Going Beyond Trackers

Although we are very fond of index trackers here at the Motley Fool they have their limits. For many people regular investment in an index tracking ISA is all they will ever need. If you want to do better than the index then you have to be prepared to get your hands grubby.

Buying Managed Funds

The first way to beat the index is by investing in managed funds. But as we saw earlier only a quarter of managed funds actually do better than trackers, so it is an uphill struggle. But you may decide to take the risk in order to get a few extra per cent. For example, you may fancy investing in technology or biotech shares but not feel comfortable or have sufficient funds to choose them yourself. In that case a specialist fund could be the way to go. Charges on managed funds tend to be very high compared to index trackers. Some charge up to 5% in entry fees and higher than 1.5% in annual charges.

However, one additional word of warning is needed. Most specialist funds appear after the particular sector has done very well so that they can be sold using some impressive 'look at what you could have got' figures. Unfortunately by the time the funds appear the good times are often over. Witness the surge in Far East funds a few years ago and the splurge of technology funds in March 2000.

Buying Individual Shares

This is quite a big subject. In fact we have devoted a whole section of the site just to introducing the basics. It's called Building Your Portfolio.