Dampier - Effective investing: a simple way to build wealth by investing in funds

Where should I invest my money?

I have lost count of the number of times that I have been asked this question over the years. It certainly runs into the tens of thousands. I think my mother was probably the first, more than 40 years ago. Today, as head of research for the UKs largest fund and stockbroking firm, my job is to help find answers to that question for more than 730,000 clients.

It is clear to me that there is more demand than ever for help in making good investment decisions. One reason I hear almost every time I meet a new client is that he or she has had a bad experience at the hands of banks and other traditional financial services providers. I find it hard to think of any businesses that have done more over the years to alienate their customer base than the big banks and insurance companies.

A succession of scandals, fines and rip-off practices means that most people no longer trust the institutions they would ordinarily have committed their money to in the past. Even if you can afford a financial advisor or wealth manager, it is far from certain that you will find the experience worth the money. The best advisors are very good: but not everyone finds it a rewarding experience.

People today rightly want better results, better service and a greater say in how their money is managed. Fortunately in the last ten years technology has moved on so rapidly that the dream of controlling your own investments has become a practical possibility for almost everyone. The development of online investment platforms one-stop websites that enable you to take full control over all your money is revolutionising the way that money is saved and invested. You will be hearing more about platforms in this book; they are a game-changer for anyone looking to take greater control over their own finances.

A second reason DIY investing is on the increase stems from the generous tax incentives for investors that governments have introduced over the past 20 years. These make it both easier and potentially more rewarding than before for private individuals to look after their own money. The availability of tax wrappers such as ISAs or SIPPs (DIY pension funds), plus annual capital gains allowances, mean that most people can invest many thousands of pounds a year without having to pay any tax on their gains. The advantages of saving into ISAs and pensions are so great that I urge everybody to take advantage when they can.

In this brave new world, inevitably there is growing demand for well-researched, independent information and advice. If you are looking at this book, the chances are that you are one of those looking for help. My hope is that you will find much of value in the pages that follow. The aim is to share with you, in plain language, the most important things that I have learnt about investing over the nearly 35 years that I have been working in the field. I believe that anyone can make money from investing if they have the right knowledge and help.

Like anything in life, you need to put in some work and research to try and get the best out of investing. My book is not intended as a how to manual or reference book. There are plenty of those out there and nowadays you can Google so much. It is rather an attempt to give some practical pointers and the fruits of my own experience, including my past mistakes. Whenever possible, I have concentrated on setting out broad principles rather than getting bogged down in technical details, which in my experience can easily deter the reader. If you come across a term that you dont understand, it is very easy to look up the definition on the internet. I have added some useful links in the appendices.

Taking control over your personal finances is bound to play an increasing role in most peoples lives as the state rolls back. Governments simply cant afford to provide everything they once promised their citizens, such as long-term care, inflation-linked retirement benefits and universal healthcare. Not for nothing has the UK recently launched an auto-enrolment scheme to make sure that all employees pay into a pension. How well your investments perform could well make the difference between your having a fun retirement or a dreary one with little money. Investment isnt boring unless you believe that making money and providing for your future are unimportant. I hope this book might prove to be a stepping stone on that journey.

My hope is that you will be sufficiently energised by what I have to say to not only start investing, but to find out more for yourself. The fact that investment appears to be such a complicated business is probably one of the reasons UK investors have traditionally turned to property instead something they can see, feel and touch and has historically been very profitable. However, property is not without its problems. Few property fans seem to dwell on such things as bad tenants, tenancy voids, maintenance problems and repairs. Dealing with all these things has always struck me as far more complicated and stressful than buying an investment fund.

Investing in funds has been my particular area of professional expertise for many years. I explain why you should think about going down the same route in chapter 3. Picking individual shares, which is an alternative approach, requires a different set of skills and in my experience is a more time-consuming and difficult route to follow. Please dont let me put you off trying direct investing in shares, however. I just happen to believe that funds are the simplest and most convenient way to invest money, whatever your ultimate purpose may be be that a pension, a house, a holiday, a family wedding or just personal enthusiasm. It is how I invest my money and also the way that most individual investors do in practice choose to invest.

The order of content is as follows. First, I look at the basic principles of investing and explain how I think ordinary investors should think about what they are aiming to do. Then I go on to outline the range and types of funds that are available to individual investors and explain why you should look carefully at using a platform to research and execute your investment choices. I also summarise the tax breaks that the government, in its wisdom, offers you as a potential investor. (I know putting the words government and wisdom close to each other is a bit of a liberty, but these tax-saving benefits, unlike much else that is presented as government largesse, are real.)

Next I describe some basic steps that will help you choose the best investment funds and combine them to create a well-balanced portfolio. I summarise what is in a range of starter portfolios I have designed you to help you get started, depending on your appetite for risk. I go on to explain in detail how I invest my own money, with a description of all the largest individual holdings. Then I cover some of the practical issues that arise from the need to monitor and account for your investments. The next chapter explains my thoughts about some other options for investors, including so-called passive funds, investment trusts and buy-to-let property. The concluding chapter sums up the most relevant lessons that I feel I have learnt over the course of my 35-year career.