Page 31 - DIY Investor Magazine | Issue 33
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     When considering funds, look for the “yield”, which is the typical income that it pays on an annual, quarterly or monthly basis; higher yielding funds pay a bigger income, but be aware they will also be invested in riskier assets.
Once you’ve decided whether to focus on growth or income, you’ll need to decide what your risk appetite is.
Your timeline is a bit shorter than a young investor and therefore less time for your investment to grow, so you should probably be a little more conservative with what you have in your portfolio.
A 25-year-old investor might focus solely on equities as these offer the best long-term growth prospects. But an older investor should have a mixture of other kinds of asset too – think of it as a kind of insurance policy in case the markets take a downturn.
Typically, bonds are the best alternative to equities and will help minimise the impact of a market downturn on your portfolio; bonds are not a share in a company, but a debt to be repaid, with interest.
The value of these bonds will change over time so you can grow your portfolio this way too – albeit more modestly. Bonds also have the benefit of yielding more than equities in most circumstances; yields also don’t disappear like company dividend income payments sometimes do.
A further insurance policy in a portfolio is precious metals such as gold, or even just some cash; neither react to economic condition changes in the same way as company stocks and are therefore a good alternative.
Once you have an idea of what kind of balance you want to give to your funds, you’ll need to consider more specifically which to hold.
A blend of passively managed and actively managed funds is a good starting point.
Passively managed funds are generally cheaper in terms of management fees, but don’t provide as much flexibility as an actively-managed fund.
When it comes to capital growth with less possible downside, global growth funds are a good option, as are funds in mature markets such as the US or Europe.
Another good option for someone who wants a blend of equities and bonds are funds that automatically do this for you, such as the Vanguard LifeStrategy range.
These Vanguard funds are specifically designed so you don’t have to think too hard about anything other than the weighting. For example, the Vanguard LifeStrategy 60% Equity fund does what it says on the tin – 60% of the fund is invested in equities, with the rest in bonds.
Other than that, you can look at funds that track commodities such as gold. A good example of this is the iShares Physical Gold ETC.
This cheap fund tracks the price of gold and makes for an excellent diversifier that will preserve the value of your portfolio when markets are struggling.
By getting to grips with the basics, you may be able to build
a pot to supplement your workplace pension, or you may prefer the satisfaction that comes with taking full control of your retirement planning comfortable in the knowledge that there are plenty of sources of good information such as DIY Investor to help and guide you.
DIY Investor Magazine · Apr 2022

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