Bolton and vanilla

Hot fund in a hot sector. A friend asks 'I was thinking of putting money into Bolton's new China fund....'

I guess this is how most people begin. Not with boring, but sensible, asset allocation. But a punt on something a bit more exciting. He knows very little about investing. Is this really a good place to start? Surely it would be better to start by having half your savings in global equities and half in index linked gilts? Simpler and less risk.

But the reality is: savers don't start out as vanilla investors - and then move onto more complex savings instruments; they actually move into vanilla investing after having been stung, burnt, or just plain caught by surprise by the vagaries of real world investing.

Back to Bolton. The attraction is his fantastic track record at his Special Situations fund he ran from 1979. Hence the hurry to get into his new fund launching now. 'What do you think?' Hmm. Where to start.

First off: the three big savings choices are house [pay off mortgage]; ISA and pension [company plan or SIPP].

Then you can figure out how much you want to risk in global equities. Then you can have some emerging markets. A subset of that are the BRICs [Brazil, Russia, India China] - and finally we get to China on its own. 'So you don't think I should put all my money in it?' No.

'But the offer closes in a few weeks'. Well, you can still but the shares after the offer closes. 'Really. I didn't know that'. Yup, and then you can buy as little as you like - instead of being forced to buy a minimum of £2500. Or you could wait ten years and buy some then. 'Ten years! The people who bought Bolton's first fund from the beginning did fantastically well'. Yes, it did fine for the first ten years, but it was only in the early nineties, around 1992 that it really took off. And the first five years of its life gave little sign of the fireworks to come. Here's the picture.

'Well I can't risk that - Bolton may only hang around for a couple of years.' Some people would see that as a reason for caution. Besides, you may be able to pick the shares up at a discount.

'Discount?'

Ok, we'll deal with the discount later. Meanwhile I couldn't interest you in a global equites tracker?

'Nah. Too boring.'