Last week, the Bank of England (BoE) hiked the UK’s interest rates to 1%. The central bank also forecast that the UK economy will contract later this year, as disposable income decreases. With uncertainty surrounding the future of the UK’s economy, here are two stocks I’m avoiding for my Stocks and Shares ISA, and one I’m planning on buying.

Losing interest

In theory, banks such as Lloyds (LSE: LLOY) usually stand to benefit from higher interest rates. This is because banks can charge more for loans. Moreover, the rapid increase in house prices has brought a healthy stream of revenue to Lloyds. Nonetheless, the Lloyds share price is down 10% this year.

I’m avoiding this stock as I’m worried the bank’s profit might take a considerable hit from lower borrowing numbers and a slew of potential bad debts. With the BoE set to continue increasing interest rates in the coming months, Lloyds’ best-case scenario seems unlikely to happen at this point. Why? Well, the bank rate could rise further, which would be a plus for the group. But the BoE predicts inflation to peak at 10% later this year, much higher than the 7.6% upper level Lloyds would like to see. And hoped-for house price growth of 5.3% is dubious, as Nationwide and Halifax predict a slowdown in the market.

Grocery wars

The other stock I’m avoiding is J Sainsbury (LSE: SBRY). Despite being the second largest supermarket in the UK, the orange grocer has been losing a substantial portion of its market share to Aldi and Lidl. Its most recent trading update provided a rather gloomy outlook as well. Management cited, “Significant external pressures and uncertainties, including higher operating cost inflation”. This sent its stock price lower to £2.27.

Prior to the current cost of living crisis, Sainsbury’s was already operating on slim profit margins (2.3%). Now with pressure to keep prices low in order to avoid losing more market share, the retailer could very well see its margins contracting. Ultimately, Sainsbury’s will have to perform a balancing act of maintaining margins and holding its market share. Having already such low margins, this is one stock I’m unwilling to gamble with.

An ETF to stock up on

But there’s a stock I believe can add value to my Stocks and Shares ISA. It’s an ETF — Vanguard’s S&P 500 UCITS ETF (LSE: VUSA). The ETF tracks the USA’s top 500 listed companies, and averages a return of approximately 10% per year. Research has shown that almost 80% of fund managers underperform Warren Buffett’s favourite index. Therefore, while I generally like to pick my own stocks, I’m unwilling to gamble on professional managers’ stock-picking to beat the market. Although the heavyweight index is almost 15% down this year, it has a solid record of recovering from crashes.

Even better, Vanguard’s fund has outperformed the S&P 500 by 10%. This is due to its ability to hedge against the British pound by using the strength of the US dollar. On that basis, I think this is the best stock I can invest in to generate meaningful returns over a long period.

The post 2 stocks to avoid and 1 to buy for my Stocks & Shares ISA in this bear market appeared first on The Motley Fool UK.

More reading

• 16,976 more reasons why Lloyds share price could sink
• £5,000 invested in Lloyds shares 5 years ago now pays dividends of…
• £20,000 invested in Lloyds shares 2 years ago is now worth…
• 2 analysts have changed their minds about this FTSE 100 founding member. But I don’t care!
• Could I double my money with Lloyds shares in 2026?

John Choong has no position in any of the shares mentioned at the time of writing. The Motley Fool UK has recommended Lloyds Banking Group and Sainsbury (J). 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.

Today, I’ll talk about one such fund I plan to hold for decades. And that’s no exaggeration.

Cheap exposure

The vehicle in question is the Vanguard Global Small-Cap Index Fund. This tracks the return of the MSCI World Small Cap Index. In practice, that means Vanguard invests my capital across an absolutely huge range of minnows in developed markets around the world (4,492 to be exact).

It goes without saying that it would be completely impractical and expensive to do this by myself. By sharp contrast, this fund can be bought with a single mouse click and has an ongoing charge of just 0.29%. It also requires no maintenance on my part. I simply invest and do nothing.

But does this low cost translate to a fairly pedestrian performance? It seems not. Had I invested £1,000 in this Vanguard fund five years ago, I’d now have roughly £1,750. That’s a great return considering the simplicity of the strategy.

Unfortunately, I haven’t been invested here for that long. Even so, gains over the last 12 months have been particularly stellar. From 1 August 2020 to the end of July, the fund’s net asset value increased 37.71%. As an indication of how well it tracks its index, the MSCI World Small Cap moved 37.94% higher.

Things to remember

In spite of this great performance, it pays to be aware that even cheap tracker and exchange-traded funds of the sort offered by Vanguard still have their drawbacks.

Logically, a product designed to track an index will never outperform that index. Indeed, a number of my own single company stocks have done a lot better over the last year.

Now, a fully signed-up passive aficionado would say that these higher returns required me to take higher risks. I’d agree, especially when it comes to the small-cap space. Single company stocks can fall in double-digit percentages on some days.

But there are other things to be aware of. For one, the fund could definitely still plummet in value if markets crash. It’s equally important to appreciate that this ‘global fund’ still has by far the biggest proportion of its assets (60%) invested in the US. That might worry some, particularly as valuations across the pond are looking frothy, to say the least.

Investors also need to be conscious that definitions of ‘small’ vary. In the UK, a small company tends to be one valued above £50m but below, say, £500m. Thanks to its aforementioned heavy US weighting, the median market-cap of a holding in Vanguard is actually £2.8bn! This explains why I continue to hold some actively-managed UK funds specialising in this part of the market. The fees are much higher, but I’m hoping to catch the upside missed by the Vanguard fund.

Bottom line

In sum, I’m confident I’ll retain my holding in Vanguard Global Small-Cap until I retire. While not without its limitations, I reckon this can be considered a core holding for any risk-tolerant equity portfolio such as my own.

The post 1 Vanguard fund I’m going to hold for decades appeared first on The Motley Fool UK.

More reading

• Thank goodness I didn’t buy Greggs shares in 2025
• Legal & General shares: still seen as a dividend stock — but that may be outdated
• 13,000 more reasons why I’m avoiding IAG shares!
• This FTSE 250 stock fell by over 3% after solid earnings. Should investors consider buying it?
• £10,007 invested in Aston Martin shares on 1 April is now worth…

Paul Summers owns shares in Vanguard Global Small-Cap Index Fund. The Motley Fool UK has no position in any of the shares mentioned. 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.

Ten years on, the Vanguard LifeStrategy range continues to be hugely popular with UK retail investors. Today, I’m looking at the arguments for and against having one of these funds as my entire portfolio.

Let’s quickly recap on how they work.

Vanguard LifeStrategy: one-fund investing

Vanguard’s LifeStrategy range is made up of five funds. Each of these differ in the proportion of equities and bonds they hold. So, the LifeStrategy 100% Equity fund invests 100% in stocks. The majority of these are from developed markets, such as the US and UK. 

However, the LifeStrategy 80% Equity fund — which I personally hold — only invests 80% in stocks. The remaining 20% goes into bonds. The LifeStrategy 60% Equity and LifeStrategy 40% Equity therefore offer an increasingly cautious mix. 

If I were very risk-averse, I could opt for the LifeStrategy 20% Equity fund (20/80 equity/bond split). 

Some advantages…

There’s are many reasons why the Vanguard LifeStrategy range has accrued £29bn of investors’ capital over the last 10 years.

#1. Instant diversification. With a few mouse clicks, these passive funds allow me to spread my cash around a massive number of stocks and bonds. Trying to do this any other way would be pretty impractical and expensive.

#2. Low fees. It costs far less to manage a passive fund compared to one run by a human money manager. This allows Vanguard to set its LifeStrategy fees at just 0.22%. Keeping costs low can have a huge impact on returns over time.

#3. Fuss-free. Checking in to my portfolio sporadically is vital if I’m to reach my financial goals. However, the Vanguard LifeStrategy funds require no maintenance. Rebalancing is done automatically. This ensures the equity/bond weighting is maintained. 

#4. Great performance (so far). Since launching in 2011, the funds have beaten a good proportion of their active counterparts. The LifeStrategy 80%, for example, has climbed 150% in value. 

Some drawbacks…

#1. Can’t beat the market. By its very nature, an investment product designed to track market returns will never beat it. As such, a Vanguard LifeStrategy fund will not radically grow my wealth in double-quick time. There’s also no guarantee the performance to date will be repeated.

#2. Too diversified. As Warren Buffett said, diversification “makes little sense if you know what you’re doing.” Those with a tolerance for risk may do better by being more concentrated in only a few (brilliant) stocks. Passive investing means I’m compelled to own market dogs as well as stars.

#3. No small-cap focus. The LifeStrategy funds only hold stocks from the biggest firms in the world. Therefore, I’d need to find another way of getting exposure to smaller, faster-growing companies. Historically, these have delivered greater gains over the very long term.

#4. Inflation. Bonds tend to be negatively correlated with stocks. Holding them is therefore seen as a way of reducing risk. However, inflation is problematic for fixed assets. This could mean those funds with higher bond weightings could struggle going forward.

What I’m doing

I’m happy to keep a Vanguard LifeStrategy fund as a core holding in my portfolio. Even so, I enjoy trying to generate an even better return through my own stock-picking. Whether this actually happens is another thing entirely!

That said, a single fund portfolio like this would probably be ideal if I didn’t have the time, energy, or inclination to follow the stock market’s inevitable twists and turns.

The post Vanguard LifeStrategy: is a single fund all I need? appeared first on The Motley Fool UK.

More reading

• Thank goodness I didn’t buy Greggs shares in 2025
• Legal & General shares: still seen as a dividend stock — but that may be outdated
• 13,000 more reasons why I’m avoiding IAG shares!
• This FTSE 250 stock fell by over 3% after solid earnings. Should investors consider buying it?
• £10,007 invested in Aston Martin shares on 1 April is now worth…

Paul Summers owns shares in Vanguard LifteStrategy 80% Equity. The Motley Fool UK has no position in any of the shares mentioned. 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.

Here, I’m going to highlight the top three Vanguard funds I’d buy today for my own portfolio. These funds aren’t likely to be suitable for everyone. However, they match my personal investment goals (long-term growth) and risk tolerance. 

A ‘beginner’ Vanguard fund

The first one I’d invest in today would be the FTSE Global All Cap Index Fund. This particular fund tracks an index consisting of large, mid-sized, and small company shares in developed and emerging markets around the world. In other words, it provides very broad exposure to global stock markets. Given this broad approach, I think it’s a great ‘starter’ fund.

What I like about this fund, aside from its broad nature, is that it provides exposure to many world-class companies. The top 10 holdings, for example, include stocks such as Apple, Microsoft, and Amazon.

I also like the fee structure. The ongoing charge (OCF) is a low 0.23% per year.

While I see this product as a great starter fund, there are plenty of risks to consider. One is that the fund only invests in stocks, and these are higher-risk assets. Another is that it has significant exposure to the US, which looks expensive relative to other markets.

I’m comfortable with these risks, however. I see this fund as a great core holding.

Long-term growth potential

My next choice would be Vanguard’s U.S. Equity Index Fund. This tracks an index of large, mid, small and micro-sized company shares in the US. Its OCF is 0.1% per year.

Now, this may seem like a surprising choice. After all, I’m a UK investor. And the first fund I listed has plenty of exposure to US stocks. Why am I increasing my exposure to the US?

Well, my logic here is that historically, the US stock market has outperformed the UK. And looking ahead, I think there’s a good chance it will continue to do so. The reason I say this is that the US market has significant exposure to companies with strong long-term growth prospects in today’s digital world, such as Amazon and Apple. By contrast, the UK market has significant exposure to companies facing structural growth challenges such as Shell and British American Tobacco.

Loading up on US stocks is a risky approach, of course. This approach could backfire if the US market underperforms. There’s also foreign exchange risk to consider. These are risks I’m happy to take in the pursuit of higher long-term gains, however.

Smaller companies

Finally, I’d invest in Vanguard’s Global Small-Cap Index Fund. This seeks to provide long-term capital growth by tracking an index that consists of small company stocks in developed markets. Its OCF is 0.29%.

Now, I’d expect this fund to be more volatile (higher risk) than the other two funds. That’s because small-cap stocks are typically more volatile than large-cap stocks.

However, history shows that small-cap stocks generally tend to outperform large-caps over the long term. So, I think this fund could play a valuable role in my diversified portfolio. It could potentially help me to achieve higher growth in the long run.

The post The 3 Vanguard UK funds I’d buy today for 2021 and beyond appeared first on The Motley Fool UK.

More reading

• Thank goodness I didn’t buy Greggs shares in 2025
• Legal & General shares: still seen as a dividend stock — but that may be outdated
• 13,000 more reasons why I’m avoiding IAG shares!
• This FTSE 250 stock fell by over 3% after solid earnings. Should investors consider buying it?
• £10,007 invested in Aston Martin shares on 1 April is now worth…

Edward Sheldon owns shares in Apple, Microsoft, Amazon and Royal Dutch Shell. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon, Apple, and Microsoft and recommends the following options: long January 2022 $1920 calls on Amazon, short March 2023 $130 calls on Apple, short January 2022 $1940 calls on Amazon, and long March 2023 $120 calls on Apple. 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.

Instant diversification

One holding I continue to accumulate within my Stocks and Shares ISA is the Vanguard Life Strategy 80% Equity Fund. Offered by the US passive investing giant, this fund might be considered a one-stop-shop for anyone who has very little interest in stock markets beyond increasing their wealth. Alternatively, I think it can be a great way of counterbalancing riskier investments.

This Ronseal-like ‘does-what-it-says-on-the-tin’ fund invests 80% of the money I put to work across thousands of companies around the world. The remaining 20% is shoved into fixed-income assets, which tend to be less volatile than stocks. This strategy won’t stop the fund from dipping in value during a market crash, of course. However, it should help mitigate the (temporary) pain.  

Of course, there will come a time in life when people want to reduce their exposure to stocks. Recognising this, Vanguard also offers 20%, 40% and 60% versions of the LifeStrategy fund. A 100% Equity fund is also available.

Quality pick

My love of Vanguard’s cheap, passive range doesn’t mean I’ve no time for funds managed by proven professional investors. After all, the former will only give me the market return. To beat the market, I’ll need to use the latter (or pick stocks myself).

One active fund I’ve been buying quite a lot of recently is Lindsell Train Global Equity. This highly-concentrated, low-turnover fund has climbed a little over 350% in value since 2011.  Investors wouldn’t have got that sort of return by simply holding a FTSE 100 index tracker!

Despite its stellar track record over the years, owning Global Equity isn’t without risk.  Some of its biggest holdings — FTSE 100 firms Diageo and Unilever — have been hit to some extent by the pandemic. The fact that this fund doesn’t buy value stocks could also hamper returns for a while.

Nevertheless, I’m a firm believer that quality always wins out over the long term. 

Go small

As a long-term investor with many years left in the market, I think having some exposure to the smaller businesses in my Stocks and Shares ISA is really important. Market minnows have the ability to grow far quicker than larger listed firms, which should ultimately lead to larger share price gains. This is why my final pick is Premier Miton UK Smaller Companies. 

Since launching in 2012, the AIM-focused Premier Miton fund has achieved an annual return of 18.5%. That compares very favourably to the 12.7% return of the IA UK Smaller Companies sector. No wonder it’s the most researched fund of its kind, according to Trustnet.  

Of course, there are a few things to remember. Past performance is no guarantee of future returns. Moreover, these returns could vary wildly from year to year due to the volatility of small-cap stocks. Also, investors must be comfortable paying the relatively high management fees compared to, say, the LifeStrategy 80% fund.  

The Premier Miton fund won’t suit all investors, but I’d be happy to buy it today.

The post 3 UK funds to buy for a Stocks and Shares ISA appeared first on The Motley Fool UK.

More reading

• Here’s why the Diageo share price is up 12% in a month!
• Did Donald Trump just kickstart Diageo shares?
• Fundsmith just offloaded this £96bn market cap blue-chip FTSE 100 stock
• Could this FTSE 100 company, down 54% in 5 years, be a perfect Stocks and Shares ISA buy?
• I’m backing these 3 disastrously cheap shares to rocket back to favour

Paul Summers owns shares in Vanguard LifeStrategy 80% Equity Fund and Lindsell Train Global Equity. The Motley Fool UK has no position in any of the shares mentioned. 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.

While many of us won’t have anything like that amount to save in these uncertain times, using as much of it as possible is still recommended. After all, the ISA wrapper ensures you won’t pay tax on any profits you (eventually) make. The same goes for dividends, once companies start paying them again.

Naturally, what you decide to put in your ISA will depend on your financial goals, risk tolerance and time horizon. For most of us, however, the core of this account will usually be a selection of funds. Here are three I’ve been buying lately.

Passive king

The first holding I’ve topped up has been the Vanguard Life Strategy 80% Equity Fund. As it says, this invests 80% of your cash in the stock market. The remainder is invested in fixed income assets. While not making you as much money over the long term, this tends to be less volatile.

The beauty of this and other funds in the Life Strategy stable (20%, 40%, 60% and 100% variants are also available) is that they offer a remarkably cheap of getting exposure to thousands of stocks all around the world. Right now, the ongoing charge is just 0.22%.

As well as allowing you to keep more of your profits, the level of diversification achieved by these funds also means you’re protected in a way that those invested in only a few individual companies aren’t. Plenty of the latter could end up going bust as a result of the crisis. 

Tech-focused titan

Another holding I’ve added to recently has been FTSE 100-listed Scottish Mortgage Investment Trust (LSE: SMT).

Rather than take a passive approach like Vanguard, this trust attempts to pick companies that will outperform the market over the long term. For this reason, its portfolio is very different from the benchmark it uses to measure performance.

That’s not to say the stocks it holds are all unfamiliar. Online giants Amazon and Alibaba both feature. So too does mega-popular streaming service Netflix. The largest holding, at least at the end of February, was electric vehicle manufacturer Tesla. 

As well as performing exceptionally well for investors over the last decade, it’s worth highlighting that Scottish Mortgage’s management fees are very low relative to most active funds. It charges just 0.37%.

Conviction buy

A third fund I’ve added to has been the CFP SDL UK Buffettology Fund, managed by Keith Ashworth-Lord. As its name suggests, this looks for the sort of stocks that would appeal to Warren Buffett and his strategy of ‘Business Perspective Investing’.

In practice, this means seeking companies with strong market positions and sustainable returns and avoiding those with weak balance sheets. Like Scottish Mortgage, this is high-conviction stuff with just 35 holdings. Only the best ideas make the cut.

Like pretty much everything else, the fund has been hit hard by the pandemic. Notwithstanding this, it’s performance up until recently has been superb (ranked top of 205 similar funds since launching nine years ago).

Although nothing can be guaranteed going forward, that’s the track record I want to see if I’m paying someone else to manage things on my behalf.

The post Looking for last-minute ISA investments? Here are 3 funds I’ve bought during the market meltdown appeared first on The Motley Fool UK.

More reading

• 161 years of dividend growth! 3 investment trusts for passive income
• £1,000 invested in a Cash ISA in 1999 is now worth…
• How has the Scottish Mortgage Investment Trust share price risen 57% in a year?
• Here’s how Britons can invest in SpaceX on the FTSE 100
• £7,500 invested in Scottish Mortgage shares 3 years ago is now worth…

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Paul Summers owns shares in Vanguard LifeStrategy 80% Equity Fund, Scottish Mortgage Investment Trust and CFP SDL UK Buffettology Fund. The Motley Fool UK owns shares of and has recommended Alibaba Group Holding Ltd., Amazon, Netflix, and Tesla. 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.

That’s why, today, I’m taking a closer look at a big development: the arrival of Vanguard on the scene.  

Van…who?

For those unfamiliar with the company, Vanguard is among the world’s biggest providers of passive funds — those that seek to track the market return rather than beat it. Right now, it has assets of $5.6trn (yes, trillion) under management.

Part of the reason Vanguard is so popular is the low fees it charges. To track the FTSE 100 index, for example, you’ll be charged an ongoing fee of 0.09%. Compare this with the typical charge levelled by professional money managers of between 1% and 2% on some active funds and it’s easy to see why inflows into the Pennsylvania-based firm have rocketed over the last decade or so. The less you shell out in fees, the more profit you retain, even if the aforementioned managers outperform (most don’t).  

So is this SIPP any good?

The newly-launched SIPP is certainly cheap — Vanguard has said that it will charge an account fee of 0.15% to holders.

The fee will also be capped at a £375. So, even if someone already has an ISA and/or a general investment account with the company (both launched in 2017), they’ll never pay more than this amount in total if they also sign up for the SIPP. To invest, those holding the account will need to put up a minimum of £100 a month (before tax relief is calculated) or a lump sum of £500 or more. 

While calculating pension costs can get a bit fiddly (depending on how much money you have, the investments you hold and how often you buy and sell), Vanguard’s offering does look cheaper compared to its rivals. Market leader Hargreaves Lansdown, for example, has an administration charge of 0.45%.

It will be fascinating to see whether this is a catalyst for other providers to lower their fees. If it does, investors only stand to benefit. 

What’s the catch?

For me, a slight issue with Vanguard’s SIPP offering is that it requires the holder to invest in — and solely in — funds that it runs. Then again, I don’t see this as a problem for a lot of people, particularly those that aren’t really interested in following the progress of their investments (which, ironically, can often lead to the best returns) and aren’t looking to put their money in anything remotely ‘exotic’. 

What’s more, Vanguard’s selection already runs to 77 funds including the one-stop-shop Target Retirement and Lifestrategy products — all of which give instant and sufficient diversification to the holder.

One other thing worth knowing is that the SIPP is currently only available to those in pre-retirement. In other words, anyone wanting to take money out of their account won’t be able to do so, at least until Vanguard makes this possible in the 2020/21 tax year.

Caveats aside, I suspect this new relatively low-cost account will prove very popular with those wishing to get their retirement savings in order. 

The post Saving for retirement? I think this news changes everything! appeared first on The Motley Fool UK.

More reading

• Thank goodness I didn’t buy Greggs shares in 2025
• Legal & General shares: still seen as a dividend stock — but that may be outdated
• 13,000 more reasons why I’m avoiding IAG shares!
• This FTSE 250 stock fell by over 3% after solid earnings. Should investors consider buying it?
• £10,007 invested in Aston Martin shares on 1 April is now worth…

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

This is a low-cost tracker fund that invests in UK dividend-paying companies and sports a bumper yield. Here, I take a closer look at this fund and highlight the risks you need to be aware of.

Investment strategy

The first thing to understand about Vanguard is its investment strategy. A passive fund (meaning there’s no fund manager), it seeks to track the performance of the FTSE UK Equity Income Index – which consists of stocks listed on the London Stock Exchange’s main market that are expected to pay dividends that generally are higher than average.

At 30 September, the fund held 128 stocks, so it’s well diversified. Note, however, the top 10 holdings (below) made up over 40% of the fund, meaning there’s a degree of stock-specific risk.

Source: Vanguard

Yield

In terms of yield, this fund’s certainly a winner. At end-September, the yield offered was a bumper 5.2%. By contrast, Vanguard’s FTSE 100 tracker offers a yield of 4.2%. It’s important to remember though that yields fluctuate depending on the dividends paid out by the underlying companies in the index. Dividends are paid out bi-annually and will either be paid in cash or reinvested, depending on whether you invest in the income or accumulation version of the fund.

Fees

Another great feature of this fund is its super low cost. Vanguard has recently slashed the fees on many of its funds and, on its website, it advertises this fund with a low ongoing charge of just 0.14%. On Hargreaves Lansdown, however, the fee is still 0.22% (this may be reduced in the near future).

Risks

Turning to risks, there are a number of risks you need to be aware of. Firstly, the fund has high exposure to high-yield stocks. Nearly all the stocks in the top 10 holdings yield 5%, or higher.

Now, while this kind of strategy will help the fund generate a high yield, it may not produce brilliant total returns (capital gains plus income) over the long run. Interestingly, the fund has underperformed the market by a wide margin over the last five years, returning around 27%, versus 41% for the FTSE All-Share index. 

Secondly, the fund has a relatively high exposure to the financial sector. At 30 September, financials represented nearly a quarter of the portfolio. If this sector was to underperform on the back of a global recession, the fund’s performance (and its yield) could be impacted negatively.

Finally, with no fund manager at the helm, there’s uncertainty as to how the fund will perform in a major bear market. This fund was launched in June 2009, as markets were recovering from the Global Financial Crisis, so it’s unproven in a major stock market collapse. That’s certainly something to keep in mind.

Summary

Overall, given its high yield and low fees, I see this fund as a good choice for those who are looking to generate an income right now, such as those in retirement. If you don’t need the income right now, however, you may be better off in a fund that’s more focused on total returns, in my view.

The post Vanguard’s Equity Income fund: a good choice after the Woodford collapse? appeared first on The Motley Fool UK.

More reading

• Thank goodness I didn’t buy Greggs shares in 2025
• Legal & General shares: still seen as a dividend stock — but that may be outdated
• 13,000 more reasons why I’m avoiding IAG shares!
• This FTSE 250 stock fell by over 3% after solid earnings. Should investors consider buying it?
• £10,007 invested in Aston Martin shares on 1 April is now worth…

Edward Sheldon owns shares in Hargreaves Lansdown, Lloyds Bank, and GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended AstraZeneca, Hargreaves Lansdown, HSBC Holdings, and Lloyds Banking Group. 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.

Notwithstanding this, I think there’s an argument that those investing in the UK now could eventually be rewarded. Let me explain. 

UK plc is already cheap

When it comes to valuations of entire markets, I look to the cyclically adjusted price-to-earnings ratio or CAPE for short. The great thing about this metric (popularised by Yale University professor Robert Schiller) is that it gives average valuations over a 10-year period, thus taking into account market fluctuations over time.

These days, the UK has a CAPE of around 15. That might not mean an awful lot on its own but things start to get interesting when you compare this value to those of other countries, specifically developed ones.

The UK is, for example, cheaper than Germany (17) despite real concerns about a recession in the latter. France is far more expensive than both with a CAPE of 21. Unsurprisingly, however, the US stock market is the dearest of all four with a CAPE of 29. Ominously, this sort of valuation has usually preceded a big fall in the market, such as the Great Depression and the dotcom bust.

From a psychological perspective, however, these valuations make some sense. The US boasts some of the biggest companies in the world (Amazon, Apple, Facebook, Google), all of which have grown massively over this abnormally long bull market. What’s popular has a habit of becoming even more so, hence the frothy price tag.

The fact that the UK is relatively cheap is also no surprise. A no-deal scenario could send our main indices even further down in value as investors fret over the possibility of more delay (since Boris Johnson is now prevented by law from leaving without a deal) and a general election, not to mention the growing prospect of a recession.

Is this a nailed-on certainty? Of course not! Upside-down market logic dictates that confirmation of no deal could actually encourage a rally for the simple reason that investors now have their fears confirmed, which is a lot more than they’ve had for three-and-a-bit years. A resolution to the US-China trade spat could also reinvigorate things.

At the Fool UK, we’re big fans of the old adage that successful investing is all about “time in the market, not timing the market“. As stated above, the key point to realise is that the UK market is already pretty cheap and arguably worthy of investment.

So, what’s the easiest way to invest?

Getting exposure to the UK market through exchange-traded funds offered by passive investing giants like Vanguard and iShares is as simple as it gets. For very low fees, investors can track major indices like the FTSE 100 with the added attraction that their money will be spread among different sectors. 

But low costs and instant diversification aren’t the only positives. Just like individual companies, funds like these also pay out dividends to holders. While it’s undeniably more fun to spend these cash returns, any Fool committed to building their wealth over the long term should consider re-investment their default option. 

The post The UK stock market looks cheap…and it could get even cheaper! appeared first on The Motley Fool UK.

More reading

• Thank goodness I didn’t buy Greggs shares in 2025
• Legal & General shares: still seen as a dividend stock — but that may be outdated
• 13,000 more reasons why I’m avoiding IAG shares!
• This FTSE 250 stock fell by over 3% after solid earnings. Should investors consider buying it?
• £10,007 invested in Aston Martin shares on 1 April is now worth…

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Like the Stocks and Shares ISA, those with a SIPP won’t pay any tax on any profits they make or income they receive. Although money can’t be accessed until the age of 55, anything that goes in this account benefits from tax relief. So, someone paying 20% tax on their income would receive a 25% bonus from the government on whatever they deposited (£100 becomes £125, for example). This relief, combined with the magic of compounding over time, can really pay off. 

Another advantage to the SIPP is that you can deposit up to £40,000 within the account in a single tax year — double the allowance permitted in a Stocks and Shares ISA.

Now, £40,000 is clearly a huge amount of cash and most of us won’t be able to contribute anything like that. That said, it could be that you’ve recently received a lump sum from a relative, perhaps through an inheritance. If this is the case, £40,000 would thus grow to £50,000 as a result of tax relief. Put to work in the stock market, this could then become a great retirement fund in time.

Before investing a penny, however, I’d be asking myself two questions.

What’s my attitude to risk?

Knowing your own risk tolerance is key. Those approaching retirement may want to take a more conservative approach compared to those a few decades younger because they have less time to recover from any economic shocks before needing access to their money. For this reason, a heavier weighting in volatile small-cap or high-growth stocks might be appropriate for younger investors but not the former. 

A better bet for those approaching their golden years is to stick with a diversified bunch of dividend-paying blue-chip stocks that have shown an ability to perform regardless of what’s going on in the economy. Within this, I’d include consumer goods firms and pharmaceutical giants.

But your tolerance to risk isn’t the only consideration when planning for retirement. Deciding what to invest in can also depend on how much effort you’re willing to expend tracking your investments.

How much control do I want?

For those disinterested in the stock market, lacking the confidence to pick individual stocks or wanting to further mitigate risk, buying into funds managed by institutional investors is an option (although be aware that most fail to consistently beat their benchmarks after deducting fees).

For me, the passive approach to investing — buying funds that merely track indices like the FTSE 100 and S&P 500 rather than attempting to outperform them — is the best solution for most people, most of the time. My own SIPP is dominated by this type of investment.

And if you’re looking for a way to do the least possible work, Vanguard’s range of low-cost LifeStrategy funds will give you a portfolio in a matter of minutes. These invest your cash in a range of bond and equity exchange-traded funds in different proportions. The LifeStrategy 60% equity fund, for example, invests that percentage in shares and the remainder in bonds — probably ideal for someone in, say, their 40s.

Assuming a not-unreasonable 7% annual return, that £50,000 I mentioned earlier would become £380,000 after 30 years — an excellent base from which to live a long and comfortable retirement.

The post How I’d invest £50k in a SIPP appeared first on The Motley Fool UK.

More reading

• Thank goodness I didn’t buy Greggs shares in 2025
• Legal & General shares: still seen as a dividend stock — but that may be outdated
• 13,000 more reasons why I’m avoiding IAG shares!
• This FTSE 250 stock fell by over 3% after solid earnings. Should investors consider buying it?
• £10,007 invested in Aston Martin shares on 1 April is now worth…

Paul Summers has owns shares in Vanguard Life Strategy 80% Equity Fund. The Motley Fool UK has no position in any of the shares mentioned. 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.