Make investing simpler and easier in 2024
如何讓投資變得更簡單、更容易？

Many people enjoy investing, citing it as a rewarding hobby, but others find it a chore and a bore. And even if you’ve been a hobbyist investor for many years, life can throw curveballs in your way.

Investment is a long game during which our level of enthusiasm for money management can wax and wane. My attention to pensions and Isa investments slipped when I had small kids and we moved house five times in three years. I’m sure it won’t be the last time my focus shifts.

Over the festive period, I became part of the “sandwich generation”, supporting parents and children at the same time. In my case it was made more challenging because I live 200 miles away from mum and dad. I’m finding little time for financial admin, aside from pressing issues such as paying the tax bill by January 31.

Other later life transitions, such as a career change or poor health, could also mean there’s no time to monitor performance spreadsheets, keeping up with company results or following financial markets.

But if you don’t spend time on something to do it well, will it all fall apart? Not necessarily, with regards to investing. A series of academic studies have shown that asset allocation accounts for the lion’s share of investment performance, with stock selection and market timing only adding a little extra on top.

Yes, there are rival papers such as “The Equal Importance of Asset Allocation and Active Management” from 2010. Even there, though, James Xiong, Roger Ibbotson and colleagues found about three-quarters of a typical fund’s variation in returns over time comes from general market movement, with the remaining portion split roughly evenly between the specific asset allocation and active management.

But academic papers shouldn’t account for how we live or manage our lives. Nor should we try to be investment portfolio managers in our spare time, when we don’t have any time to spare.

I’m a firm believer that keeping investments simple can bring better overall results with less effort, not least because it can bring non-financial benefits to your life that are impossible to value. This means more time with family or simply less to cross off on the “to-do” list.

So resolve to streamline your investment portfolio. There are plenty of ways to do this.

One is to stop being an “investment clutterbug”. Like the clothes hanging in your wardrobe that don’t fit, there may be some obvious investment things to ditch. Perhaps you have a small share portfolio that runs alongside your larger main pension. If you’ve been lovingly tending a portfolio of small company investments that’s only broken even over 10 years, it’s time to take them to the charity shop.

You could also weed out the poor performers. Two years of a fund underperforming its peers or benchmark index rings alarm bells. Ditch any that have underperformed by 5 per cent or more over a three-year period.

That will leave fewer investments to monitor. But if you want a more radical overhaul, sell everything (watching out for trading costs as you do), and replace with a few low-effort “buy and hold” investments.

When I was a young journalist starting out in 1997 there was a brilliant book called the Armchair Investor by Bernice Cohen and an accompanying Channel 4 show called Mrs Cohen’s Money. Britain’s best-known private investor was female and a former dentist; fancy that! Hers was a cautious, lower-risk, attitude to investing. 

She advised her audience to buy shares in top FTSE companies, reinvest the dividends, then watch them appreciate over decades. As a keen believer in reinvesting dividends to increase the number of shares held in a good, solid company, I’m still a fan today.

However, solid companies can wax and wane — the FTSE 100 turned 40 this month with only 29 of its original members still present. So there’s no harm in letting a few professional fund managers do this for you.

To improve your streamlined portfolio even more, make sure the professionally managed funds you choose are low cost. Even small differences in fees can consume big chunks of your returns over time.

You could pick up a passive fund that accumulates dividends for you such as Vanguard FTSE UK Equity Income Index, with a low charge of 0.14 per cent. However, new research from Morningstar found passive index-tracking equity income funds have “consistently” underperformed their actively managed rivals over the past decade. An issue is that many passives look at historic dividends and do not try to anticipate whether a dividend is sustainable.

You can still make your active UK equity income selections relatively low cost by buying an investment trust such as City of London, with an ongoing charge of 0.37 per cent — and which I own — or Law Debenture at 0.49 per cent.

Having sorted your “home” fund, you’ll also need one that focuses on the global (ex-UK) markets. Vanguard’s FTSE Developed World ex-UK Equity Index Fund would plug the gap neatly, while JPMorgan Global Growth and Income Trust is a decent option that is rivalling passives with its charge of 0.22 per cent.  

You can reduce your risk by adding in a fixed income or “bonds” element. Vanguard’s Investor Questionnaire tool will suggest how much to hold in stocks vs bonds. It has a catch-all Vanguard Global Bond Index GBP Hedged fund or there’s the more expensive actively managed M&G Global Macro Bond Fund instead.

The upshot is your entire investment job can be done with up to five funds. 

The other big task left to do is to consolidate your pensions and Isas, cutting out the stress of admin. You can do this by transferring to a single investment platform, choosing one wisely using a comparison website such as Compareandinvest.co.uk.

You might be able to take advantage of transfer-in deals. Some of the biggest platforms are offering bonuses to new customers bringing in funds and existing customers who add to their investments. These include up to £5,000 for a pension transfer to Interactive Investor, up to £3,500 to Hargreaves Lansdown, plus £500 for transfers to AJ Bell.

You probably won’t do all these steps in one go. Just make a start with one. But expect a great sense of wellbeing, akin to that from tidying your shed, emptying the attic or organising a wardrobe. 

With less “money stuff” to think about, you’re also clearing your mind. I’m sure once my tax bill is paid, I’ll feel a whole lot better.

Finally, stop checking your investments so often. That will free up time to do more of the things you enjoy, or deal with those curveballs.

You’ll also lower your risk of a heart attack. Yes, there’s real evidence for this — a Chinese study found stock market volatility is associated with increased risk of hospital admission for cardiovascular disease.

In his book, Thinking, Fast and Slow the economist Daniel Kahneman suggests glancing at your investment portfolio every three months. Anything more frequent may be hazardous to our cognitive function and mental health. Plus, the deliberate avoidance of exposure to short-term outcomes improves the quality of your decisions, meaning you’re more likely to end up richer.