Expert investment tips for all budgets

You don't need huge sums of money to kick-start an investment habit. Whether you have £50 a month to begin with or want to invest a windfall of £10,000, there is no time like the present to get your money working harder.

Over the long term, investing money will produce far greater returns than you'll get from high street savings accounts. But for beginners, the question is: how should I invest?

We've put together four different investment scenarios and asked the experts how they would invest the cash. The answers should help beginner investors of any age and any financial background plan for their family's future by offering hints and tips on how and where they should invest their cash.

As always, if you are in any doubt, make sure you seek independent financial advice to help you make the right decisions. If you don't have a personal recommendation from friends or family, you can use the online tool on our sister website Moneywise to help find an adviser in your area:

£50 a month

Where you should invest depends on why you are investing, over how long and the amount of risk you are willing to take.

When investing on a monthly basis, it is best to have a clear understanding of what you are actually saving the money for. If your aim is to build up emergency funds or you're saving for something specific and expect to spend the money within the next three to five years, deposit accounts and cash ISAs are probably the best way to go.

Investors with £50 a month should opt for a single fund

You should aim to make regular deposits into a cash individual savings account (ISA), where all interest will be paid tax-free.

Justin Modray, director of Candid Financial Advice, says the golden rule is the same however much you invest: make sure you don't bite off more risk than you can chew.

"If you can invest for five to 10 years or more and sleep soundly through potential downturns along the way, then the stockmarket is generally a good place to start for long-term investing," he says. "An added potential advantage of monthly investing is that it helps smooth the ups and downs of markets."

He says beginner investors with £50 a month should opt for a single fund and consider switching future contributions into another fund once they have built up a reasonable amount of money. See our latest Investment Doctor article for ideas on how to add funds if you increase your regular monthly contributions.

Recommendations

For those who want to adopt a more cautious approach and don't want all of their money going into shares, Patrick Connolly, a certified financial planner at Chase de Vere, rates Investec Cautious Managed fund. This fund spreads risks by investing into other asset classes alongside shares, such as government bonds, gold and cash.

Mr Modray says the Vanguard LifeStrategy range of funds offer a cheap and convenient way of investing your money across global stockmarkets and fixed-interest investments such as government and corporate bonds. There are five options, ranging from 20% stockmarket exposure to 100%, so they should suit most needs.

The 20%, 60% and 100% equity versions are members of the Moneywise First 50 Funds for beginners. Peter Chadborn, director and adviser at Plan Money, recommends a fund with a cautious objective for someone starting out with just £50 a month: "We require a low-cost, highly diversified, risk-controlled solution and, of course, good consistent past performance.

To meet these criteria, I would suggest the Vanguard LifeStrategy 40% Equity fund." If you are happy to have all your money in higher-risk company shares, Mr Connolly recommends a "good low-cost UK tracker fund" that will give broad exposure to the UK stockmarket. He likes the HSBC FTSE All Share Index fund.

For those who are happy to take greater risk, then exposure to more volatile areas such as emerging markets can be considered. "These have the potential to perform very well over the long term," adds Mr Connolly. "A good choice is the JPM Emerging Markets fund."

£250 a month

Mr Modray says: "Larger sums of money make it practical to put together a basket of funds that gives you exposure to several asset types that are unlikely to all move in the same direction at the same time.

Combine cheap stockmarket tracking funds with active managers who invest differently

It can also make sense to add further diversity by combining cheap stockmarket tracking funds with active managers who invest quite differently. At the very least, I'd suggest exposure to UK and overseas stockmarkets, fixed interest and commercial property."

Darius McDermott, managing director at Chelsea Financial Services, suggests the following strategy. "For cautious investors - perhaps someone making the transition to investing in other asset classes other than cash for the first time - I would suggest a mix of a more defensive UK equity income fund and a targeted absolute return fund.

"An equity income fund is a way of getting exposure to the stockmarket but at the same time should be less volatile than a growth-orientated fund." Whatever funds you go for, review your fund choices regularly, at least once a year and preferably every six months.

Recommendations

In the UK Equity Income sector, Mr McDermott likes the Artemis Income fund. He says the managers invest for both value and growth and the fund has a consistent yield at around 4.1%.

In the Targeted Absolute Return sector, he favours SVS Church House Tenax Absolute Return Strategies, which he says is "one of the few funds in the sector to target an absolute return from diversification and risk management alone". Mr Modray says: "The Vanguard FTSE UK All Share tracking fund is a good bedrock for low-cost exposure to the UK stockmarket.

CF Woodford Equity Income* and Marlborough Special Situations would nicely complement this. Both funds also invest in the UK stockmarket, but very differently from the FTSE All Share index. Mr Woodford tends to shun certain sectors he believes will struggle while Marlborough focuses on medium- and smaller-sized companies.

"Likewise, Vanguard FTSE Developed World ex UK* offers very cost-effective tracking exposure to overseas stockmarkets with Fundsmith Equity* and M&G Global Dividend being good diversifiers. Fundsmith invests long term in a handful of companies with good prospects, while M&G focuses on companies with rising dividends and tends to have a higher weighting to resources and financials companies, sectors which Fundsmith largely ignores.

"I like Fidelity Strategic Bond and Jupiter Strategic Bond* for fixed-interest exposure. Both funds allow their managers a free rein as to which fixed-interest investments they buy, which should bode well across varying market conditions. Fidelity tends to be the more cautious of the two funds, so it can work well holding both side by side.

"Commercial property funds come in two flavours, those that buy physical property and those that buy property company shares. To help diversify stockmarket exposure, I prefer physical property and the L&G UK Property fund does a good job of this. It also holds plenty of cash in reserve to meet redemptions during difficult periods."

£10,000 lump sum

All our experts state that your attitude to risk is one of the most important things to consider before you invest your £10,000. "You must ask yourself: how much risk am I prepared to take? How long am I investing for? What are my investment goals?" says Mr McDermott.

Investors should look to tax-efficient investments as a first port of call

He says a medium-risk person looking for capital growth across a minimum 10-year investment horizon could consider weighting their portfolio towards 40% in the UK, 20% in the US, 15% in Europe and 5% each in Asia, Japan and other emerging markets, as well as 10% in so-called absolute return funds.

All our experts said that investors should look to tax-efficient investments as a first port of call. That means using your ISA allowance of up to £15,240 for the 2016/17 tax year. Plus if you are prepared to lock the money away until you're at least 55, then you could consider pensions, which give an upfront boost to your investment via income tax relief on contributions.

Recommendations

Rebecca O'Keefe, head of investment at Interactive Investor, says that for those who do not have time to monitor their investments, Terry Smith's global equity fund, Fundsmith Equity*, is a top performer, with an unconstrained mandate, making it easy for the fund to invest where it wants, when it wants. The fund was Interactive Investor's most bought fund in 2016 and has performed very well since it launched in 2010 by investing in a full range of global investments across different asset classes and sectors.

"For investors who are looking for exposure to emerging markets, then Jupiter's Global Emerging Markets fund is a well-known, attractive option," Ms O'Keefe adds. Investing in companies based in, or exposed to, emerging market economies worldwide, this fund is not for the faint-hearted, but has an enviable track record for those looking to take a high risk, potentially high return approach.

Mr Connolly says a good choice could be Schroder Multi Manager Diversity, which invests one-third in shares, one-third in fixed interest and one-third in other investments, such as property and commodities.

"If you've already got an investment portfolio in place and are happy to take greater risks, then good choices could include Jupiter UK Growth, which invests in UK shares, or AXA Framlington American Growth, which invests in US shares," he says.

£50,000 lump sum

"How and where to invest £50,000 is very dependent on a number of factors - time horizon, attitude to risk and objective - whether that's income, growth or a bit of both," says Sheridan Admans, investment research manager at The Share Centre.

Spread risk to help you protect your money, by investing in different investment types

Mr Connolly adds: "If you don't have many, or any, other investments, then you shouldn't take too much risk. If you take big risks and your investment falls by 20%, which is entirely possible, then your £50,000 investment will be worth only £40,000," he warns.

Mr Connolly believes the best way to spread risk, and so help to protect your money, is to invest in different investment types.

"So perhaps put some money in shares, some in fixed interest and some in property. Then also spread risk within each of these assets by picking different types of investment in different geographical regions. So, for example, with shares you can invest in large and small companies, in different types of businesses and in different parts of the world," he says.

Recommendations

Mr Connolly suggests those looking to spread risk by diversifying could consider investing through a multiasset fund such as Schroder Multi Manager Diversity, Investec Cautious Managed and JPM Multi Asset Income. Alternatively, Mr McDermott recommends they consider Chelsea Financial Services' balanced growth Easy ISA portfolio. The six funds in which it invests are: AXA Framlington American Growth, AXA Framlington UK Select Opportunities*, Henderson Strategic Bond, Henderson UK Absolute Return, Liontrust Special Situations and Threadneedle European Select.

However, for those looking for income, he suggests a diversified income stream from a mix of property, strategic bond and equity income funds that use covered call options to enhance the income provided.

"I like the Henderson UK Property Fund*, which has one of the highest yields in the sector; Invesco Perpetual Monthly Income Plus, which again has one of the highest yields in its sector; Fidelity Enhanced Income (which alongside investments in UK companies uses high-risk derivative instruments to generate additional income and Schroder Asian Income."

*A member of Moneywise 50 First Funds.

This article was first published by our sister magazine Moneywise, available online here.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.