Beginner investor? Think Warren Buffett, not Wolf of Wall Street

First-time investors would be wise to try funds and trusts before moving into trading individual stocks.

One of the few positives of the past year has been the sharp rise in people taking control of their financial future, and the rise of the younger investor has been a key theme. In its Q4 trading update, interactive investor, the UK’s second-largest DIY investment platform, said that 25% of new customers were under 35 in the fourth quarter.

Analysis from interactive investor suggests that younger investors have far more similarities than differences in their portfolio selections compared to older generations. Investment trusts are particularly popular among the youngest customers, as ii’s Private Investor Indexillustrates.

Even so, last week’s trading of “Reddit-influenced” stocks on both sides of the Atlantic is concerning. Interactive investor suggests first-time investors try funds and investment trusts before they move into trading individual stocks – but either way, they need to take a long-term view.

Moira O’Neill, Head of Personal Finance, interactive investor, says: “There are plenty of corporates that deserve to get a wake-up call from retail investors. But you can rage against the machine without shooting yourself in the foot betting on high-risk stocks – by using your vote. There is power in your collective voice - only recently, JD Sports was reminded of this at its AGM, when 30% of votes went against its pay report.

“But there’s also something to be said for making sure, as an investor, you don’t try to run before you can walk. Starting with a pooled vehicle such as a globally diversified fund or investment trust is a great way to get started, spreading your risk across hundreds of companies. Think Warren Buffett, not the Wolf of Wall Street. The ‘Sage of Omaha’ said that his ‘favourite holding period is forever.’ Forever is a big ask – but five years is a good starting point.”

interactive investor recommends six carefully selected Quick Start Funds for beginner investors:

ACTIVE/SUSTAINABLE

• BMO Sustainable Universal MAP Cautious. The lowest risk of the three BMO funds. It targetsan annualised return of 2% above inflation over five years and can hold as little as 20% and as much as 60% in equities.
• BMO Sustainable Universal MAP Balanced. The medium-risk option.The fund targets an annualised return of 3% above inflation over five years.  The fund can hold as little as 30% and as much as 70% in equities.
• BMO Sustainable Universal MAP Growth. The most adventurous, higher risk of the three but with potential for higher gains. The fund targets an annualised return of 4% above inflation over five years and can hold as little as 40% and as much as 80% in equities.
• Bear in mind that each target for the funds is just a target and not guaranteed.

PASSIVE

• Vanguard LifeStrategy 20% Equity for shorter term goals (3-5 years)
• Vanguard LifeStrategy 60% Equity (for 5+ years)
• Vanguard LifeStrategy 80% Equity (for 5-10 years)

Moira O’Neill, Head of Personal Finance, interactive investor, continues: “These Quick Start options are well-diversified, multi-asset portfolios that are very competitively priced. With passive, active and sustainable options covering a range of risk profiles, these are a good starter option and should appeal to a broad range of needs.

“Investors can choose from the six-strong range of one-stop-shop solutions, depending on their attitude to risk.”

Dzmitry Lipski, Head of Funds Research, interactive investor, says: “We have scoured the multi-asset fund universe for the best Quick Start options. In the case of the active options, these have a sustainable overlay – although it is still important for investors to make sure any ethical offering matches their own values.

“In looking for a sustainable overlay, we have not sought to compromise on performance. Although the new BMO sustainable Quick Start funds were only launched in December 2019, the BMO team has a successful long-term track record of producing strong risk-adjusted returns in running multi-asset ESG products since the launch of what is today known as BMO Responsible UK Equity in 1984.

“The three BMO funds stood out from the competition due to their sustainable investment philosophy, how the funds invest and manage risk, as well as BMO’s focus on low costs. Other funds we considered are not as competitive on fees. It’s early days, but over the last year, our Quick Start range outperformed the wider multi-asset market, and the BMO range outperformed the Vanguard range.”

The Quick Start Range – performance comparisons (annualised) to end January 2021

Source: Morningstar as at 31 January 2021. Total returns in GBP.

Past performance is no guide to the future and the value of investments can go down as well as up and you may not get back the full amount invested. Funds in the BMO Sustainable Universal MAP range do not have a five-year track record as they were only launched in December 2019.

Notes to editors

These quick-start funds are not personal recommendations, meaning we have not assessed your investing knowledge and experience, your financial situation or your investment objectives. You should ensure any investment decisions you make are suitable for your personal circumstances.

If you are unsure about the suitability of a particular investment or think you need a personal recommendation, you should speak to a suitably qualified financial adviser. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest.

Full performance can be found on the fund or index summary page on the interactive investor website.

Discrete performance data