The DIY Investor

How to get started in investing and plan for a financially secure future

Andy Bell

• Publisher: Harriman House
• Year: 2017
• ISBN:
  9780857196026
• Edition: 2
• Topic: Business
• Subtopic: Financial Accounting
• Index: Business

FULLY REVISED AND UPDATED SECOND EDITIONInvesting expert Andy Bell shows you how to plan your financial future in this updated edition of his bestselling guide to do-it-yourself investing.Andy shows you how to build a long-term investment portfolio using a range of low-cost, tax-efficient strategies. He provides expert guidance and industry insights suitable for first-time investors and those who are more experienced. The DIY Investor teaches you the skills and strategies you need to take control of your investments and manage your money in the years ahead.

Preface

I can’t abide intellectual arrogance. I have no time for people who think they are cleverer than they are or, even worse, people who deliberately try to sound intelligent at the expense of others. Most subject matter, when explained well by someone who understands it, makes sense. So I have a simple rule in life, and that is if I don’t understand something then it must be the fault of the person who has just explained it to me. Hopefully that doesn’t sound like intellectual arrogance.

So what does this have to do with DIY investing?

Well, what puts off most people from looking after their own finances is fear. A fear of the unknown. A fear of not being able to understand the subject matter. A fear that they might feel stupid.

The world of investments can appear impenetrable – full of statistics, jargon and acronyms – but being a DIY investor can be as simple or complicated as you want it to be and you can become a DIY investor, if you want to. And remember, if you don’t understand this book, it is not your fault, it is mine.

I finished the preface in the first edition by saying that this would be the only book I would ever write. I remain firm to that stance, but one of the problems of writing a book about financial services is that it goes out of date very quickly, hence this new edition.

In the time since the first edition was published we have seen the introduction of pension freedoms, the Innovative Finance ISA, the Help to Buy ISA and the Lifetime ISA. The lifetime allowance for pension benefits has been further reduced, the annual allowance for pension contributions has been cut for high earners, taxation of dividends has changed and the cost of investing has reduced with the banning of commission. Oh, and we have voted to leave the EU.

So, who should read The DIY Investor, and why?

The who question is easy. The answer is anybody who is thinking of, or is currently, managing their own investments. Today’s and tomorrow’s DIY investors – a group that industry experts expect to increase in number to 7 million over the next few years.

The answer to the why question is to gain the knowledge, understanding and confidence you need to take control of your finances and meet your investment objectives.

The best way to grow your assets is through the stock market, which is statistically proven to have beaten returns from banks and building societies over long periods for more than a century. This book gives you the knowledge you need to be an investor in the stock market, showing you how to cut out unnecessary costs and put your money directly into the wealth-generating sectors of the economy. You will learn how to invest your money efficiently and avoid making expensive mistakes. It is designed both for beginners and existing DIY investors who want to hone their skills and fine tune their approach to investing.

This is not a get rich quick book, nor is it anti-establishment. Financial advisers, wealth managers and fund managers all have a vital role to play in managing investments and many do a fantastic job. But now that financial advisers have to charge explicit fees rather than commission, financial advice has become a luxury that only the wealthy can afford. For those not ready or able to work with an adviser, this book provides the guidance you need to get started.

I have tried to structure this book in a logical format and, where possible, explain new concepts as I introduce them, but at times I have chosen to leave the detail until the relevant chapter. If you can’t wait, you can use a search engine to find an internet definition of the term or concept.

Where I refer to a tax rate or allowance, unless otherwise stated, these will be the rates applicable to the 2017/18 tax year.

There are lots of people involved in writing a book and the blame is rightly mine if it doesn’t hit the spot. If it does, the credit should go to the many people who have helped me on this journey. Thanks go to my friends and family, who have been brutally honest proofreaders and to my colleagues, in particular Gareth James and Daniel Coatsworth, for helping me to rearrange a random collection of thoughts and words into something resembling a book.

One thing about being a DIY investor is that you have no one to reproach but yourself. Most people find this quite liberating, but it does mean you are the one who is responsible and you need to understand what you are doing. For that reason, DYOR is something you will come across quite regularly on financial websites – Do Your Own Research – often accompanied by some very helpful tips. What this politely means is I am happy to help, but I accept no liability and you can’t sue me.

Being a DIY investor is not hard but it does require a measure of effort and engagement on your part. All you need is a computer, an internet connection, your bank card and the time it takes to read the parts of this book relevant to what you want to achieve.

So welcome to the world of DIY investing. There are ups and downs, but it can also deliver real financial rewards. I hope you enjoy reading this book and don’t forget: I am here to help, but DYOR.

Andy Bell

Part One – What Being A DIY Investor Is All About

1

Introducing DIY Investing

Why be a DIY investor?

“Because nobody cares as much about my money as I do.” This quote came out of a survey that AJ Bell commissioned to find out why people had chosen to become a DIY investor. It accurately reflects the primary reason why anyone would want to take control of their financial future.

The lack of engagement many people have with their investments never ceases to amaze me. Many of us spend hours scouring the internet to save a few quid on a new phone, eat at restaurants we otherwise wouldn’t be seen dead in to take advantage of a coupon discount scheme, or buy three items for the price of two when we only need one.

That is human nature – everyone likes a bargain. But translate that into far bigger financial decisions and most people simply haven’t got a clue. Ask someone how much they have in their ISA (individual savings account) or pension, what charges they pay, how much they need to retire, or what their investment goals are and a look of quizzical bemusement takes over.

The fact that you are reading this book means you probably don’t fit into this category or, if you do, you are desperate to break free. Learning how to become a DIY investor enables you to set basic goals and implement a simple strategy to achieve them. You will strip out a whole layer of charges that will free up your investments to grow quicker and hit your desired targets sooner than would otherwise be the case.

I am often asked, “What is the minimum fund size you need to become a DIY investor?” My reply is always the same, after checking for eavesdroppers to avoid embarrassment. “It is not about size, it is about your state of mind.” There is a DIY solution for everyone, irrespective of how much you want to invest. But you do need an appetite for taking control of your investments.

Follow the strategies, ideas and tips set out in this book and you will learn how to create the sort of portfolio that you would get from a professional adviser, without paying the respective charges.

What you won’t get from this book are share tips, instructions on how to spot good or bad companies, or a guide to equity valuation metrics. There is plenty of other material avail...

Table of contents

• Contents
• About the author
• Preface
• Introducing DIY Investing
• Setting your Investment Objectives
• The ISA – Individual Savings Account
• The Dealing Account
• The SIPP – Self-Invested Personal Pension
• Transferring Existing Pensions into, or out of, a SIPP
• Taking Benefits from a SIPP
• Funds
• Tracker Funds
• Investment Trusts
• Equities (Stocks and Shares)
• Corporate Bonds and Gilts
• Cash
• Alternative Investments
• The Tax-Efficient DIY Investor
• When it all Goes Wrong
• Building a Risk-Adjusted Portfolio
• Strategies for Investing
• Choosing a DIY Investment Platform and Getting Started
• A final word