RE: New to investing6 Jun 2020 12:03
Hi Rai, an important tip; For years now the FCA has forced any purveyors of investments to plaster their publicity with the slogan, "Past performance is not a guide to future performance." The industry goes along with this, but in fact its' utter rubbish.
I've been a PI for over 55 years & one of the most important lessons I've learnt is to keep a very beady eye on a company, or fund's, management. If management has a good track record of generating profits, then the likelihood is they will continue to generate them, unless the whole economic basis for their industry goes whoopee; like crude oil going from $60 to $20 almost overnight, as it did recently.
Most fund managers are timeserving hacks, making a very good living by nickelling & dimeing their investors out of 1% pa for funds that fail to outperform their benchmark index. It's a great way to make a million a year - just find a few thousand mugs to give you £200 million which you stuff into an index tracker (though you call it your "High Alpha Income Fund" and it's sister is your "High Alpha Capital Fund") filled with BP, HSBC, RDSB, RBS, Lloyds, GSK, DGE, and other FTSE 100 worthies.
So if you look at funds, begin by filtering out all those who've been outside the first-quartile for performance, for the last 5 &, possibly, 10 years. That eliminates the dogs. My experience has been that good managers remain profitable over the medium to long term, But, but, but, but, but, there is always the occasional exception to break that rule. Neil Woodford has been the classic recent example. For reasons unknown, except to himself, he decided to pep up the performance of his once well-performing funds, that had hit flat patches, with some unquoted biomedical & bio-technology companies and kept increasing the bet.
So, keep a sharp eye open, when formerly outperforming managers hit flat patches and start to toy with their portfolios. Find well-run companies & funds with good track records. Avoid outright speculation. Gold mining promoters, for example, are famous for promising the moon & it can get you very excited at "Getting in on the ground floor". I paid a few thousand in fees to the University of Hard Knocks before I learned that for every junior public company worldwide that sets out to go mining, precisely one company in 10,000 lands up with a working mine. So the bet you're being asked to take has odds of 10,000 to 1 against. Far worse than the most spavined donkey in the Grand National at 250-1.
Management changes over time. We all eventually retire. Watch out for new CEO's & fund managers.
Maybe find four or five funds and then sit back. You're in for the long haul. My wife was left £1,500 in 1983 in a Will. She got advice & put it into M&G North American fund (now North American Dividend) at £1.67 per unit. Today one unit is worth £31.73, so even allowing for a maybe 10x increase in the cost-of-living, it's done her right.
Good luck and enjoy yourself!