Table of Contents
In most areas, the more effort you put into something, the better the result. Investment is not one of them.
Of course, it is essential to do some research; you need to understand what you are doing with your money.
But there’s no evidence that spending endless hours monitoring stocks and tweaking a portfolio makes you richer than a more hands-off approach — a quick check in on how things are progressing once a year or when your circumstances change.
On the contrary, constant interference with your investments can lead to worse results than a lazier approach. Frequent buying and selling comes with fees that eat into your profits.
Sit back and relax: constant interference with your investments can lead to worse results than a lazier approach
Trying to time the markets is a fool’s game and often leads you to buy before the markets fall and sell before they rise. Even experts struggle to beat the market most of the time.
So, if you love the returns that investing offers, but you don’t have the time or inclination to take on a new project or hobby, this guide is for you.
Even if you take the time to know your investments in depth, many of the principles offered here still hold true.
Not all portfolios will be suited to a light approach: if you have a complex range of securities, a more regular review may be necessary. We go over the minimum you need to do to get started and keep your investments on track.
1. Don’t choose: buy everything
You could spend countless hours trying to find the best investments – scouring company reports, fund fact sheets and economic forecasts. Or you could just buy the lot!
There are now a growing number of inexpensive so-called index funds available to ordinary investors. They allow you to buy a small number of hundreds, thousands, or even tens of thousands of companies in a single fund.
They do this by buying shares of each company listed in a stock index.
For example, a FTSE 100 tracker fund would contain shares in each of the 100 largest companies listed on the London Stock Exchange.
An MSCI World index fund would hold stocks of all the biggest companies in the world.
Simple Steps: Trying to time the markets is a fool’s game and often leads you to buy before the markets fall and sell before they rise.
The downside to these funds is that, by their nature, they cannot beat the market. They allow you to buy from the entire market, meaning you won’t do better or worse than average.
However, the upside is that you save yourself the trouble of trying to figure out which investments are likely to make you more money than others.
Additionally, over the long term, a simple, well-diversified portfolio of stocks from around the world tends to appreciate in value and provide better returns than the interest earned in a cash savings account.
The second advantage is that they are often very inexpensive.
For example, Fidelity’s Index UK fund allows you to invest in companies listed on the London Stock Exchange, with an ongoing charge of 0.06 percent.
To put this in perspective, actively managed funds, in which a portfolio of companies is carefully selected by an expert fund manager, can easily charge annual fees of more than 1 percent.
2. Or just buy a single fund
If you’re feeling extra lazy, you can start by purchasing a single fund designed to contain everything you need for a balanced portfolio.
For example, if you’re saving for retirement, asset manager Vanguard offers a line of Target Retirement funds that simply require you to indicate when you hope to stop working to determine which one is best for you.
The funds contain both stocks and bonds in a combination suitable for someone at your stage of life. As you age, Vanguard changes the mix of stocks and bonds so that the fund grows with you, rather than having to change funds as you age. They cost just 0.24 percent in ongoing charges.
Its LifeStrategy line offers a similar level of simplicity. It’s five funds, containing a mix of stocks and bonds, and you answer questions to determine how much risk you’re willing to take.
In general, the higher the risk, the better the likely returns. Vanguard then suggests the appropriate fund. These cost 0.22 percent per year.
Asset manager BlackRock offers a similar range called MyMap, which offers eight funds with varying levels of risk.
Some are also designed for people who want to earn income from their investments and for those who want to invest only in assets that have been selected for their environmental, social and governance records. These have respective ongoing fees of 0.17 percent – or 0.28 percent for the income version.
Unlike Vanguard funds, these have greater built-in flexibility to change portfolio composition based on market conditions. But again, you don’t have to worry because everything is done for you.
The BMO Sustainable Universal MAP range is a set of five funds, each with a different risk profile.
These are designed with sustainability in mind and are supervised by a team of managers. They have an ongoing fee of 0.35 percent.
Large banks and investment platforms also often offer ranges of similar funds that require little or no expertise from investors to hold.
However, if you’re considering one of these funds, it’s worth a quick check of fees and how performance compares to other similar funds.
3. Decide where to buy your fund
Most investors do not hold funds directly. Instead, they open an account on an investment platform and use it to purchase funds.
Choosing a platform is simple. The main things to consider are the fees, the type of service offered and the investments it allows you to purchase.
You can read an excellent, detailed guide on our sister website This is Money.
An Isa is a great place to start if you’re investing for the first time. However, you can also consider a pension and decide which one is best for you.
The platforms also offer general investment accounts, but these do not offer the tax benefits of pensions or Isas, and so should only be used once these tax reliefs have been exhausted.
4. Check from time to time
If you are investing for the long term and have a portfolio that you are happy with, you may not need to check it more than once a year.
The main thing you need to watch is the level of investment risk you are taking.
If you regularly check your portfolio with apprehension and the simple thought keeps you up at night, it may be a good indication that you have taken on too much risk.
Risk tolerance is not static: it can change depending on your situation, for example if you reach retirement or if you rethink your investment goals. So you will have to check in from time to time.
5. Get more involved later
You may find that you enjoy investing and would like to have a little more practice. In this case, a so-called satellite investment approach can work well.
You buy a small number of low-cost index funds that make up the bulk of your investments and give you a solid, diversified foundation.
Then you add “satellites”: smaller stakes in more specialized funds that invest in specific regions, sectors or themes.
This way, you can test your beliefs, but without risking your entire investment portfolio.
6. Don’t take your eyes off the fees
One thing you can’t do is forget about fees.
Don’t pay too much – for your investment platform, your funds or any other fees. They eat into your returns and erode your wealth.
Some links in this article may be affiliate links. If you click on it, we may earn a small commission. This helps us fund This Is Money and keep it free. We do not write articles to promote products. We do not allow any commercial relationships to affect our editorial independence.