Making regular passive income must be the ultimate lifestyle improvement tip when it comes to finances. It’s no wonder it’s become more popular these days, helping people have that little bit extra money for whatever they want it for.

For me, my dream was to retire early and spend time doing what I love, not just what pays the bills. And it was only through creating enough passive income that I was able to do so.

But, it can be tricky to find the right investments for my portfolio. These are two of my favourites that both play their part in letting me live my life how I choose to.

A growing dividend stable earner

City of London Investment Group (LSE: CLIG) have long been one of my favourite shares that I hold. I first bought this back in 2013 and every year since it’s paid out a chunky dividend. In fact, it’s grown by 9% on average since it started paying a dividend in 2007.

At the moment, it’s still trading down about 15% year to date, giving a historic-based dividend yield of around 7.8%.

If I didn’t already own plenty of these shares in my portfolio, I’d be happy to top up again.

A passive income diversified ETF

Next up, one of my favourite footsie-based ETFs, the not-so-catchily named iShares UK Dividend UCITS ETF (LSE: IUKD).

When I’m looking to live off my passive income portfolio, stability is good. And one way for me to achieve that is through this ETF. That’s because it invests in the top 50 individual high-yielding shares in the FTSE 350 after some basic screening.

If one company runs into issues and decides to cut their dividend, the average dividend yield will fall slightly. That’s much more manageable for me in terms of cash-flow than suddenly receiving nothing.

True, it comes with a slight cost for that benefit, but at 0.4% I think it’s reasonable for what I get.

Currently, it’s returning a potential dividend of around 6%, which I consider pretty good for something with those diversification upsides.

Again, it’s another I’d be happy to add to if I didn’t already own enough for my portfolio.

Playing the long game

At this point, you may be wondering if I’ve simply cherry-picked the passive income investments that have worked out best for me to make this article sound good.

The truth is, no, I own others that worked out better. And there are also those that turned out worse. The honest answer is that not all shares will work out — and that’s okay.

Because that’s why owning a diversified portfolio and holding onto it over the long term was the number one most important thing I did.

It was fundamental for growing my wealth in the first place. And then for turning that wealth into a passive income portfolio I now live off.

After all, I’m all about putting your money where your mouth is. And these tips helped me do exactly that.

The post WARNING! These passive income ideas seriously changed my life! appeared first on The Twelfth Magpie.

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Michelle Freeman has positions in City of London Investment Group and iShares UK Dividend UCITS ETF. The Motley Fool UK has recommended City of London Investment Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Just in case you’ve been avoiding all news flow recently, there’s probably no hotter investing space right now than renewable energy. Fortunately, there’s already a plethora of options available to investors looking to tap into the megatrend, including exchange-traded funds (ETFs). Here are two I already own and which I’d feel comfortable adding more of in the years ahead. 

2 ETFs to buy

As it sounds, iShares Global Clean Energy ETF (LSE: INRG) invests in companies that have a finger or two in the clean energy production pie. Alternatively, some holdings may supply the equipment or technology that enables this energy to be generated. 

All told, this ETF has 76 holdings. That’s not exactly concentrated but nor does it present as being overly diversified. This is an important consideration for me. After all, the greater the number of stocks held, the less impact each individual stock can have on returns. As such, I think INRG strikes a nice balance between risk and reward.

Another positive to this fund is the geographical spread. Companies held come from both developed and emerging markets (although 43% are based in the US). UK-listed SSE features in the portfolio, as do firms like and solar power company Enphase Energy.

A second passive fund I’m holding as part of my renewable energy strategy is WisdomTree Battery Solutions ETF (LSE: CHRG). As it sounds, this fund is more focused on energy storage. According to WisdomTree, battery technology has the potential to “significantly transform industries, services, labour and consumption“. Unsurprisingly, the electric vehicle revolution will form a major part of this.

Again, the geographical spread of this ETF is reassuring. By contrast to INRG however, almost 30% of holdings are based in China. Another 20% and 12% are based in the US and Japan respectively.

Some positives

As you might expect, there are advantages and disadvantages to playing the renewable energy theme via passive ETFs. For me, one clear benefit of using trackers is their relatively low cost. The less I give back in management fees, the better my eventual returns will be thanks to compounding.

The iShares and WisdomTree funds have total expense ratios of 0.65% and 0.40% respectively. Neither strikes me as unreasonable considering these are thematic funds. Moreover, the CHRG share price is up 50% over the last 12 months. 

It’s not just about the cost. I don’t claim to have specialist knowledge of the renewable energy space. This lack of investing ‘edge’ suggests buying a diversified fund that tracks indices created by experts in the field would be the more rational move.

Then again…

On the flip side, both funds could still prove volatile. Growth companies in hot areas usually trade on high valuations. And, regardless of renewable energy’s solid prospects, that could prove problematic in the event of a global economic wobble.

In direct conflict with what I’ve stated earlier, the ‘opportunity cost’ of holding these funds over specific shares is potentially very high if I can pick a winner. As the recent performance of Tesla has shown, buying an eventual market leader has the potential to generate life-changing returns. TSLA shares are up almost 2,800% since 2016.

The low/negligible yields from both ETFs also need to be borne in mind if I was looking to generate passive income. If that’s key, dividend-focused funds like these in this area might be more appropriate.

The post Renewable energy: 2 ETFs to buy appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers owns shares of iShares Global Clean Energy ETF and WisdomTree Battery Solutions ETF. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Holders of shares in electric car maker NIO (NYSE: NIO) have endured a tough few weeks. After hitting a high of $55 back on November 23, the share price has now fallen almost 25%. What’s going on and should Foolish UK investors such as myself see this as an opportunity to snap up NIO stock for their ISAs?

Why has NIO stock fallen?

There could be a couple of reasons why NIO stock has slipped into reverse gear of late. 

For one, the China-based company recently announced that it would soon be issuing 68 million shares into the market, raising up to $2.65bn in the process. This money will be used to develop new products and grow its sales and service network. 

As experienced Fools will know, the problem with a firm issuing new shares is that those already holding have to endure their stake being diluted. In other words, NIO’s earnings will now be spread across many more shares.

Another reason for the falling valuation is that the NIO stock price has simply become overheated. After all, the stock is up a staggering 1,100%+ in 2020 alone! No wonder traders have started taking profits.

Should UK investors get involved in NIO stock?

It’s a tricky question to answer. There can be no doubt that electric vehicles are here to stay. However, the ‘pop and drop’ volatility seen from share prices in this area is unnerving. There’s no guarantee this negative trajectory won’t continue for a while yet.

Another problem is that we’re still at the beginning of this momentous shift. This makes distinguishing the winners from the losers more akin to guesswork. Many operating in this area are running at huge losses and might not survive.

Even those that do will require huge amounts of ongoing investment if they are to emerge as pioneers in this space. Indeed, Tesla went looking for $5bn recently. NIO’s peers Li Auto and Xpeng also went cap in hand to investors. 

Stay diversified

As promising as the EV revolution is for investors across the globe, I’m not sure I want to invest in a single company just yet. That said, there is another way of getting more diversified exposure to this space than just buying NIO stock.

The passive iShares Electric Vehicles and Driving Technology UCITS ETF is a decent option. For an ongoing fee of just 0.4%, investors get access not just to the manufacturers of the cars themselves, but also to their suppliers.

At the time of writing, the fund is up 28% in 2020. The only downside is that NIO stock isn’t held within the portfolio. Even so, it does show that I don’t necessarily need to own this stock to rapidly grow my wealth. 

Those like me looking for an active fund could consider FTSE 100 member Scottish Mortgage Investment Trust too, which has a large holding in Tesla. It’s doubled in value this year!

ISA it

While I’m not thinking of buying NIO stock just yet, I think it’s essential that anyone considering an investment in this space holds whatever they buy within a Stocks and Shares ISA. After all, anything within this wrapper is immune to capital gains tax. Given the magic that is compounding growth, that could turn out to be a small fortune in decades when the full shift to electric vehicles is under way.

The post NIO stock is down 25% in the last few weeks! Should I buy it for my ISA? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers owns shares in Scottish Mortgage Investment Trust. The Motley Fool UK owns shares of and has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Having said this, I think there are far better passive fund options for those wanting to really grow their wealth over time. 

FTSE 100 beater

We’ve known for some time that populations across the world are ageing and the demand for healthcare will only increase as a result. The coronavirus pandemic has merely served as a further shot in the arm for the sector. One way of tapping into this is through the iShares Healthcare Innovation UCITS ETF.

With almost two-thirds of the portfolio made up of US stocks, performance at the fund has been excellent. By the end of last month, it had gained 69% since launch in 2016. That return becomes even more impressive when you consider the low 0.4% ongoing charge. For comparison, the FTSE 100 is down 13% over the same period. 

Considering the defensive qualities of the industry, I think this 137-stock fund looks a solid long-term buy for anyone averse to actively picking stocks. 

Look overseas

It’s understandable that many UK investors like to invest their money in their (highly regulated) home market. The problem with this approach, however, is that your capital isn’t as well diversified as it could be. With Brexit likely to rattle on for some time to come, this could compromise returns.  

One way around this is to buy shares in passive funds tracking markets in other parts of the world. For me, the iShares Emerging Markets Core UCITS ETF is one that stands out.

The fund has exposure to 2,700 stocks, including mid- and small-cap companies. As experienced Fools will know, it’s often these firms that can turbocharge performance. The ongoing charge is just 0.18% — not much more than a FTSE 100 tracker. 

By far the biggest draw for me, however, is the fact that some of these markets trade on even cheaper valuations than the UK! When you consider how much the economies of India, Vietnam and South Africa could evolve over the next few decades, now looks like a great time to get involved. 

Get some gold

The gold price has lost some of its shimmer in recent weeks but I think Fools should still have some exposure to the precious metal. After all, its tendency to rise when shares fall may come in handy as the full economic impact of the coronavirus is felt across the world. Despite already performing superbly in 2020, some in the market are suggesting the gold price could rise as high as $3000 per ounce.

A simple fund that tracks the gold price will likely be suitable for most investors. Those with far greater risk tolerance, however, could buy the VanEck Vectors Junior Gold Miners ETF. Its 81-stock portfolio may end up being a lot more volatile than a typical FTSE 100 tracker but it’s arguably a far safer way of betting on the shiny stuff than holding shares in a single company.

Since launch in 2015, the fund has returned a little over 18% annually. The management fee is 0.55%.

The post Forget the FTSE 100. I think these ISA-ready passive funds are begging to be bought! appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Why might gold keep rising?

Last week, the US Federal Reserve implied that it was ready to inject further stimulus into its economy via another bout of money-printing. This ‘whatever it takes’ strategy, and the possibility of other central banks following suit, increases the risk of inflation picking up. 

Inflation isn’t known as the ‘silent killer’ for nothing. The rise in the cost of things means the spending power of any money you have is reduced. Investors try to counter this by moving into assets that tend to hold their value.

Another, related reason that gold might continue to soar is the possibility that we’ll get a second wave of the coronavirus, perhaps coinciding with seasonal flu. This could bring forth another bout of volatility in stocks, making it more likely that investors will seek solace in things that are negatively correlated with equities.

On top of all this, you have growing tension between China and US and the forthcoming election across the pond.

With these hurdles and no definite vaccine in sight, demand for the shiny stuff is unlikely to fall away any time soon.

How to play the gold rush

There are plenty of ways for Foolish investors to get involved. That said, the most appropriate option will depend on your financial goals, investment horizon and risk tolerance. 

Perhaps the least ‘dangerous’ way of tapping into gold’s popularity is via a fund that tracks its price. The iShares Physical Gold ETC is one of the most popular options available. 

For those looking for bigger gains, a diversified fund specialising in gold miners could be the way to go. The iShares Gold Producers UCITS ETF is one I hold.

For the brave…

If you really want to a leveraged play on the gold price however, you’ll need to buy single company stocks. You could buy a large, established miner like Polymetal or Centamin. You could also look for promising minnows.

A quick glance at the share price graph of a company like Greatland Gold shows just how profitable the latter strategy can sometimes be. Those who invested around the time that I first wrote about the company last August would have made a killing. Its shares are up 700% since then!

With recent talk of “exceptional” results from its ongoing drilling programme in Western Africa, IronRidge Resources could be next to jump. So too could be Hummingbird Resources, which has operations in Mali and Liberia. It wouldn’t surprise me if either were bid for at some point. 

As always, those tempted to invest in stocks like these need to be aware of what they’re getting into. Expect regular double-digit percentage share price moves in both directions due to their lack of liquidity. A large bid-offer spread (the difference between what you can buy and sell a stock for) means you’ll also need to make a decent gain after buying just to get back to break-even. 

Mining stocks are also no place for impatient investors. Many don’t make it into production because of the costs involved. For those that can sit on their hands, however, the wait could be worth it. 

The post The gold price is on a tear. I think those buying now could still strike it rich appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers owns shares in iShares Physical Gold ETC and iShares Gold Producers UCITS ETF. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Here are three I think could make committed ‘buy and hold’ investors a lot of money over the next decade.

The robots are coming

If you believe the tabloids, many of us face near-certain redundancy as machines take over the world. Sensationalist headlines aside, it does feel like the trend towards automation is only going to get stronger as the years pass. Using robots for repetitive, mundane tasks does, after all, free up more time for humans to focus on more important work. 

One way of getting exposure is through the L&G Global Robotics and Automation ETF. This invests in a basket of 90 companies, all of whom generate a “material proportion of their revenues” from the industry. Fees are high, relative to your average FTSE 100 tracker, but this has been more than compensated for by the growth seen to date (+62.6% over the five years to December 31, 2019).

An alternative would be the iShares Robotics and Automation UCITS ETF which has a lower ongoing charge and slightly less concentrated portfolio. 

Going electric

The fact US manufacturer Tesla eclipsed £100bn in value last week should give some indication of just how excited investors are over the electric car revolution. 

This enthusiasm makes sense. Assuming the consensus forecast is right, there’ll be approximately 30m such vehicles on the roads in 2030. Right now, there are only 3m. 

You could, of course, just invest in Tesla (although be prepared for a bumpy ride). An alternative would be to buy into companies providing services to the global automotive industry, such as UK-listed AB Dynamics. 

For those with strong stomachs, there’s also the option to invest in businesses that specialise in mining for metals that will be essential to this market. Electric cars will, for example, require roughly three times the amount of copper needed in conventional vehicles. Nickel is likely to be a central component of the batteries that power them. 

While there are few funds currently dedicated to tracking this trend, iShares does offer a way in through its Electric Vehicles and Driver Technology UCITS ETF. With 95 holdings, the fund is sufficiently diversified and has a reasonable ongoing charge of 0.4%. 

Climate crisis

From the push for retailers to use less plastic, to the growing popularity of veganism, to using more environmentally-friendly ways of generating power, tackling climate change has become a priority.

Looked at purely from an investment perspective, this is potentially great news for a number of UK-listed firms. FTSE 100 member and corrugated packaging specialist DS Smith could be a big beneficiary, particularly as more and more of us are choosing to shop online. With its growing vegan range, high street baker Greggs could also be a tasty long-term hold. 

When it comes to renewable sources of energy, a relatively cheap exchange-traded fund might be best option, particularly as identifying the long-term winners in this space arguably requires more specialist knowledge.

Blackrock’s again offers such an option with its iShares Global Clean Energy UCITS ETF. The fund rose a little under 44% in 2019 alone, highlighting just how lucrative going green is becoming.

The post 3 megatrends for the next decade (and how to invest in them) appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers owns shares of AB Dynamics, Greggs, and LEGAL & GENERAL UCITS ETF PUBLIC LIMITED COMPANY ROBO GLOBAL ROB&AUTO GO UCITS ETF (GBP). The Motley Fool UK owns shares of and has recommended Tesla. The Motley Fool UK has recommended AB Dynamics and DS Smith. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Notwithstanding this, I think there’s an argument that those investing in the UK now could eventually be rewarded. Let me explain. 

UK plc is already cheap

When it comes to valuations of entire markets, I look to the cyclically adjusted price-to-earnings ratio or CAPE for short. The great thing about this metric (popularised by Yale University professor Robert Schiller) is that it gives average valuations over a 10-year period, thus taking into account market fluctuations over time.

These days, the UK has a CAPE of around 15. That might not mean an awful lot on its own but things start to get interesting when you compare this value to those of other countries, specifically developed ones.

The UK is, for example, cheaper than Germany (17) despite real concerns about a recession in the latter. France is far more expensive than both with a CAPE of 21. Unsurprisingly, however, the US stock market is the dearest of all four with a CAPE of 29. Ominously, this sort of valuation has usually preceded a big fall in the market, such as the Great Depression and the dotcom bust.

From a psychological perspective, however, these valuations make some sense. The US boasts some of the biggest companies in the world (Amazon, Apple, Facebook, Google), all of which have grown massively over this abnormally long bull market. What’s popular has a habit of becoming even more so, hence the frothy price tag.

The fact that the UK is relatively cheap is also no surprise. A no-deal scenario could send our main indices even further down in value as investors fret over the possibility of more delay (since Boris Johnson is now prevented by law from leaving without a deal) and a general election, not to mention the growing prospect of a recession.

Is this a nailed-on certainty? Of course not! Upside-down market logic dictates that confirmation of no deal could actually encourage a rally for the simple reason that investors now have their fears confirmed, which is a lot more than they’ve had for three-and-a-bit years. A resolution to the US-China trade spat could also reinvigorate things.

At the Fool UK, we’re big fans of the old adage that successful investing is all about “time in the market, not timing the market“. As stated above, the key point to realise is that the UK market is already pretty cheap and arguably worthy of investment.

So, what’s the easiest way to invest?

Getting exposure to the UK market through exchange-traded funds offered by passive investing giants like Vanguard and iShares is as simple as it gets. For very low fees, investors can track major indices like the FTSE 100 with the added attraction that their money will be spread among different sectors. 

But low costs and instant diversification aren’t the only positives. Just like individual companies, funds like these also pay out dividends to holders. While it’s undeniably more fun to spend these cash returns, any Fool committed to building their wealth over the long term should consider re-investment their default option. 

The post The UK stock market looks cheap…and it could get even cheaper! appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

By yesterday, both indexes had increased 13% from their respective valuations on 31 December. The question is, will recent positive momentum continue?

Where next?

With an interest rate cut in the UK now considered more likely than not, it’s possible shares will remain the go-to option for those looking for places to store and grow their wealth. 

Despite recent form, the UK also remains relatively cheap compared to some markets with a Cyclically Adjusted Price-to-Earnings (CAPE) ratio of 16.3. Having recently broken records (again), the S&P 500 looks prohibitively expensive by contrast, on a CAPE ratio of almost 30.

That said, nothing is guaranteed when it comes to investing. Concerns over slowing global growth coupled with the ongoing trade spat between China and Donald Trump could see even attractively priced markets reverse before the end of 2019.

There’s also the small matter of whether Jeremy Hunt or Boris Johnson gets the keys to Number 10 — the result of which could heavily influence the manner of our departure from the EU. This is particularly relevant for those considering investing in the FTSE 250 since its constituents have greater exposure to our economy. Ominously, many economists are already forecasting a recession is very likely in the event of a no-deal Brexit.

By contrast, a further weakening in sterling as a result of political and economic concerns could actually be beneficial to the FTSE 100, since a huge number of its members generate the majority of their earnings from outside of the UK.  In short, it’s a hard one to call. 

But does it really matter?

Whether you believe the FTSE 100 and FTSE 250’s recent form should be treated with caution or not really depends on how long you plan to stay invested. 

Like everyone else, I’ve can’t say for sure where the market is heading in the immediate future. I am, however, far more confident about where we’ll be decades from now.

Research shows that equities are easily the best performing assets over the long term. Over the last 20 years (which, of course, included the dot com crash and the financial crisis), the FTSE 100 has returned 4.5%. As a result of being composed of smaller companies able to grow at a faster rate, the return from the FTSE 250, over the same period, has been double this.

So, if you’re in for the long haul, what either index decides to do next is pretty much irrelevant. What matters more, in my view, is keeping costs low and not placing all your eggs in one basket.

With this in mind, those looking to get exposure to the FTSE 100 or the FTSE 250 could do worse than buy the cheap, highly-liquid funds offered by either Vanguard or iShares (Blackrock).

The former’s exchange-traded fund tracking the FTSE 100 has an ongoing charge of 0.09%. The latter’s equivalent costs just 0.07%. For the FTSE 250, the ongoing charges are 0.1 and 0,4% for Vanguard and iShares, respectively.

Notwithstanding, it’s also worth bearing in mind a risk-conscious investor’s exposure to either index should only represent a proportion of their portfolio. For maximum diversification, consider buying a global equity fund as well.  

The post The FTSE 100 and FTSE 250 have been going great guns in 2019. Will it last? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

And for a lot of people, this low-cost approach to generating returns will be sufficient. I believe even those who like to pick stocks should consider having at least some of their capital invested in this way in order to keep their risk tolerance in check.

Passive = Active?

But passive investing like this isn’t quite as hands-off as it first seems. Naturally, this strategy still involves making decisions as to which index-tracking funds/markets you put your money to work in.

To locate the best value markets currently, I’m using what’s known as the Cyclically Adjusted Price to Earnings ratio, or CAPE for short.

Devised by US economist Robert Schiller, this metric divides the price of a market by the average earnings from the last decade, adjusted for inflation. The idea behind using 10 years is that it smooths out the effect of business cycles and therefore more accurately reflects just how cheap or expensive a particular market is.

As experienced investors might expect, Schiller found that the lower the CAPE, the better an investor’s returns would be over the next 20 years. In other words, value trumps everything else over time. Taking this into account, here’s what I think are some of the most attractively priced destinations right now. 

Still cheap

Ignore Brexit. If you plan to invest on a regular basis for many years to come, the UK market is arguably still one of the best homes for your cash. Despite bouncing back since the beginning of 2019, it’s also reasonably priced, at least relative to other developed markets.

The UK’s CAPE ratio is 16.1 — not bad for the world’s fifth largest economy. You can get easy access to the FTSE 100 and FTSE 250 via products from Vanguard or iShares. 

Emerging markets, which have recovered from an awful 2018, may also be worth looking into. Their collective CAPE is 15.8.

Tapping into this the performance of this group of rapidly-growing economies is again simple with a diversified fund like that offered by iShares in its Core range. 

Those trying for higher returns (albeit at increased risk) might find Turkey attractive, valued as it is on a bargain basement CAPE of just 7.9.

The country is clearly going through a very difficult time politically but that could be just the incentive contrarian investors need. Again, iShares has a product tracking this market. 

But I wouldn’t be rushing to buy…

While some markets are looking cheap, others certainly aren’t. The US market is the obvious candidate here, especially with the S&P 500 at a record high. The biggest economy in the world boasts a CAPE of just under 30 — almost double that of the UK. 

To put this in perspective, it’s only ever been this high twice before. Once before the Great Depression and once before the dot.com bust in 2000.

Japan — another popular overseas market for UK retail investors is trading on a CAPE of almost 24. India is only a little lower on 23.

Like the US, I probably wouldn’t jump to buy products tracking these markets today. 

The post I think these markets could be great buys in 2019 appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The big question

Reading through MoneyWeek executive editor John Stepek’s (highly recommended) new book, The Sceptical Investor, I’m reminded of what I believe is one of the most important questions to ask whenever you’re considering purchasing a new stock.

Regardless of which company we’re talking about (Stepek uses mining giant BHP Group in his example), you need to ask yourself whether it’s going to outperform the benchmark.

While there are no guarantees in investing, if you can’t at least state why you think this is going to happen, you arguably shouldn’t be buying said stock. To answer that question, however, you first need to select an appropriate benchmark.

In his example, Stepek reflects that it can make sense to use the FTSE 100 (BHP is, after all, a constituent of the index) and then ask yourself what it is about BHP that will allow it to outperform the market’s top tier.

A response might be that miners are likely to do well going forward (perhaps due to a commodities bull market) and you don’t want your investment to be impacted by the woes of other companies in unrelated sectors. Since there are plenty of large-caps that aren’t necessarily good investments right now, there’s a logic to that.

But if you think the mining sector will outperform, then a better benchmark would surely be something like an investment trust focused on miners, he suggests.

So now a different question presents itself: Why buy BHP over a fund, particularly as the latter helps to lower risk through diversification?

To be clear, Stepek doesn’t rule out buying BHP but he does stress the importance of matching a bullish call with the “correct financial instrument” — be it in the form of individual shares or something else — if you’re going to make the most money. 

What to do instead…

If, after consideration, you feel your new favourite stock is unlikely to outperform the (most appropriate) benchmark, then it makes sense to look into ways of investing in the benchmark instead.

Since the existence of a specialist fund for particular sectors isn’t a given and the FTSE 100 could still be the best comparison, I’ll stick to focusing on exchange-traded funds here.

As they sound, these are low-cost, passive vehicles that help an investor generate the same return as the market, minus a bit of tracking error and the obligatory fees. The iShares Core FTSE 100 and the Vanguard FTSE 100 UCITS ETF are examples.

Another positive from selecting these funds is that they pay dividends, thus allowing investors to receive income for less risk than if they bought shares in specific companies instead. The funds mentioned above offer yields of 4.24% and 4.73%, respectively — lower than BHP, but still worth having. 

Bottom line? Taking the time to question whether a particular share will truly outperform its benchmark might seem (irritatingly) sensible to some, but those committed to generating the best returns over the long term should acknowledge this is a vital step to take. 

The post Found a share you love? Don’t buy until you’ve answered this vital question appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.