Millennial investor: how I chose the first fund I've invested in
The financial diary of a twentysomething's quest to invest her way on to the property ladder
Nothing is given so freely as advice – but following bad tips can really cost.
I’ve been sent words of wisdom from countless readers of the Millennial investor series. They’ve ranged from the truly helpful (“watch out for hidden fees and always reinvest your dividends”) to the somewhat hurtful (“your first financial mistake was to become a journalist – you’ll never get rich quick with that kind of thinking”).
Some have been self-contradictory. One email read, “Don’t take advice from anyone. Not even from me. And never invest in something that you hear about in the pub.”
I have no shame about relying on advice. It’s core to my investment strategy: by choosing to put my money into funds with professional managers, rather than trying to pick stocks myself, I’m putting my faith (and finances) in the better knowledge and judgment of others. What I can choose, however, is who (or what) I trust with my money.
A few decades ago, your only option when picking a fund was to hand your money over to a person who would actively manage it for you by investing in companies they thought would be successful.
Now there are more than 200 “passive” funds on the market. Rather than relying on human guesswork, these use technology to track an index or benchmark, such as the FTSE 100 or the price of gold.
These kinds of funds offer a low-cost way to invest in the performance of a commodity or stock market. If the market goes up, so does your investment. Of course, the opposite is also true.
Over the past 10 years, the average tracker replicating the performance of the FTSE 100 beat half of all UK fund managers. Add to that the fact that passive funds charge a fraction of the fees, often as little as 0.1pc, compared to 1pc or more for an active manager. That’s 10 times as much of my money gobbled up by management charges if I go for people-power over technology.
So is it still worth paying a manager to look after my money? Or are my fees just being spent on champagne lunches in the City? A passive tracker might outperform the average fund manager – but I’m not interested in average. I want the best, someone who can beat the index. And call me old-school but I prefer not to entrust all my money to a computer.
In turbulent times, it takes standout companies to perform well – and a standout fund manager to identify them.
If you’re merely tracking an index dominated by a certain kind of business or sector that then falls into hard times, your investments will come tumbling down with it. This happened in 2008 when the banking crisis had a devastating knock-on effect across global stock markets.
Over the past 10 years in the UK, both the average fund manager and the typical tracker fund secured returns of just under 200pc. If you had invested your money with the top 5pc of Britain’s best-performing fund managers, however, you would have received more than double those returns, at 432pc.
If you track the market as a whole, you could also find yourself invested in businesses you don’t necessarily agree with: oil companies, tobacco firms and so on (but more on this another time).
That’s not to say that passive investments are the ultimate evil – I may decide to put some money into them – but they won’t be providing the bread and butter of my portfolio.
So what is the fund that I believe will be among the top performers, delivering better than the average?
The number of options out there is quite overwhelming. But one fund cropped several times up in advice from readers – including my dad.
I’ve decided to plump for Threadneedle European Select as my first fund. It looks after £1.52bn of people’s money and invests in large European companies creating quality products. Its 10 biggest holdings include Unilever, L’Oréal and Adidas.
The fund is managed by David Dudding and Mark Nichols, who look very smiley in their photos online and gain my extra seal of approval for both having started their careers in financial journalism (see, aforementioned reader, it’s not such a foolish choice after all).
I’ve heard people say “invest in what you know” and I know that I buy Magnum ice creams, L’Oréal shampoo and Adidas trainers – so it feels a safe bet. These are all things I think I’ll still be buying come Brexit, trade war or economic disaster.
The fund has enjoyed average annual returns of 13.17pc over 10 years, which means that if I had invested my £10,000 in it a decade ago I would now have £34,475, once fees have been accounted for.
If I’d also put in the £200 a month of extra contributions I plan to make (in order to reach my goal of amassing a £40,000 property deposit in 10 years), I’d have more than double that, or £74,050. Just think of the house I’d be living in now.
It wouldn’t be wise to put my entire pot – which was an inheritance from my grandma – into one fund. But it’s a solid start to start building up my diversified portfolio.
The piece of advice I’m most wary of is when people insist “buy now!” or “there’s definitely going to be a crash: sell!”. In reality, it’s impossible to predict how the stock market is going to perform.
Instead, I plan to “drip feed” my money: invest monthly instalments of around £400, plus the £200 of extra monthly contributions. This means that my £10,000 will be invested gradually over the course of about two years and hopefully any sharp turns in the market will get averaged out in the long run.
So here we go, the moment of truth: £600 transferred and my first investment purchased. Is this the most exciting kind of shopping ever?
Did I make the right choice? Send me your thoughts and tips at marianna.hunt@telegraph.co.uk
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