Barbara Jones is a relatively new investor, having opened her first trading account just two years ago. Like many novice investors she was apprehensive about the risk of investing in the stock market, and not quite sure where to start.
Barbara, who is in her early 40s, says: “I have always been good at saving money, but I realised that what I was saving was not enough for the long term.” Within her family there had always been an emphasis on saving, but less focus on investing. She adds: “I wish investment had been taught in schools, that might have encouraged me to start earlier.”
Barbara was persuaded to take the plunge by a friend.“They pointed out that it’s actually a bigger risk to keep all my savings in a cash account where it will ultimately lose value over time, thanks to inflation. I had never thought about it like that before. My friend helped me open my first trading account and showed me how it worked. This made me feel a lot more comfortable about investing.”
Barbara, who works in marketing and lives in London, currently invests in a Sipp with AJ Bell. She also has an ISA and a trading account with IG Index, and also keeps some funds in an easy access cash ISA for emergencies.
Initially she invested in a range of ETFs through her AJ Bell account. “I started with low-cost ETFs, like the Vanguard S&P 500 (VUSD) and the Invesco Nasdaq 100 (EQQQ).”
This Vanguard ETF has a Gold Analyst Rating from Morningstar, whose analysts expect it to continue to outperform its Morningstar category peers over the long term.
Morningstar points out that the S&P 500 offers investors exposure to a broad range of US companies, from giant multinationals to mid-cap companies. The index covers about 80% of the market capitalisation of the US equity market, so investors following this index have good exposure to this important global market.
Liquid and Efficient Market
Morningstar adds that the US equity market is highly liquid and efficient, which limits the opportunities for active managers to add meaningful value. As a result Morningstar says this makes diversified low-cost passive strategies the default option for many investors seeking exposure to this market.
The Invesco Nasdaq 100 ETF has a 5-star rating from Morningstar, reflecting its strong performance relative to peers in recent years. Over the past five years it has delivered annualised returns of 26.71%, according to Morningstar data.
Morningstar says this ETF offers investors exposure to a high-growth portfolio of US large-cap equities, with this index tracking the performance of 100 of the largest non-financial US stocks. While performance has been strong it recent years there is a heightened price risk, analysts say, given the soaring valuations of many of these stocks over the past decade.
Over the past couple of years she has seen these funds increase in value. “This has made me a little bit more confident when it comes to investing. I understood there is also reward when you take risk, not just potential losses.”
As a result Barbara has also invested in a few fintech stocks in her ISA, on the back of conversations with friends and family.
She adds: “I also have my company pension, although I don’t have much flexibility when it comes to choosing how this is invested. It is with one of the larger pension companies, and I think there’s a choice of between 10 and 15 different managed funds. I don’t tend to get particularly involved with that - but perhaps I should look at it a bit more closely in future!”
Although her main ETF holdings have generally increased in value, there have been a couple of occasions when some of her individual investments have not performed as well.
She says: “Even though this felt very scary, I tried to re-frame my mindset and look at it as an important learning opportunity. It has helped me change my thinking and accept that yes, it can go both ways, but provided the general direction is upwards then it is good. So long as the the overall increase I’ve seen on my money is higher than the interest I would have got keeping it in cash then I guess I am doing OK.”
