Stephen Yiu is co-founder and chief investment officer of the Blue Whale Growth Fund.
Investing offers the chance of significantly higher returns than saving in cash.
This is at the ‘cost’ of watching your money go up and down in value on paper in the short term, but leaving your investment alone long enough makes short-term volatility irrelevant.
Contrary to what most people fear, it is not hard to do.
Here’s how to get started and then build up and manage a successful investment portfolio.
1. Beginners should buy ETF trackers
If you’re new to investing, Exchange-Traded Funds are a great first move. An ETF is a ready-made basket of shares that make up the index it is tracking, giving you exposure to lots of companies in one trade.
This instantly spreads your risk: if one company has a bad day, others can offset it.
Stephen Yiu: ETFs are low effort, low fuss, and the ideal foundation for new investors
ETFs are low cost, easy to buy and sell and transparent in their holdings.
For example, an ETF tracking the S&P 500 index provides instant access to America’s largest companies across multiple sectors.
ETFs are low effort, low fuss, and the ideal foundation for new investors.
For many people, there is no need to venture beyond investing in ETFs to enjoy a successful portfolio, whether in their Isa or pension or both.
2. What ambitious amateurs should do next
By their very nature, your returns from ETFs are only ever going to track the relevant market, never beat it.
For many people, that is all they are looking for, especially given the low costs and ease of choice ETFs offer.
However, once you have cut your teeth with passive investment and built up a nicely diversified portfolio of tracker ETFs, you might want to be more ambitious and seek market-beating returns as the icing on the cake.
The first alternative for more ambitious investors is to look for consistent long-term success from competent, high-calibre active fund managers.
ETFs track the market, but successful active fund managers aim to beat it by spotting opportunities others miss, sidestepping risks early, and making informed decisions across all conditions.
Over time, this advantage can compound into a significant gap between ‘average’ returns and the kind of performance that builds lasting wealth.
But spotting and investing with a good manager is the trick. Here’s what to look for.
– Proven outperformance across multiple years and market cycles, not just one lucky run.
– Transparency and regular communication – keeping investors updated on positioning and performance.
– A clear, repeatable investment process that you can understand and trust.
Without this calibre of management, active funds risk becoming expensive index-trackers – in fact most active funds typically underperform their relevant index.
But when managed properly, truly active funds can be the powerhouse of your portfolio, delivering returns that passive strategies alone can’t match.
3. Investing for profit and pleasure
Picking individual company shares is the most hands-on approach for the more ambitious investor.
You control every decision and can enjoy substantial rewards if you back a winner early.
However, the risks are higher: company missteps, price volatility and concentration can hurt. Success demands research, discipline and the ability to stay calm during market swings.
At Blue Whale, even our professional investors (who analyse markets full time) typically cover just five companies each.
That’s how much work it takes to truly understand a business and its drivers. For private investors, replicating that depth across even a handful of shares can be prohibitive.
That said, stock picking can be enjoyable and even exciting. Following a company’s story, studying its numbers and making your own calls can be as much a hobby as a strategy – one that keeps you engaged with your investments.
Financial ambition: Investing offers chance of significantly higher returns than saving in cash
The bottom line
A smart progression might look like this: start with broad, low-cost ETFs for a diversified base, then add proven active managers – the serious investor’s engine of outperformance – and finally, if time and interest allow, sprinkle in individual shares for challenge and enjoyment.
The real key is patience. Stay the course, ride out the bumps, and let compounding quietly work in your favour. Start early, stick with it, and you’ll give yourself the best shot at long-term financial success.
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