Disclaimer

This article is for general information and educational purposes only. It does not constitute investment advice, a personal recommendation, or a financial promotion within the meaning of the Financial Services and Markets Act 2000

Readers should make their own independent assessment and where appropriate seek advice from an FCA authorised advisor.

Having reviewed the Tax Efficient Investment Vehicles available to UK investors let us now move on to investing itself.

Online Investment Platforms

If you decide to invest yourself you will need an investment platform through which to buy, sell and hold your investments. Platform providers offer an authorised and regulated online service to conduct these functions. Your chosen platform should also provide a research facility for the investment products it lists. (more on using this research in a later module).

Providers typically charge an annual custody or platform fee and a dealing fee when securities are bought or sold. Some of the major traditional online UK investment platforms are: Hargreaves Lansdown, Interactive Investor, AJ Bell, Fidelity, and Vanguard UK .

Fees, account types, securities traded, minimum deposits, monthly investment facilities and free research data vary significantly between platforms. It is therefore important to compare platform providers before choosing one. Additional notes latter in Getting Started.

Investment Spreadsheets

All providers will show your account holdings. This is fine for small portfolios but as your investment total and number of holdings increase you might want to consider categorising your holdings by geography, sector and results against contributions. Over the years I have created a simple spreadsheet for our family use which is updated with newholdings and weekly pricing for all the securities held. This is invaluable tool for reviewing investments prior to any action.

This spreadsheet sets out Fund, ETF and Equity holdings. These are categorised under Specialised Equity, International Equity and Bonds with Cash forming the last. Specialised Equity holdings are broken down by sector into Energy, Defence, Finance, Health, Mining and Technology. International Equity holdings are further sub- categorised into Asia, Emerging Markets, European, Global, UK and US . Bond Funds categories are Strategic, Corporate and High Yield. Also noted is the income received annually from individual Funds and the total.

Financial Products

There are a wide variety of investment products including funds, ETFs (Exchange Traded Funds) and individual company shares (equity).

Investment criteria. Let’s again consider what we want.

a) Minimise risk through holding a selection of company equity and or bonds.

b) Liquidity. Products which are bought and sold daily on a regulated market.

c) Rate of return. Better capital growth and yield against the interest on bank/building society deposits.

d) Tax efficiency. Held in UK tax saving ISA’s and SIPPs.

Funds

These are a collection of individual holdings put together and professionally managed to a set of criteria to achieve defined results. Because each fund may hold upward of sixty different entities, they are less prone to the failure of any single holding. Funds are managed relative to a benchmark index. Passive (tracker funds) aim to track the index, while active funds attempt to outperform it. Equity funds are made up of two types of units. Income, where dividends earned are paid into your account. Accumulation, where dividends are held in the fund and rolled up into the value of your holding.

For some funds there are also different fund classes e.g., Legal & General Global Health & Pharmaceutical C Accumulation and the same fund but Class 1 Accumulation. The fund holdings are the same but the management charge for C Class units is less. Fund companies make an initial charge for the purchase of their products and an annual management fee. Many platform providers offer a discounted or zero entry fee.

Different Types of Funds

Equity, Bonds, Mixed.

Equity Funds

As mentioned earlier a subset of Equity Funds are those geared to produce income ‘Equity Income Funds’ and those seeking to provide capital growth ‘Equity Growth Funds.’ These funds differ in the type of companies they invest in. Income funds tend to concentrate their holdings in established retailers, manufacturers, tobacco companies, and banks which offer higher yields but slower growth. Growth funds invest in companies in fast growing sectors such as Technology and Sustainable Energy which offer low yields but the prospect of greater capital growth.

These funds are further categorised by geography. As an example, let us take the Global Equity Income sector. The fund managers in this category may invest in any country in the world (Global).The shares of companies in those countries (Equity). To provide an income stream to fund holders (Income).

Bond Funds

Bonds Are loans made to an organisation, company, government, or institution. Regular interest is paid and the capital repaid at a set date in the future.

Bond Funds These are a collection of individual bonds put together and managed to a set criterion to achieve defined results. This diversification therefore makes them less risky and volatile than the purchase of a bond from a single company or government.

Bond funds are sold in units which are priced and traded daily. There are two types of units. Income Units which pay interest earned into your account, and Accumulation Units where interest is held in the fund and rolled up into the value of your holding.

Bond Fund Trading Bonds and bond fund prices go up and down daily. They are usually less subject to major price changes than equity funds. Therefore, bond funds help make a portfolio less volatile. Bond funds tend to rise as equites fall and vice versa although in the past there have been instances where both asset classes have fallen simultaneously. The distinct advantage of bond funds is their yield. Therefore, as savings rates decrease they become more attractive and vice versa.

There are several bond fund classifications, including:-

• High Yield Bond Funds These invest in bonds paying higher levels of income from companies that are less likely to be able to pay off their debts. This higher yield compensates investors for the extra risk.
• Corporate Bond Funds Focus on higher quality investment grade bonds issued by companies. Compared with high yield bonds they have a lower risk of default and are more likely to repay their debts. They tend to offer lower yields as a result. As an example, a holding in one of these bond funds is:- The Prudential Plc Regs 6.34% 19th December 2063. This bond, issued by Prudential Insurance, is to be redeemed at face value on the above date. It pays annual interest of 6.34% of its initial issue price.
• Strategic Bond Funds Have the freedom to invest across all bond markets including government, corporate and high yield bonds. They also have some flexibility to invest overseas. Some focus on capital growth others on income.
• Global Bond Funds Invest in government and corporate bonds issued globally. The also hold bonds denominated in currencies other than sterling and are therefore subject to price fluctuations due to this. Some focus on capital growth others on income.
• Gilt Funds Invest in bonds issued by the UK government and have a lower risk and yield than other types of bonds.

Bonds and Inflation Since first writing this in January 2021 massive inflation throughout the world reduced the value of Bonds. This was because alternative products offered much higher returns. Western Central Bank Base Rates were around 5% with concomitant bank and building society returns. As base rates fall so Bonds and Bond Funds have become more useful. Updated 12/3/26.

Mixed Funds

As the name suggests these funds hold both bonds and equity and vary in the amount of each held. This in turn effects their individual performance and yield.

Category weighting

In addition to reducing risk through each fund’s diverse holdings. The second leg, in reducing risk and improving return, is by setting up and maintaining a balanced fund portfolio. This is done through the investment weighting you give to each fund category and needs regular review and amendment to reflect global geopolitical, market and financial trends.

Your individual weighting profile is also affected by your age, investment horizon, and risk/reward preference. These factors also help determine the cash allocated to each category. As already said allocations should be reviewed, and weightings adjusted to meet changing market and individual circumstances.

Platform Providers and Funds

Each platform provider decides what funds it lists on its trading platform. Platform managers buying power often allows them to offer a discount to what you would pay buying direct.

Online Platform Fund Research The provider you select should show the following information for each individual fund they list. The fund’s current value and it’s performance over time. Make up by industry sector, its top holdings, and the fund’s geographical spread.

Comparing Funds within Categories, Your platform should also have a facility to provide a league table of performance for all the funds within each category. And another to rank the fund yields in the category. The only tangible way to understand this is to check out your potential providers website. This information is invaluable for selecting new funds or selling relatively poor performers.

Fund Trading

Funds are bought and sold in cash or unit amounts. Their individual buy and sell prices are shown at the market close. Funds are priced once a day with trades executed at the next valuation point. Shares and ETFs are traded continuously while the market is open. Funds have minimum purchase value of £100 per trade for ad hoc orders.