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Good value funds: What are the best, simple low-cost investments to bank and hold for 20 years?

The financial crisis has shaken many people's confidence in investing, but you would have to be a real die-hard pessimist to believe things won't turn around over the next 20 years.

So where should you tuck away your nest egg over the next two decades?

We asked financial experts for help in finding simple investments with low running costs that should bring a decent return.

Doing just what it says on the tin: Keeping investing simple and cheap

Can you commit to a long-haul investment?

A 20-year investment is like a house or a car - you need to make some important decisions before you buy, and take care to do some maintenance.

Before anything else, you need to be certain you can commit to such a lengthy investment, according to Philippa Gee of Philippa Gee Wealth Management.

'It's all very well thinking you want to invest for the long term, but things happen. Life changes. You might need the money,' she says. 'Make sure you have other money that is accessible. You don't want to find something happens and you have to sell.'

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The start time of an investment is also something to consider, even when it is for a very long period and you assume it will rise in value.

Gee says that although the stock market might be low and cheap on the day you invest, it might also also be high and expensive.

Unless you pay very close attention to market trends, dripping money into an investment slowly might be less risky than putting in a lump sum all at once.

Philippa Gee: You need to be certain you can commit to a lengthy investment

And naturally you must take just as great care when selling the investment, because you want to take it out when the market is up not down.

Gee says you can try to keep things simple by picking just one fund, but if you do then make sure its risk is spread widely enough - like a global fund.

'What you don't want to do is put all your money in China,' warns Gee. 'One simple solution is a global fund.

'Just bear in mind that as you approach the time you want to take it out you might want to change this. At year 17, 18 or 19, if all your money is in a global fund you might want to move it.'

When it comes to keeping expenses down, Gee says there are some decent passive trackers around but 'just because it's low cost doesn't mean it's better'.

She adds that the more 'passive' an investment, the more performance monitoring it will probably need on the part of the investor.

And changing costs are definitely something to keep an eye on over the long term.

'It's like buying a car today because it's the most economical. But advances are being made constantly and it won't necessarily be the most economical in a few years,' says Gee.

She concludes that even if you go for a 'basic' product, making an investment still involves work.

'Nothing is simple in the investment world, unfortunately,' she says. 'The timing is important. Getting the right fund is important. Not paying too much is important. But also monitoring it is important.'

Gee recommends:

Vanguard LifeStrategy 100% Equity. Total expense ratio (TER)*: 0.33 per cent. Minimum investment: £100,000.

(If you have less to invest than this, Vanguard funds are also offered to UK investors via Hargreaves Lansdown’s Vantage fund platform, and BestInvest, Alliance Trust and Sippdeal platforms, as well as through financial advisers.)

HSBC World Index Dynamic Portfolio. TER: 0.83 per cent (estimated, because the fund is less than a year old). Minimum investment: £1,000.

Jupiter Merlin Worldwide. TER: 2.57 per cent. Minimum investment: £500.

* TER is the benchmark of fund running costs which is the current best estimate for taking all the administration and dealing charges into account. The bigger it is, the costlier the fund is to run.

LOW-COST ACCESS TO INVESTING

Actively-managed funds need to pay a fund manager to select stocks, pushing up the costs. Index trackers, on the other hand, aim to follow a stock market's fortunes based on a computer programme.

It's far cheaper. The best trackers levy fees of less than 0.5 per cent a year compared to, for example, the Jupiter Merlin fund mentioned above that has a total expense ratio (TER) of more than 2.5 per cent.

These effect of charges amplifies over the years and can leave a big dent in your final savings pot, although the managers argue that you are paying for their skill in outperforming the market. Unfortunately most of them don't and it's difficult to predict which ones will excel.

Check out our round-up of cheap tracker funds. Investors could also consider exchange-traded funds (ETFs), which are more easily tradable and are sometimes cheaper than trackers.

Power up returns with a income fund

An investor's risk tolerance is bound to play a big role as they decide where to put their money for as long as 20 years.

Gavin Haynes, managing director of investment adviser Whitechurch Securities, says that however volatile stock markets might seem in the short term, over 20-year time spans they have been the best-performing asset class.

Gavin Haynes: 'The way the world is changing does mean looking towards Asia and emerging markets'

'Just hoarding your money in cash-based investments is posing its own risks in the long term,' he says.

Haynes says investors should consider getting exposure to Asia and other emerging markets, which look set to be the engine of global growth over next 20 years.

'The way the world is changing does mean looking towards Asia and emerging markets,' says Haynes. 'It looks like it will be difficult to get growth in western developed economies.'

If you want to invest as cheaply as possible passive index trackers are the lowest-cost option, and Haynes tips a Vanguard fund below. He also suggests a couple of investments trusts, which are another relatively reasonably-priced route into long-term investing.

However, if you are willing to pay more for some active intervention by a manager, he suggests going for an equity income fund that invests in dividend-producing .

'A number of investors might think I don't want the income - I am aiming for growth over 20 years. But if you reinvest the income and compound it up, the power of it would be exceptional. Even if you're going for long-term growth, reinvesting dividends is very powerful.'

If you want to invest in this sector but still do it cheaply, Haynes says the Trojan Income fund is 'pretty competitive' on costs.

Haynes recommends:

Vanguard FTSE UK Equity Index. Total Expense Ratio: 0.15 per cent. Minimum investment: £100,000.

(If you have less to invest than this, Vanguard funds are also offered to UK investors via Hargreaves Lansdown’s Vantage fund platform, and BestInvest, Alliance Trust and Sippdeal platforms, as well as through financial advisers.)

Trojan Income. TER: 1.56 per cent. Minimum investment: £1,000.

Schroder UK Growth investment trust. Annual management charge: 0.65 per cent.

Scottish Mortgage investment trust. Annual management charge: 0.32 per cent.



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