But could there be a way to beat the market and generate higher long-term returns? Potentially.

Check out the returns from the MSCI World Quality index. Over the last 31 years, this index has smashed the broader market.

A focus on quality

The MSCI World Quality index is based on the MSCI World index (which a lot of basic index funds track). However, it has a focus on ‘quality’.

The aim is to capture the performance of high-quality businesses (which often provide higher investment returns than low-quality ones) by identifying companies with:

• A high return on equity (a high level of profitability)
• Stable year-on-year earnings growth
• Low financial leverage (low debt)

Note that it contains many of the same names as the MSCI World (Apple, Nvidia, Visa, etc). However, the weightings are often quite different.

Strong long-term performance

Zooming in on performance, since 30 June 1994, this index has returned 11.8% per year (in US dollar terms). That compares to an annualised return of 8.6% for the regular MSCI World.

That’s a pretty significant outperformance. It’s worth pointing out that 30 years is a long time in the stock market (meaning that this performance wasn’t a fluke or a short-term phenomenon).

Periods of underperformance

Of course, no strategy outperforms all the time. And there are times every now and then when quality lags the broader market.

It has actually lagged this year. For the first half, the MSCI World Quality index returned 6.4% versus 9.8% for the MSCI World.

Over the long run, however, it has clearly outperformed. So I think the strategy is worth considering as part of one’s overall investment approach.

A quality ETF

Now, it’s not possible to invest directly in the MSCI World Quality index. However, UK investors have access to a range of products that track derivatives of the index.

One example here is the iShares Edge MSCI World Quality Factor UCITS ETF (LSE: IWQU). This is designed to track the MSCI World Sector Neutral Quality index, which is very similar to the MSCI World Quality index.

I think there’s a lot to like about this product. Like the index, it screens out low-quality companies and focuses on companies with high profitably, stable earnings, and strong balance sheets.

Meanwhile, fees are low at just 0.25% per year.

Now, there’s no guarantee that this ETF will provide superior returns in the years ahead. As I said above, quality strategies sometimes lag the broader market (especially when cyclical stocks are in favour).

All things considered though, I see it as a solid core holding. I think it’s worth considering as part of a diversified portfolio.

The post Over the last 31 years, this index has beaten the global stock market by a wide margin appeared first on The Twelfth Magpie.

Looking for ETFs that have the potential to deliver strong long-term returns? Here are three standout products worth a closer look.

A focus on quality

One product that I see as a great ‘core holding’ is the iShares Edge MSCI World Quality Factor UCITS ETF (LSE: IWQU). This is a global product however, it only invests in high-quality companies that have stable earnings and strong balance sheets.

This focus on quality can make a difference to returns, especially in down markets. This year, for example, the ETF’s only down about 1% versus a drop of about 7% for the standard iShares global ETF.

Of course, the downside to this product is that it excludes plenty of well-known companies. For example, it doesn’t hold Amazon at present.

The fact that it excludes a lot of companies can lead to underperformance versus the market at some stages of the market cycle. All things considered however, I reckon the focus on quality is a major plus.

An ETF for the AI revolution

I’m a big fan of thematic ETFs, and one I like the look of today is the iShares AI Innovation Active UCITS ETF (LSE: IART). As its name suggests, this product focuses on companies that are active in the artificial intelligence (AI) space.

Over the next decade, the AI industry’s likely to get exponentially bigger as businesses and individuals adopt the technology to increase efficiency. With this ETF, investors can get access to companies at the heart of the revolution, such as Nvidia, Amazon, and Snowflake.

Investors do need to manage risk carefully here though. Today, AI’s still in its infancy and the growth story in the years ahead may not be linear (meaning that stock prices are likely to be volatile).

This ETF’s also quite new (it was only launched in February). So it doesn’t have a long-term track record.

Bigger than AI?

While AI‘s going to be big, one area of technology that could be even bigger is cybersecurity. Some experts believe that this could be a $2trn industry in the years ahead.

One ETF that’s focused on this theme is the Legal & General Cyber Security UCITS ETF (LSE: ISPY). This provides exposure to around 35 different cybersecurity stocks globally.

There are some great names in this ETF including the likes of CrowdStrike, Fortinet, and Palo Alto Networks. All of these companies are generating strong growth today as businesses scramble to protect themselves from dangerous cyber threats.

Again though, risk needs to be carefully managed here. Given its focus on one specific industry, this ETF isn’t well diversified.

And while the cybersecurity industry has a lot of long-term growth potential (and is also quite defensive in nature), cybersecurity stocks can be volatile. So with this ETF, position sizing is important.

The post 3 standout ETFs to consider for an ISA or SIPP in May appeared first on The Twelfth Magpie.

Want to try to build a bullet-proof Stocks and Shares ISA to mitigate risk and aim for more stable long-term growth? Here are some risk management strategies to consider.

Reducing risk

Risk can never be eliminated entirely from an investment portfolio. Unless you’re 100% invested in cash (which has its own risks due to inflation), you have to accept some portfolio volatility.

However, with a few simple strategies, it’s possible to reduce risk significantly. One such strategy is spreading your capital out over many different investments (diversifying your portfolio).

Diversification 101

Now, to diversify properly, you need to do two key things. First, you need to diversify by asset class. This means owning a range of different assets including stocks, bonds, commodities (eg gold), and alternative investments (eg commercial property). The idea here is that if one asset class falls, another may provide some protection. A good example is gold, which is viewed as a safe-haven asset. While stocks have fallen this year, gold prices have risen.

Next, you need to diversify within the asset classes. In other words, you need to aim to own different types of stocks, bonds, commodities, and so on. This can give you much more protection. For example, owning 50 stocks is far safer than owning five.

Diversifying stocks

When it comes to diversifying your stock portfolio, it’s smart to own stocks from different industries. You don’t want to be 100% invested in tech stocks, for example.

It’s also smart to own a range of different types of stocks. Some examples here include UK, international, large-cap, small-cap, dividend, and growth stocks. ‘Defensive’ stocks can also play a key role in protecting portfolios. These are stocks in less economically sensitive areas of the market such as food/drink and utilities.

It’s worth pointing out that if you’re investing in individual stocks, it’s a good idea to give some thought to position sizing. Generally speaking, it’s sensible to give large-cap, blue-chip stocks larger weightings in your portfolio than speculative small-cap stocks. This is because large-cap stocks tend to be less volatile than small-cap shares.

Focusing on quality

It can also pay to focus on high-quality companies (those with stable earnings and strong balance sheets). These tend to be more resilient than others and their stocks often outperform during economic weakness.

One ETF that focuses on high-quality companies – and could be worth considering today – is the iShares Edge MSCI World Quality Factor UCITS ETF (LSE: IWQU). This offers exposure to about 300 companies that screen up as high in quality (including the likes of Apple, Microsoft, and Visa).

This ETF’s certainly helped to protect investors’ portfolios recently. Over the last month, its value has fallen far less than the broader market.

It’s worth pointing out that this ETF isn’t going to outperform all the time. There will be times in the economic cycle when low-quality stocks (eg unprofitable companies) surge and quality stocks lag the market.

I think it’s wise to incorporate high-quality companies into a portfolio and I see this ETF – which has an ongoing fee of just 0.25% – as a solid choice to consider.

The post How to try and build a bullet-proof Stocks and Shares ISA appeared first on The Twelfth Magpie.

Looking for investment ideas for 2025? Here are three to consider.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Dividend stocks for income

Dividend stocks are popular with British investors and it’s easy to see why. These stocks pay investors cash distributions (dividends) out of company profits on a regular basis and the yields can be very attractive.

For example, within the FTSE 350 index, there are over 30 stocks that have forward-looking dividend yields of more than 7%. With these kinds of yields on offer, it isn’t hard to build a passive income portfolio.

It’s worth pointing out that not all dividend stocks are created equal. Some have fantastic long-term dividend track records while others don’t. The key with this type of investing is to seek out companies with strong financials and healthy growth prospects. These kinds of companies are less likely to cut their dividends.

Growth stocks for gains

Growth stocks have generated strong returns for investors in recent years and I believe they’ll continue to do so in 2025. The reason I say this is that there’s an incredible amount of technological innovation going on across the world today (especially in the US).

One theme I reckon will continue to do well is artificial intelligence (AI). This theme has been hot for nearly two years now but it’s showing no signs of slowing.

Another theme that could do well is cybersecurity. This industry has massive growth potential and some analysts believe that it will be bigger than AI.

Thematic funds and ETFs can be a good way to play these kinds of themes. For AI exposure, I’m invested in the Sanlam Global Artificial Intelligence fund. Top holdings here include Nvidia, Amazon, Alphabet and Tesla. So I see it as a great way to play the theme.

Quality stocks for great long-term returns

My final idea for 2025 is ‘quality’ stocks. These are the stocks of high-quality businesses that have strong competitive advantages, consistent revenues and earnings, high levels of profitability, and plenty of growth potential.

I’m a big fan of quality stocks as history shows they tend to outperform the market over the long run. For example, if we look at the MSCI World Quality Index, it’s smashed the regular MSCI World Index over the last 15 years.

Those looking for broad exposure to this area of the market may want to consider an ETF such as the iShares Edge MSCI World Quality Factor UCITS ETF (LSE: IWQU).

This ETF allows exposure to around 300 companies that screen up as high-quality. Top holdings currently include Apple, Microsoft and Nvidia.

Ongoing fees are just 0.25%. So the product’s very cost-effective.

It’s worth noting that quality stocks don’t always outperform. There will be times in the economic cycle when low-quality stocks have their moment so there are no guarantees that this ETF will do well in 2025.

In the long run though, quality stocks tend to produce great returns for investors. So I think exposure to this area of the market in 2025’s worth considering.

The post 3 top investment ideas to consider for a Stocks and Shares ISA or SIPP in 2025 appeared first on The Twelfth Magpie.

Let’s assume I keep back a couple of grand for emergencies (always advisable) and want to invest the rest in the stock market. Here’s how I’d go about it.

Start investing

A Stocks and Shares ISA would be my first port of call. Investing in one of these would shelter my gains from tax, helping boost my overall wealth in the long run.

I’d want to open an ISA with a reputable broker that offers lots of investing choices. Unfortunately, some of the newer trading apps don’t provide access to a wide range of stocks, investment trusts, and exchange-traded funds (ETFs).

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Own the world

Once I’ve done this, I could pursue an ‘own-the-world’ strategy. This would involve building a portfolio of ETFs that give me exposure to the entire globe, including emerging market regions like Latin America and Southeast Asia. Doing so should enable my portfolio to benefit from expanding middle classes in up-and-coming economies like Brazil, Mexico, India, and Vietnam.

One ETF that I’d also consider including in this portfolio is the iShares Edge MSCI World Quality Factor UCITS ETF (LSE: IWQU). This is a global tracker fund of high-quality companies that have strong and stable earnings. These tend to outperform over time.

Top 10 stocks (as of September)

In the five years to 30 September, the ETF returned 89.4%, smashing the FTSE 100. Year to date, it’s up 20% (similar to the S&P 500).

One risk to bear in mind is that this fund has a sizeable 24% weighing towards technology stocks. If they were to fall out of favour with investors, then the ETF would likely underperform for a while.

Getting picky

Alongside (or instead of) this strategy, I could invest in individual shares. This carries more risk, as I might end up picking companies that encounter unexpected challenges.

Take CVS Group, for example, which is a leading UK veterinary services provider. It’s no secret that Britons love their pets, with a growing number even letting their furry companions sleep in the same bed. Many owners also take out finance to cover expensive vet bills if their pets aren’t covered by insurance.

Given this, CVS stock might have looked like a ‘no-brainer’ stock. But last year it fell off a cliff after an investigation was launched by the regulator into anti-competitive pricing within the veterinary sector.

The lesson here is that returns (including dividends) aren’t guaranteed. This is why it’s important to have a well-diversified portfolio. If a couple of stocks turn into lemons, then my other investments should ideally take up the slack and drive returns.

Reaching my goal

Let’s assume my ISA returns 10% a year. This isn’t assured, but it is the rough long-term global average. In this case, my £9,000 would grow to £157,044 after 30 years.

At this point, I could re-jig my portfolio to focus purely on dividends. If it were yielding 6.5%, that would equate to £10,207 in annual passive income. However, it’d very likely be much higher if I were to take full advantage of my ISA and invest regularly.

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But for me, there’s no better way to aim for a big second income than investing on the London Stock Exchange. There’s lots of different ways I can put my money to work. And I don’t have to worry about the high startup costs or day-to-day hassle that some of those other methods involve.

If I had a spare £9,000 — and was able to add extra cash every month for 30 years — here’s how I’d target a regular monthly passive income of almost £1,400.

The easy way

Given the strong performance of UK share indices, I don’t see a reason to invest my money elsewhere. The FTSE 100’s delivered a healthy average annual return of 7% since its inception in 1984.

The FTSE 250, meanwhile, has provided an excellent yearly return of 11% over the long term. Past performance is no guarantee of future returns, but these numbers are pretty encouraging.

There’s a downside to choosing individual stocks to buy. It’s essential that investors conduct detailed research before putting their cash on the line, and to regularly review their portfolios. Poring over company reports, economic data, broker notes and other resources are essential for successful investing.

But this shouldn’t put investors off. The potential returns on offer make this all worthwhile, in my book.

What’s more, investors can reduce the amount of research they need to do by purchasing an exchange-traded fund (ETF), which spreads money across a wide basket of stocks.

The iShares Edge MSCI World Quality Factor UCITS ETF’s (LSE:IWQU) one such instrument I think’s worth serious consideration.

A top fund?

This fund contains a subset of global stocks with sound records of “strong and stable earnings”. Today, it owns shares in almost 300 companies, a characteristic that also helps investors to spread risk.

With a huge bias towards the US — almost three-quarters of its holdings are based in the States — it includes heavyweight shares including Nvidia, Apple, Visa and Coca-Cola.

Some of its overseas stocks include Denmark’s pharma giant Novo Nordisk, and the Dutch technology group ASML. UK holdings include AstraZeneca and RELX.

One drawback could be the fund’s large exposure to US tech stocks. A 24.17% weighting could leave it vulnerable in the event of a global economic downturn. But the potential for large long-term returns still make it worth a close look, to me.

That second income

Since its inception in October 2014, this iShares global ETF’s delivered an average annual return of 11.02%. If this continues, it could turn a £5,000 lump sum investment today into £134,337 after 30 years.

That’s good. But if I’d invested just an extra £100 a month in the fund, I’d have made an impressive £416,014. This would then be enough to give me a passive income of around £1,400 a month (£1,387 to be exact), based on an annual drawdown rate of 4%.

The post £5,000 of savings? Here’s how I’d aim to turn that into £1,400 a month of passive income appeared first on The Twelfth Magpie.

Here, I’m going to highlight two exchange-traded funds (ETFs) that have beaten both of these major indexes over the last five years. I reckon they have a good chance of outperforming these indexes over the next decade, and are worth considering as part of a diversified portfolio.

High-quality stocks tend to outperform

First up we have the iShares Edge MSCI World Quality Factor UCITS ETF (LSE: IWQU). This is a global tracker fund that focuses on high-quality companies within the market (those with a high return on equity, low debt, and low earnings variability).

I’m a big fan of ‘quality investing’ and the performance of this product illustrates why. Over the five-year period to the end of August, it returned 91.3% in US dollar terms versus a return of 85.8% for the regular iShares Core MSCI World UCITS ETF and 38.8% for the iShares Core FTSE 100 UCITS ETF (in GBP terms). In other words, it smashed the Footsie and outperformed the standard global ETF by about 1% a year.

It’s worth noting that with this ETF, investors still get exposure to most of the big names in the stock market. At the end of August, the top five holdings were Nvidia, Apple, Microsoft, Meta Platforms, and Visa. Personally, I’ve invested directly in four out of those five companies because I believe they’re long-term winners that’ll outperform the market.

Now, a quality investing strategy isn’t going to outperform all the time. There will always be times where lower-quality stocks (cyclicals) have a period of strength.

Given that studies show that high-quality stocks tend to beat the market over time however, I reckon there’s a good chance it will deliver superior returns in the long run.

The AI revolution is just getting started

The other ETF I want to highlight is the L&G Artificial Intelligence UCITS ETF (LSE: AIAG). This is a product from Legal & General that’s focused on artificial intelligence (AI) stocks.

AI’s a huge theme today (and one I’m very bullish on) and this is reflected in this ETF’s recent performance figures. In US dollar terms, it gained 102.8% for the five-year period to the end of August. That’s significantly higher than the returns from the FTSE 100 and MSCI World indexes.

Given that the AI industry’s forecast to grow by around 30% a year between now and 2030, I believe there’s a good chance this product will continue to do well going forward. As always though, nothing’s guaranteed in the stock market.

This ETF’s higher-risk (Legal & General rates it a 7 out of 7 in terms of risk). That’s because it mainly owns tech stocks and these can be volatile at times. At the end of August, the top five holdings were Samsara, Palo Alto Networks, Cloudflare, ServiceNow, and Autodesk (Nvidia and Microsoft were in the top 10).

Taking a long-term view though, I think this ETF has the potential to deliver blockbuster gains.

The post 2 magnificent ETFs that could beat FTSE 100 and global tracker funds over the next 10 years appeared first on The Twelfth Magpie.

According to experts, we need a pension pot of doubel that figure today to enjoy a comfortable retirement. And that figure is only going to increase as time goes by and inflation pushes prices up.

How much money do I need for retirement?

A lot of people tend to underestimate how much money they’ll need. For example, a recent survey by UK wealth management firm Saltus, which asked 2,000 people how much they thought they’d need for a comfortable retirement, found that on average, respondents believed a pension pot of £536k would be enough.

Realistically though, a £536k pension may not cut it if we want a ‘comfortable’ retirement. According to the Pensions and Lifetime Savings Association (PLSA), we need £43k a year today for this kind of retirement. To generate that level of income starting at age 65 (and not have to worry about running out of money later in life), we’d require a pension total of around £1m or so (I’m ignoring the State Pension for now).

Building a £1m pension

The good news is that building up to £1m+ is very achievable with a regular savings plan and a sound long-term investment strategy.

Contributions into a pension typically come with tax relief. Put £1,000 into a SIPP as a basic-rate taxpayer and the government will add in another £250 (higher-rate and additional-rate taxpayers can claim back more tax relief at the moment). This kind of bonus can really propel someone’s retirement savings higher.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Investing for growth

What can also propel our savings is a good investment strategy. Put together a solid mix of stocks and/or funds and it shouldn’t be that hard to generate a return of 7%-10% a year over the long term. With that kind of return, our savings can grow very quickly due to the power of compounding.

Now, there are many different investment strategies we can pursue within a pension. Some people like to invest in value stocks. Others like to buy growth stocks.

Personally, I’m a big fan of investing in ‘quality’ stocks. These are the stocks of high-quality businesses that are very profitable and have strong balance sheets (also seen as Warren Buffett-type stocks!)

One product that focuses on quality stocks is the iShares Edge MSCI World Quality Factor UCITS ETF (LSE: IWQU). This is a global tracker fund that focuses on companies with strong and stable earnings.

This ETF has a great track record. Between its launch in 2014 and the end of July, it returned about 10.7% per year. Over the last five years to the end of July, it returned about 80%.

There are no guarantees that this product will continue to perform well going forward, of course. While quality investing is an excellent long-term strategy it doesn’t work well all the time. No strategy does.

I see it as a solid core option to consider for a SIPP though. With this as a core holding, and a few individual stocks on top for extra growth, 9% annual returns over the long term could be achievable.

Invest £1,000 a month, and obtain a 9% annual return, and someone could potentially build a £1m SIPP (in today’s money) in a little over 25 years.

The post Is a £500k SIPP enough for retirement? appeared first on The Twelfth Magpie.