Going Beyond Index Trackers
Yay! We finally got there. As an first investment, we think an index-tracking fund, perhaps within an ISA, is a great place to start.
We’d recommend that you look at UK index trackers first and, ideally, you want one with annual charges of 0.25% a year or less.
For many people, regular investment in a small number of index-tracking funds will cover a large chunk of their investment needs. However, if you want to do better than the market, then you have to be prepared to get your hands grubby.
The first way you can try and beat the market is by investing in managed funds. As we said earlier in this guide, only a minority of managed funds actually do better than trackers, and picking long-term winners is a lot tougher than you might think.
However, you may decide that you want a bit more exposure to overseas markets, like the US. Or you may want to focus on a particular sector, like healthcare or technology. Managed funds can play a role here. You can, of course, get trackers that follow other markets and sectors. The ever expanding range of exchange traded funds is a good and cost-effective place to start.
One thing to beware of is investing in a region or sector just because it’s done very well recently. We’re hard-wired to take recent events and extrapolate them far into the future. It’s a condition called ‘recent events syndrome’. Many new funds are launched on the back of what’s done well in the last two or three years, often just as the particular area of investment they focus on runs out of steam.
Buying individual shares
Here at the Fool, we think most people should own at least a few shares. We also have a number of stock-picking newsletters that show you how to invest. You can find out more about them, and which might suit you best, on this page.
To round off this guide, we’re going to change pace a little and look at the new pension freedoms that allow you to access your pension at age 55.
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