Why vanilla?

Vanilla investing is about doing simple things with your money in a complex world.

Investors are bamboozled by the finance industry and end up giving away too much of their hard-earned savings to unnecessary transaction charges and ineffective fund managers.

But the good news for vanilla investors is that their profound ignorance and indolence will serve them well.

Profund  adjective: of the greatest intensity; [of sleep] deep and complete

A deep respect for one's own ignorance stops you trying to outguess the market [ie buying the latest hot tip]. And complete indolence saves you the cost of endlessly trading - buying and selling as the next hot tip comes along.

Vanilla investing is for everyone who wants to spend less time with their money.

Where to stash your cash

There are only half a dozen places to invest your money. The Big Three are shares, property and loans [corporate bonds and government gilts]. 

The other three are cash, commodities and 'other' [mainly derivatives, like futures and options].

This may seem odd; the fact that your investment choices narrow down to just six categories. After all, at the back of the Financial Times there is a double-page spread listing thousands of share prices. And before that there are even more pages listing investment funds and unit trust prices. There are more funds than there are shares.....

This is how the personal finance industry makes its money, and relieves you of yours. By repackaging shares into their branded portfolios and charging the investor a fee. Every year. Usually around 1.5%. And yet the finance industry as a whole doesn't add any value. Some will do well one year, some won't. And you can't tell in advance which is which.

In short the investor is faced with a business model that has so many unattractive features than many regard it as broken. [Not my words, but those of the chairman of the Financial Services Authority in 2007].

So here's vanilla recipe no1.  You put half your money in shares [the risky bit] and half in loans [the safe bit].  Government gilts are considered safe.  A tracker fund or ETF should have lower charges than the usual unit trust. Taking  ishares as an example [not the only provider of ETFs but Barclays ishares brand is a big one] the final mix would be half in ishares FTSE 100 ETF and half in ishares £ index-linked gilts.

But isn't this too risky/too safe?

Yup - it might be.  Deciding what level of risk you are willing to live with is a key question for the vanilla investor.

No it isn't - my key question is how do I double my money?

Ah - that's easy. We will cover that next time.