An Individual Savings Account (ISA) lets investors put up to £20,000 a year into stocks and funds with all the gains free of tax, making it a popular starting point for anyone new to investing.
Money in a stocks and shares ISA can also be accessed in an emergency, but with tens of thousands of funds and stocks on offer, choosing where to put the cash can be difficult. Working out your goals and how much risk you can tolerate helps narrow the choice, along with how long you plan to stay invested. Experts suggest a minimum of five years, and whether the priority is growing wealth or generating an income.
Multi-asset funds for beginners
Beginners could start with a multi-asset fund, a one-stop shop that spreads money across assets including stocks, bonds, property and gold. Rob Morgan, of investment group Charles Stanley, suggests the Troy Personal Assets investment trust, which holds 8 per cent of its portfolio in gold alongside government bonds and shares in large companies including Diageo and Chubb. It has returned 19.9 per cent over five years.
Global equity funds for growth
Investors willing to take more risk could opt for a global equity fund, which invests in companies worldwide. "This gives you a diversified base to build the rest of your portfolio from," said Darius McDermott, of ratings agency FundCalibre.
He likes the Brunner Investment Trust, which invests in 40 to 60 stocks worldwide including Visa, Tesco and French energy firm Schneider Electric. It has returned 63.3 per cent over three years.
Higher risk options for extra growth
Investors who can afford the risk and do not need to access their money soon could add racier investments to boost returns, usually keeping these to a smaller portion of the portfolio.
McDermott names the International Biotechnology Trust, which invests in life sciences businesses focused on specific areas such as oncology. Some of its holdings are in private companies not yet listed on the stock market, which can be riskier because they do not have to disclose as much financial data. The fund has returned 82.5 per cent over five years.
The BlackRock World Mining Trust could suit those looking to benefit from the AI infrastructure boom without putting money only into tech stocks. It invests in firms mining the materials needed to power data centres, robotics and electric vehicles, and has returned 83.5 per cent over five years.
Asia is home to some of the fastest-growing economies, with a young and increasingly wealthy population. McDermott suggests the Matthews Pacific Tiger fund, whose top holdings include Taiwan Semiconductor, Samsung Electronics and Chinese e-commerce platform Alibaba. It has returned 24 per cent over five years, and 37 per cent over the past year.
Income funds for retirees
For some investors, particularly retirees, income is the priority, and funds can meet this need in several ways, from equity income to bonds and property.
Equity income funds invest in the shares of dividend-paying companies and use this to pay an income to their own investors. McDermott rates the Guinness Global Equity Income fund, which invests in companies including Coca-Cola and Swiss pharmaceutical firm Roche. It has returned 59.9 per cent over five years and carries a dividend yield of 2.61 per cent.
Bond funds invest in debt issued by companies and governments and receive an interest payment known as a coupon. Morgan points to the Ninety One Diversified Income fund, which holds a blend of bonds, stocks and other assets, including debt issued by the US, UK, Australian and Brazilian governments. It has returned 14.4 per cent over five years and yields 4.4 per cent.
Other funds pay income from rents on property such as offices, warehouses and shopping malls, or from infrastructure assets such as schools and hospitals. One option is the FTF ClearBridge Global Infrastructure Income fund, which invests in firms operating roads, rail and airports as well as utilities. Its top holdings include US energy provider Entergy and Aena, which manages 46 airports and two heliports across Spain. It has returned 51.2 per cent over five years and yields 4.3 per cent.
Investors can choose to have income paid out to help cover living costs while their original capital stays invested and keeps growing. These funds can also suit those who prioritise growth by choosing the fund's "accumulation" units, which automatically reinvest the income rather than paying it out, further boosting returns.
