Once you have answered these questions and are ready to invest, it is prudent to only buy a couple of funds initially.
Even for those who have large pots (£100,000 or more) advisers recommend holding no more than 20. This is down to the fact that buying too may funds can result in holdings overlapping.
There is not one single fund that meets everybody's goals and needs, but a combination of funds and investment trusts could provide a balanced, diversified portfolio at a time when stock and bond markets look bouncy, and big questions remain over the health of the global economy.
'As no-one knows whether the ultimate end-game will be recession or recovery, deflation or inflation, one possible strategy is to build a portfolio designed to combat all eventualities,' says Russ Mould, investment director at AJ Bell.
When he was the lead strategist at French investment bank Société Générale, Dylan Grice devised what he called the 'cockroach portfolio'.
His aim was to draw up a strategy as robust as the indestructible insect, whatever the market conditions. That portfolio consisted of 25 per cent in each cash, gold, equity income and good-quality bonds.
Building on Grice's strategy, Mould recommends the following funds as useful building blocks. But it is worth pointing out that not everyone is a fan Grice's portfolio, particularly the gold weighting.
Most advisers recommend that the precious metal should only form a small part of a diversified portfolio, around 5 per cent to 10 per cent.
Newton takes a thematic view, looking for big trends throughout the world and then select stocks which they believe will benefit from these themes.
The fund has a strict income mandate of 25 per cent above the benchmark and any stocks whose yield falls below the benchmark average will be sold.
Unlike many UK equity income funds, Chelverton UK Equity has a focus on mid and small-cap stocks that offer a prospective yield at purchase that is 50 per cent greater than the FTSE Mid and Small Cap average yield.
Lowcock explains that exposure to the service sector and financials have been beneficial for the fund in recent years. Given this fund focuses on mid and smaller companies patience is required.
Commenting on bonds, Mould says that it is a tricky area as investors used to buy fixed-income as an asset class for income, but yields are now getting skinny and many are buying for capital appreciation in the view central banks are snapping up government and corporate debt at almost any price as part of their quantitative easing (QE) schemes.
It may therefore pay to investigate a flexible bond fund, which can invest across a range of bonds, by issuer, geography and maturity, to provide downside protection and some yield while seeking some capital gains too.
One of the biggest and best-known here is the M&G Optimal Income fund, says Mould.
When it comes to gold, Evy Hambro's BlackRock Gold and General does not offer much of a yield but the £1.5 billion fund is geared into any further gains in precious metal prices through its ownership of stakes in 50 gold and silver miners.
Gold and silver has historically tended to do well during times of inflation and are seen by some as a hedge against central banks electronically creating more and more money through their various QE schemes.
If you wish to keep cash, says Mould, then paying a fund manager to hold it may be a slightly costly way of going about it, although dedicated money market funds will try to get you a return without taking much risk - albeit in exchange for a fee.
An alternative would be to consider a short-duration bond fund, which could offer some protection when or indeed if interest rates go up again.
One fund to research here is Axa Sterling Credit Short Duration Bond, which still offers a yield of around 1.75 per cent.
A further option would be to look at a multi-asset or multi-manager fund, which has within its mandate the ability to hold a lot of cash, should the fund manager believe it is appropriate.
Marcus Brookes and team run Schroders MM Diversity Income and currently have a 21 per cent cash position, the second biggest weighting in the fund behind only UK equities, and just ahead of global equities and bonds.
The aim of the fund is to provide total returns ahead of consumer price index inflation over a market cycle whilst also making an average 4 per cent annual income payment on a rolling five-year view.
Besides funds and investment trusts investors can assess the merits of exchange-traded funds (ETFs), which are designed to track - or mirror - the performance of an index or basket of traded securities and deliver that performance to investors, minus any running costs.
Since these are so-called passive funds, run by a computer, and not active ones run by a person trying to outperform an index, the costs are often a lot lower with ETFs than with funds or investment trusts.
FOOD FOR THOUGHT
'Don't chase growth alone,' cautions Lowcock. 'Many first-time investors want the short cut to success, but there isn't one. Investing is about taking risks but small calculated risks.'
Long-term performance of investments has on the whole come from companies able to grow their businesses and return profits to shareholders, often in the form of dividends.
Compounding, through the reinvestment of those dividends, is a way to boost the value of your investments over the longer term.
'Focus on your goals not the headlines, they are likely to cause you to panic and react in an irrational way,' says Lowcock.
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