If you only have a small amount of money to invest, the most sensible strategy, in my view, is to put it into an investment fund within a tax-efficient vehicle such as a Stocks and Shares ISA.
By investing in a fund, your money will be diversified across many different individual companies, reducing your overall investment risk. You’ll also avoid paying the upfront trading commissions that you’d have to pay if you purchased individual stocks. And by holding that fund within an ISA, you won’t have to pay any tax on your gains.
With that in mind, here’s the investment fund I’d go for if I was investing a small amount of money for the first time today.
The one I’d choose is the Fundsmith Equity fund. This is a leading fund that invests in top companies all around the world. You’ll probably recognise many of its holdings – Microsoft, PayPal, Facebook, Estée Lauder, and PepsiCo are just some of the names in the portfolio. You can invest in this fund very easily through online brokers such as Hargreaves Lansdown, AJ Bell, and Interactive Investor.
Strong track record
One of the reasons I like Fundsmith is that it has an exceptional performance track record. Indeed, since its inception in November 2010, it’s delivered a return of 363% (to 29 November). This equates to a return of a high 18.4% per year. Just remember though – past performance is no guarantee of future performance.
Another reason I like this particular fund is its portfolio manager, Terry Smith, has a similar investment style to that of Warren Buffett. Specifically, he looks for high-quality businesses that are very profitable, have advantages difficult to replicate, and are resilient to change. Like Buffett, he also invests for the long term. To my mind, this is an excellent investment strategy.
Exposure to big themes
I also like the fact the fund looks well-placed to capitalise on a number of powerful trends. For example, companies such as PayPal and Visa provide exposure to online shopping, which is a huge growth industry. Meanwhile, companies such as Unilever and Diageo provide exposure to emerging market consumers, who are seeing their wealth increase rapidly. In addition, healthcare companies such as Novo Nordisk and Becton Dickinson appear well-placed to benefit from the increasing prevalence of diabetes.
Risks and fees
Of course, as with any investment, there are risks you should be aware of. In this case, it’s important to be know the fund is highly concentrated (it owns less than 30 stocks), it has large exposure to the US (around 65%), and that many of its holdings trade at relatively high valuations. Additionally, it’s important to remember that, due to the nature of the stock market, you may not get back what you invested if markets fall.
It’s also worth noting you’ll pay annual fees to hold this fund. Through Hargreaves Lansdown, the annual fee is 0.95%, plus Hargreaves’ platform fee.
Overall though, there’s a lot I like about Fundsmith. I see it as a good option for those looking to invest a small amount of money.
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Edward Sheldon owns shares in Unilever, Diageo, Hargreaves Lansdown, Microsoft and has a position in the Fundsmith Equity fund. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. The Motley Fool UK owns shares of and has recommended Facebook, Microsoft, PayPal Holdings, Unilever, and Visa. The Motley Fool UK has recommended Diageo and Hargreaves Lansdown and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2020 $97 calls on PayPal Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.