over five years and currently offers a dividend yield of 2.61 per cent.
Bond funds invest in debt issued by companies and governments and receive an interest payment (known as a coupon). Morgan points to the Ninety One Diversified Income fund, which holds a blend of bonds, stocks and other assets. It holds debt issued by the US, UK, Australian and Brazilian governments. The fund has returned 14.4 per cent over five years and yields 4.4 per cent.
Other funds pay out an income from the rents they receive on property they invest in, such as offices, warehouses and shopping malls, or infrastructure assets, such as schools and hospitals.
One option here is the FTF ClearBridge Global Infrastructure Income fund, which invests in firms that operate in roads, rail and airports as well as utilities.
Top holdings include Entergy, a US energy provider, and Aena, which manages 46 airports and two heliports across Spain. It has returned 51.2 per cent over five years and yields 4.3 per cent.
Investors can choose to have their income paid out, which can help cover their living costs, while leaving their original capital invested to keep growing.
But these funds can still suit those who prioritise growth. Choosing the ‘accumulation’ units of a fund means the income is automatically reinvested, rather than paid out to you, helping to further boost returns.
