Tools that can make you a better investor

Important information - the value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

Twenty-five years of saving - in work pensions, personal pensions and ISAs - has helped me build a portfolio of shares and funds that is beginning to look like a retirement plan. And it may even fund a little fun before that.

Picking the investments within that portfolio has been a learning process that all DIY investors go through. In fact, it never ends. We listen to orthodoxies - from media, from academics, from financial companies - but the individual makes the decision.

This could be as simple as picking a single fund. Others find fun in picking dozens of different investments, a bracket that includes me.

Here, we highlight some of the tools, such as ‘Portfolio X-ray’, that can help with shaping what you invest in. But first, I’d also recommend a regular check-in with a long-term investment calculator. Doing so has helped me stay motivated and invested, and to stick to the plan. Let’s start there…

• Open an ISA
• Add cash to your ISA
• Give your money more potential to grow. Plus win up to £20,000. T&Cs apply

ISA calculator

Having prioritised pension savings earlier in my career, I’ve begun to put more emphasis on ISAs. Pensions have generous tax breaks on money that goes in but are liable for income tax on the way out.

• How pension tax relief works

ISA withdrawals, in contrast, are free of income tax, but lack the bump up that pensions offer at the start. Its swings and roundabouts, so a mix seems prudent.

Example: Investing £300 a month into an ISA over 20 years would produce a total pot of £151,383 with punchy investment growth of 8% a year and annual charges of 1.1% included. The figure would be £108,324 with moderate growth of 5%.  Please note these figures are for illustration purposes as investment returns are not guaranteed.   

• Stocks and Shares ISA calculator

Now, on to tools that can help improve your investing…

Picking investments - funds

The broad orthodoxies in investment are that stock markets tend to deliver the best returns over longer periods. Think five years, but ideally 10 to increase the likelihood of success. But it comes with ups and downs. To help smooth these, a nervous investor may also back some bonds (IOUs from governments and companies that pay regular fixed income to the lender - that’s you, the investor). The returns have been lower but the ride has been less bumpy. Of course, there’s no guarantee that history will be repeated.

Those who want a simple choice might want to consider funds that track a stock market index. They carry lower charges than funds where a fund manager is paid to try and beat the stock market return.

• Read: Index funds ideas from our Select 50

We also compile lists of exchange-traded funds that follow the FTSE 100 and international stock markets.

Those who would like a balanced portfolio, or who want to pick a range of funds, could start with the Fidelity Select 50 list of favoured funds.

Crucially, it will rank funds by cost and by the returns achieved over one, three, five and 10 years. It can also rank funds by yield - helpful for those who need income from their investments. There’s much to understand so it’s worth reading the ‘Fidelity insight’ tab on each Select 50 fund page.

Such fund lists, which some publications also provide such as the Telegraph and the Investors Chronicle, are a useful tool for doing research.

• Find a fund: there are over 3,000 on our platform

Picking investments - shares

Some DIY investors believe in the wisdom of selecting shares themselves rather than leaving it to a fund manager. The benefits are that you avoid the charges applied by funds, typically 0.75% a year. The cost on the Fidelity platform is also lower for holding shares, ETFs and investment trusts in ISAs and SIPPs - capped at just £90 a year. The downside is that individuals risk picking the wrong shares. Careful research is needed.

Investors may believe a company will benefit from certain trends. For example, defence stocks have been surging due to geopolitics. But it is difficult to know when good news, or bad news, is baked into a stock’s price.

The ‘fundamentals’ offer some help. These are the numbers that can give an idea of whether a stock is good or bad value. The most watched measure is the price-to-earnings ratio. This is a comparison of a company’s profits and its share price - a lower number suggests better value. Investors tend to compare companies from the same industry. Alternatively, the price-to-book ratio is a comparison of a company’s assets compared to the share price. These guides tell you more:

• How to use the price-to-earnings ratio
• How to use the price-to-book ratio

Our share finder offers such data on each company. The example below shows HSBC, with a p/e ratio of 8.9. A lower number is better so this makes it marginally more expensive than Barclays bank on 8.3. Each stock’s data page also tells you the yield to expect, currently 5.15% for HSBC. Yields are another indicator of value but are regarded as less reliable than the measures mentioned above. Remember that yields are not guaranteed.

My favourite tool

A good portfolio is a balanced portfolio. The super-tool in your armoury to measure this is the X-ray tool.

It will tell you the breakdown of where your money is invested by the type of asset and the geography. It will also give a breakdown of the shares that you hold and the shares your funds hold. This is a precious snapshot of your portfolio make-up, helping you to work out if you’re too invested in certain areas.

To find this, click on ‘account holdings report’ via a tab within your account summary page.

Once you’ve selected a benchmark to compare your portfolio against, such as ‘UK Large Cap Equity’ (Large UK companies) or ‘S&P 500’, you’ll be taken to an analysis report page. This has useful information but take one more step by clicking on ‘Export’ near the top right of the page and you will get the full Portfolio X-Ray report.

Your X-Ray report will, in a couple of pages, show you a detailed breakdown of your investments via geographical region, asset class, sector, style and more. The image below shows a high-level breakdown of my portfolio.

The first table in the image below shows I have 77% of my money - across SIPP, ISA and Junior SIPP - in stock markets. It also reminds me of my high amount in cash, at 16%. This is temporary, where I’ve tried to take advantage of cash funds that have paid as high as 5% while I waited for a dip in the market. That moment may have arrived.

The rest shows geographical spread. I could compare my global spread to a typical index tracker, say, the Legal & General Global Equity Index from our Select 50. It has 69% in the US and 3.3% in the UK. That suggests my 37% allocation to the US is ‘underweight’, in the industry parlance, and my 22% in the UK is ‘overweight’. I explain here why I have done that here.

Where the X-Ray tool adds even more value is when it shows the top ten underlying companies in which you’re invested, and how. For example, shares in chipmaker Nvidia have soared so that it is now my fifth biggest stock holdings. Crucially, the image snipped from my report, below, shows that this is due to holdings in two global exchange-traded funds (ETFs) and two investment trusts - Scottish Mortgage and F&C. It is very important to see where I may be too heavily exposed to certain companies, and the reason for that.

And the best of the rest…

This is not meant to be an exhaustive list of tools, but it hopefully offers a strong starting point. There are many more on the Fidelity website and there are many other credible screen tools, some of which you may need to pay subscriptions to access.

These others are also worth a try:

• Navigator is a tool that asks a couple of questions about what’s most important to you - whether you want investment growth or income, etc. It also establishes your attitude the risk. It then suggests a Fidelity multi-asset fund to suit, based on your answers.
• The Retirement Calculator asks you to complete a short quiz. It then estimates what your projected income could look like and if it will fund your ideal retirement.