There are lots of books for sale about investing, but be careful whose advice you buy.

One of the best books on buying shares, for it is as accessible as it is understandable, is Peter Lynch’s One Up On Wall Street.

At the other end of the spectrum, the ultimate technical guide for serious share buyers, is Ben Graham’s The Intelligent Investor.

Or if you want an insight into the mind and motivations of the world’s greatest there is Warren Buffett’s Snowball.

But for the average UK saver who wants to invest their long-term savings and retirement funds, none of these fine books are really much help.

If, for example you are looking to save up to your annual ISA allowance of £20,000 (or a similar amount in a SIPP) then trying to invest directly in shares is simply not the right thing to do.

To protect yourself from losses you need a diversified portfolio in quality companies around the world.

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Building up a diversified portfolio of shares directly in companies would require you to invest in a minimum of 20 companies across various markets and sectors.

Let’s say you want to invest in a utility company, and choose Severn Trent PLC. One share is nearly £3,000. Then you select an insurer, Admiral Group is just over £2,500 per share. At these prices you can only take a stake in 8 companies.

If you limit yourself to good shares of brand names worth £400 - £600 or so each, like Auto Trader and Aviva, you can end up with up to 40 companies.

But how many companies will you research to pick these 40? Do you know enough about their different markets to pick the safe companies?

Buying shares directly is a professional full time role. For this reason, and Warren Buffet agrees, most investors should invest in funds.

In the 2021 Annual Meeting for his investor Mr Buffett commented, "I recommend the S&P 500 index fund," Buffett said, which holds 500 of the largest companies in the U.S., "and have for a long, long time to people."

Investor Weekly’s editor agrees with Mr Buffett’s sentiment but points out that the USA’s S&P 500 is just one market index. The best route for most UK savers who want to start investing is to build a portfolio of funds that represent key parts of the world market.

While this is much better than picking shares, as it carries much less risk (it is better diversified and automatically adjusts to include companies that are growing and remove companies that are declining), there are still lots of key points to seek professional advice on to ensure long term investment success:

  • What type of fund? OEIC, Unit Trust or ETF?
  • How much to invest in different markets?
  • What percentage to invest in shares vs bonds or alternatives?

For this reason, Investor Weekly recommends new UK investors get a portfolio of funds designed by an IFA.

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