Originally Posted by Dr Hu

( u dont have a mercedes do you?) lol

Originally Posted by EddScott

It can be boring but it pays the bills.

If you felt that there is just no way you could tolerate your money going down in value due to market forces then a savings account maybe the most suitable. You'll probably have a bit of tax to pay depending on your tax rate and over time high inflation will erode your ability to purchase goods.

For example, I have £100 and you have an item I want to buy and you have it for sale at £100. I decide not to buy.

A year later I still have my £100 but its grown in the savings account to £102. You still have the item I want to buy but due to inflation it is now £105. I could offer £102 and you might accept.

5 years later I have £110 but the item you have might now be £130. You may not want to lose £20 selling the item to me.

Thus, my buying power has reduced because my savings have not grown faster than inflation.


I spoke to someone today complaining that he wanted to buy RBS shares when they were 20p and now they are 28p but he didn't set up a share dealing account. With £10K he was complaining that he missed out on £4K. From a risk POV, investing £10K into a single company is quite high risk. For all the gentleman knew the share could have dropped from 20p to 16p over the same period.

You can invest directly in Unit Trusts, OEIC (similar to Unit Trusts), ETFs (odd cheap investment vehicles but some can be real stinkers, I tend to avoid) Investment Trusts (not dissimilar to Unit Trusts but one you buy Units one you buy Shares in very simple terms) These will all go into an ISA.

Investing in a Unit Trust you buy units. The units have a price depending on the number of units available and the performance at the time of investing. When the performance is low, you buy more units, when the performance is high you buy less (for the same amount of money)

Buying the units over months means that you may benefit from negative movement in the fund - it is unlikely to keep going up and up every month. The more units you have the more potential for growth (depending on price at purchase)

Some funds are passive and just track indicies, some are active and a fund manager picks and chooses shares from companies that he can invest in. If the fund is a UK equity fund he buys shares in UK companies, if the fund is US equity then he buys shares in US companies. The US fund might contain Apple, Amazon etc etc. So in effect rather than you buying individual company shares you are spreading the risk by buying a bit of each company. Naturally, the bigger the risk, the bigger the reward.

I'm starting to come around to the idea that passives might be the way forward. Why put money on a fund manager getting it right against his peers or outperforming the stock market? Is he always going to deliver? What if he moves to a different fund and the new manager makes a hash of it? I have to keep abreast of every single issue within that fund - it will get worse in 2013 with the introduction of the Retail Distribution Review (the FSA gave the reason why they missed RBS was because they were too busy with RDR. Utter joke. RDR: the answer to a question nobody asked)

If I accept that my money will go up and down, if I accept that I may not see 10% price movement on a daily or weekly basis and make £1000s in a day or two then why not just go cheap with these passive funds. Bare in mind that if the active fund manager gets it wrong, the fund will still charge you say 1.5% before any platform charge and before an adviser charge (if any - you can do this direct to client with say Hargreaves Lansdown). The active path isn't a guarantee to outperformance but is a guarantee to expense (ETFs are very cheap but care needs to be taken when choosing them. I don't fully understand them so I don't use them - I will take some time out this year to study them) The passive path isn't very exciting but isn't very expensive.