07 September 2015

Having it all with investments

The question I would like answered is: "What is the best way to invest money with (a) low charges (b) good performance (c) not much monitoring needed?"

That was one of the responses we received when we asked our newsletter readers about the investing questions they’d always wanted answered. It’s a great question because it reflects some of the key things that any investor should think about when considering their options. It’s not an easy question to answer, though, because there is no single answer that’s right for everyone and because all the elements are linked. 

Each person has different priorities when it comes to the charges they’re prepared to pay, how much time they want to spend monitoring and controlling their investments, and what they would consider a ‘good performance’. However, thinking about what you want in these areas can go a long way towards helping you find the investment approach that’s right for you.

Investment charges – and what they mean

It’s impossible to avoid charges altogether. Typically paying more means you’re paying someone else to support you and take some responsibility for your investment choices. Trying to achieve the lowest level of costs means you’re happy to take on more of the work for yourself.

In investing, as in most things in life, it’s important to understand what you’re paying for – and whether the things you are paying for are really things that you want. Costs have to be disclosed to give investors transparency about the various charges. The charges that apply depend on your investment choices. Here’s an overview of the main ones:

Fees for advice

If you invest with the help of a financial adviser, you will pay for their advice. You pay an initial lump sum direct to the adviser when you receive advice. On top of this you can often choose to pay an ongoing advice fee for the adviser's support in future – things like analysis of how your investment is doing and suggestions on when to consider moving it as your circumstances change. If you’re confident that you know how to balance risk and reward for yourself then you could consider going direct to a fund manager or even buying stocks and shares. If you feel you need more support to make these decisions it might be that an advice fee is worth paying.

Administration charges

These charges are made by the provider you choose to buy your investment through. They could be referred to as platform or product fees. This may cover the cost of maintaining a record of your investment, providing online information or tools, and communicating with you.

Investment management charges

This charge is made by the investment manager managing the fund. The charge varies by fund and by manager. It’s usually more expensive for actively managed funds and cheaper for passive funds that track an index such as the FTSE 100 Index. You pay it to cover the costs of researching and selecting investments for the fund.

What other costs might you have to pay?

There may potentially be other charges in addition to those listed here that could include entry charges, exit charges and dealing charges depending on the type of investment you choose.

What does good performance mean for investment?

It’s important to remember that no type of investment can guarantee you a particular outcome. When it comes to choosing an approach that will give you the performance you want, it’s important to think about balancing the returns that you’re trying to get with the risk you’re willing to take. If you only need the sort of return you can get from a savings account you might decide that you don’t need to invest your money. If you want higher potential rewards then you need to decide how much risk you’re willing to accept to achieve them. Normally seeking higher performance means taking bigger risks.

It’s also worth bearing in mind that the meaning of ‘good performance’ might change depending on your circumstances – and how long it will be before you want to cash in your investments. It’s often the case that investors may switch from riskier assets to generally less risky ones as they near the point where they will want to cash them in, in an effort to help protect the fund when there is less time for investments to make up any losses.

How much time do you need to spend monitoring investments?

This is the most individual question of all and there isn’t a right answer. Some people are happy to be in it for the long term and ride out short term ups and downs in the market. Other people want to take a peek every day, see how it’s doing, making decisions based on their analysis of how markets may change. It’s worth thinking about how you approach other areas of your life to help you understand how comfortable you will be and what levels of support you might need.

Find out what your chosen provider will give you and be honest with yourself about how much time you’re willing to give to reviewing that information. At Nationwide we offer two services; a fully advised option with a choice to take ongoing advice, and a non-advised online option where you will select one of five funds.

Please note, the value of investments can fall as well as rise and you may not get back the amount originally invested.

Why not explore investments further?

If you're thinking longer-term, investing could help your money grow – but you have to be prepared to put your money away for a period of time and expose it to some risk. We can guide you through what's involved to help you decide if investing is right for you. Don't end up where things take you - by starting to plan today, you might be able to get better returns.

See my investment options

As part of Nationwide’s Financial Planning Service, your Financial Planning Manager will advise and make a recommendation for you after assessing your needs. Please note, we offer restricted advice on a limited range of carefully selected products available through Legal & General. You may ask us for a list of the companies and products we offer advice on. This service is available to those who have (joint/single) £50,000 or more in savings and/or those who earn (joint/single) £50,000 or more per year.

Our online investment service is designed for people who are comfortable with making their own financial decisions without receiving personalised investment advice. The Nationwide online investment service is provided by Legal & General.

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