Index funds

[mdianuk]

lewisf182 said:

Oh really? In what way would that be?
I'll monitor it for a year and see if I still feel OK with it. My first choice is property renovation so may have to move funds around as appropriate

The book advises to go in the direction of index funds with a bonds element. I had assumed that fiveraday focus a proportion of the money you invest into individual stocks etc. I might however be wrong with that assumption as I cannot find examples on their website, so please disregard once confirmed.

I'm heading down the route of a multi-asset fund like Vanguards. Yes it would be lovely for me to manage it all myself, and adjust each year accordingly, but in reality, I don't have the knowledge to take that risk at the moment; similarly as to why fiveraday and others are a good idea, to take that requirement away.

[Jon39]

mdianuk said:

The book advises to go in the direction of index funds with a bonds element. ...

Yes it would be lovely for me to manage it all myself, and adjust each year accordingly, but in reality, I don't have the knowledge to take that risk at the moment ...

I began 30 years ago with an interest in the subject, but very little detailed knowledge. My first equity purchase was about £200. I am amazed now at what has been possible since that tiny beginning. Compounding really gathers pace over the long-term. That period of course does include several recessons, but you can learn to cope with those, even buying when confident to your advantage. My reasoning is that practical experience of the subject is the best way to gradually learn sensible investing. Many people could be successful if
they tried, but in practice, I think most probably think their savings are best kept in cash accounts.
Unfortunately for them, history shows long-term cash saving is a disaster. Inflation is the killer.

I don't know which book you are referring to, but I was amused by your reference to 'bonds element, and your own comment about 'I don't have the knowledge ...'
Bond values partly move inversely to interest rates. Therefore with interest rates so low now, bond values will fall when/if interest rates rise. Forecasting economics is a guessing
game, but I would not touch bonds now. They can though produce good returns, during a
period of falling interest rates.

Edited by Jon39 on Monday 17th April 22:31

[anonymous-user]

Jon39 said:

I began 30 years ago with an interest in the subject, but very little detailed knowledge. My first equity purchase was about £200. I am amazed now at what has been possible since that tiny beginning. Compounding really gathers pace over the long-term. That period of course does include several recessons, but you can learn to cope with thone to you advantage. My reasoning is that practical experience of the subject is the best way to gradually learn sensible investing. Many people could be successful if they tried, but in practice, I think most probably think their savings are best kept in cash accounts.
Unfortunately for them, history shows long-term cash saving is a disaster. Inflation is the killer.

I don't know which book you are referring to, but I was amused by your reference to 'bonds element, and your own comment about 'I don't have the knowledge ...'
Bond values partly move inversely to interest rates. Therefore with interest rates so low now, bond values will fall when/if interest rates rise. Forecasting economics is a guessing game, but I would not touch bonds now. They can though produce good returns, during a period of falling interest rates.

Edited by Jon39 on Monday 17th April 22:27

Jon in your experience what is better:
a) regular monthly investment
b) regular yearly lump sum investment
Thanks

[Jon39]

jsd14 said:

Jon in your experience what is better:
a) regular monthly investment
b) regular yearly lump sum investment
Thanks

My interest is only in direct equity holdings. It has worked for me, so why would I pay fees (some hidden) to fund managers, of which a considerable proportion cannot out perform the market.

Whether a) or b) is more suitable ( cannot say which is better), depends upon the sums available for investment. The problem with this for direct equities though, would be the purchase fees involved for every acquisition. If say buying GSK, and holding for a long time, the purchase fees eventually become insignificant, but you would not want to buy a small holding every month with costs every time.

[sidicks]

jsd14 said:

Jon in your experience what is better:
a) regular monthly investment
b) regular yearly lump sum investment
Thanks

Better in what way?

[mdianuk]

Jon39 said:

I don't know which book you are referring to, but I was amused by your reference to 'bonds element, and your own comment about 'I don't have the knowledge ...'

Why does that amuse you? I clearly stated that is the suggestion of the book I have read, but I don't have the knowledge in practise to know whether that is correct today or not. My lacking knowledge is the reason why I'm likely to go the route of a proven multi-asset fund, rather than attempting to 'guess' what works and what doesn't from the extensive global funds available. I'm not looking for a 'get rich quick' approach. Anything better than inflation is a start.

My challenge is who to use; I bank with Lloyds but don't like the separation of their share dealing services from their banking services (for transparent easy access from a phone etc). I like Hargreaves, but their admin rates are high!

[Jon39]

mdianuk said:

Why does that amuse you? I clearly stated that is the suggestion of the book I have read, but I don't have the knowledge in practise to know whether that is correct today or not. My lacking knowledge is the reason why I'm likely to go the route of a proven multi-asset fund, rather than attempting to 'guess' what works and what doesn't from the extensive global funds available. I'm not looking for a 'get rich quick' approach. Anything better than inflation is a start.

My challenge is who to use; I bank with Lloyds but don't like the separation of their share dealing services from their banking services (for transparent easy access from a phone etc). I like Hargreaves, but their admin rates are high!

The word amuse was not really right. Perhaps surprised .
If people think interest rates might rise from the present base rate 0.25%, rather than fall, then holding bonds is not a good idea because of the inverse relationship aspect.

On your who to use point. If you have ambitions to slowly become a serious investor, then keeping investments within an ISA is important. Initially there is no benefit, but as the portfolio grows the CGT liability gathers pace, and hence the ISA protection becomes important. Many ISA providers charge fees based on the value of your investments. That can mean huge fees eventually. Barclays Stockbrokers and probably others operate a maximum limit to their fee. Anyone lucky enough to reach the £m, wil still only pay an annual fee of £30 + £6 VAT.

Anyone using a buy and hold long-term basis, still has the old fashioned option of share certificates. No annual fees at all then, but of course outside an ISA.

You are wise to dismiss 'get rich quick'. As with many new investors, I initially favoured tiny companies because they might grow faster. Soon discovered that just introduces greater risk. Surprisingly over the long- term, dividends form a significant part of the total return. For 25 years I have stayed with big defensive, UK based but internationally trading FTSE 100 companies. Owning part of those international businesses means there is no need to invest in overseas funds. Many of my holdings have remained the same throughout that period. Some would call such holdings boring, but last year although exceptional, because of the Sterling devaluation, they resulted in a total increase of 22.17% incl. dividends. That met your objective of 'better that inflation', and also beat the market average. So far this year it is 11% up, and I would be more than happy with that growth at the year-end, but nobody knows what will happen before then.

Best of luck Ian. If you do go for a publicly available fund, try a couple of your own direct shareholdings as well, because if you want to, it should help you to learn more about shareholding, business, markets and investment. I think one feels a greater personal involvement, and therefore perhaps then takes greater interest in following what is happening.

[mdianuk]

Jon39 said:

Best of luck Ian. If you do go for a publicly available fund, try a couple of your own direct shareholdings as well, because if you want to, it should help you to learn more about shareholding, business, markets and investment. I think one feels a greater personal involvement, and therefore perhaps then takes greater interest in following what is happening.

Thanks Jon, I've kicked things off with a part contribution of the LISA first, with Hargreaves Lansdown, just to get a feel of everything, using the VLS100 fund (because I'm happy to take higher risk on small contributions like this that have to stay in the account for the best part of 20+ years).

Ironically I said to my missus that as usual, I bet I can time my purchase to perfection and see a drop in indexes...and then the general election announcement happened moments later...I have skills (fortunately I know it is important to not try and 'time the market', plus fund purchases through HL are actioned overnight, so I should get slightly better value after today's drops).

[sidicks]

Jon39 said:

The word amuse was not really right. Perhaps surprised .
If people think interest rates might rise from the present base rate 0.25%, rather than fall, then holding bonds is not a good idea because of the inverse relationship aspect.

On your who to use point. If you have ambitions to slowly become a serious investor, then keeping investments within an ISA is important. Initially there is no benefit, but as the portfolio grows the CGT liability gathers pace, and hence the ISA protection becomes important. Many ISA providers charge fees based on the value of your investments. That can mean huge fees eventually. Barclays Stockbrokers and probably others operate a maximum limit to their fee. Anyone lucky enough to reach the £m, wil still only pay an annual fee of £30 + £6 VAT.

Anyone using a buy and hold long-term basis, still has the old fashioned option of share certificates. No annual fees at all then, but of course outside an ISA.

You are wise to dismiss 'get rich quick'. As with many new investors, I initially favoured tiny companies because they might grow faster. Soon discovered that just introduces greater risk. Surprisingly over the long- term, dividends form a significant part of the total return. For 25 years I have stayed with big defensive, UK based but internationally trading FTSE 100 companies. Owning part of those international businesses means there is no need to invest in overseas funds. Many of my holdings have remained the same throughout that period. Some would call such holdings boring, but last year although exceptional, because of the Sterling devaluation, they resulted in a total increase of 22.17% incl. dividends. That met your objective of 'better that inflation', and also beat the market average. So far this year it is 11% up, and I would be more than happy with that growth at the year-end, but nobody knows what will happen before then.

Best of luck Ian. If you do go for a publicly available fund, try a couple of your own direct shareholdings as well, because if you want to, it should help you to learn more about shareholding, business, markets and investment. I think one feels a greater personal involvement, and therefore perhaps then takes greater interest in following what is happening.

That's slightly misleading, given that it's the Bank of England base rate that people expect to increase at some point, but that won't necessarily impact longer-dated bond rates, which already reflect some expectation of future base rate changes.

[WindyCommon]

mdianuk said:

Jon39 said:

Best of luck Ian. If you do go for a publicly available fund, try a couple of your own direct shareholdings as well, because if you want to, it should help you to learn more about shareholding, business, markets and investment. I think one feels a greater personal involvement, and therefore perhaps then takes greater interest in following what is happening.

Thanks Jon, I've kicked things off with a part contribution of the LISA first, with Hargreaves Lansdown, just to get a feel of everything, using the VLS100 fund (because I'm happy to take higher risk on small contributions like this that have to stay in the account for the best part of 20+ years).

Ironically I said to my missus that as usual, I bet I can time my purchase to perfection and see a drop in indexes...and then the general election announcement happened moments later...I have skills (fortunately I know it is important to not try and 'time the market', plus fund purchases through HL are actioned overnight, so I should get slightly better value after today's drops).

If this is capital you can commit for 20 years, are you sure you need an ISA and not a SIPP? Do your present pension arrangements leave you with any SIPP'able capacity?

[mdianuk]

WindyCommon said:

If this is capital you can commit for 20 years, are you sure you need an ISA and not a SIPP? Do your present pension arrangements leave you with any SIPP'able capacity?

I have no existing pension and have no clue about SIPP's. I will be back in about a week after I've researched with countless questions. I have the money for all options I guess!

[FredClogs]

mdianuk said:

WindyCommon said:

If this is capital you can commit for 20 years, are you sure you need an ISA and not a SIPP? Do your present pension arrangements leave you with any SIPP'able capacity?

I have no existing pension and have no clue about SIPP's. I will be back in about a week after I've researched with countless questions. I have the money for all options I guess!

I'd take a SIPP over a LISA, unless you're using the LISA for the first time buyer option. The fee for getting out of the LISA before you're 60 is punitive, the amount you can put in is 1/10th of the amount you can put in a SIPP and the bonus is paid yearly, the tax relief on a SIPP is essentially on each contribution.

I think the LISA is doomed to be a failure. Pension regs are bound to change in the next 20 or 30 years,just treat it like an ISA that you get 25% tax relief on the money going in and that's locked away until you're 60 ish.

[FredClogs]

ReallyReallyGood said:

FredClogs said:

The funds are prefixed xgbp or x(whatever currency you want to hedge) as far as I remember.

Thanks Fred, some good info.

The last 48 hours have seen a double whammy of our currency strengthening and global indexes going red as well as the FTSE taking a belt from the strengthening pound... It's an ideal demonstration of where currency hedged global equity funds should have outperformed the standard funds (I know comparing a global equity index funds performance over the last 48 hours is a trite meaningless - but never the less bear with me)

And they do seem to, any global equities bought since the pound crashed at the end of last summer have had their immediate value kicked in the nads... But the beauty of a fund rather than just straight trade deals is that there is new money going into the fund all the time and the fund is buying more equity all the time so in time the things will even itself out as the new money coming in now buys more US/EU/JP stock per £. Although we've a long way to go against the dollar to get back to the longer term avg. With most of the currency hedged funds charging fees of up to 0.5% higher than their unhedged counterparts it does seem in the long term an unnecessary expense, that said it's painful to see 2% wiped of the value of your portfolio in 48 hours largely due to currency movements...


I think I understand this but the above could be complete BS.

[WindyCommon]

mdianuk said:

I have no existing pension and have no clue about SIPP's. I will be back in about a week after I've researched with countless questions. I have the money for all options I guess!

Having missed out on real returns during the last decade it appears you have ended up investing some already-taxed money you don't need for 20 years in a cheap (22bps) fund held on a platform that's costing you more than twice as much. Despite talking about the need to keep costs low etc, you're paying nearly 70bps in total for very little value add.

In a SIPP you might well have been able to reclaim income tax on what you invested, adding an immediate 25%. If you're a higher rate taxpayer you'd have been able to reclaim the rest a little later. This money could have been invested in a similar fund on a cheaper platform. That way you'd be +40% at the outset, with lower ongoing deductions also. That's a massive difference, especially when compounded for twenty years.

Your posts show your (admirable) appetite to engage and understand, and have elicited the usual barrage of responses of varying quality. But without a background in financial services it's really hard to get up the first part of the learning curve on all of this, not least because of overcomplicated tax and regulation. At the risk of repeating myself, I think you might really benefit from a good adviser who can help you up the learning curve. If you ask friends/colleagues for recommendations you'll find an adviser who will work with you to get a good financial plan / investment framework in place.

[WindyCommon]

FredClogs said:

... But the beauty of a fund rather than just straight trade deals is that there is new money going into the fund all the time and the fund is buying more equity all the time so in time the things will even itself out as the new money coming in now buys more US/EU/JP stock per £...

Fred - when new money enters the fund it does (as you say) buy more underlying stock per £. But, existing holders don't benefit from this as the price per share for the fund itself is lower so the new owners receive more fund shares per £ invested themselves. In this way, equity between shareholders is retained. I hope this makes sense.

[mdianuk]

WindyCommon said:

Having missed out on real returns during the last decade it appears you have ended up investing some already-taxed money you don't need for 20 years in a cheap (22bps) fund held on a platform that's costing you more than twice as much. Despite talking about the need to keep costs low etc, you're paying nearly 70bps in total for very little value add.

In a SIPP you might well have been able to reclaim income tax on what you invested, adding an immediate 25%. If you're a higher rate taxpayer you'd have been able to reclaim the rest a little later. This money could have been invested in a similar fund on a cheaper platform. That way you'd be +40% at the outset, with lower ongoing deductions also. That's a massive difference, especially when compounded for twenty years.

Your posts show your (admirable) appetite to engage and understand, and have elicited the usual barrage of responses of varying quality. But without a background in financial services it's really hard to get up the first part of the learning curve on all of this, not least because of overcomplicated tax and regulation. At the risk of repeating myself, I think you might really benefit from a good adviser who can help you up the learning curve. If you ask friends/colleagues for recommendations you'll find an adviser who will work with you to get a good financial plan / investment framework in place.

This has become all too obvious to me recently with a 6 figure Cash ISA squandered when it could have been earning significant interest in investments that have done incredible well over the past 8 years.

The reason for a LISA, in addition to a S&S ISA now is that I have that monies available in the Cash ISA and do not need it to continue enjoying the life we have (money elsewhere, nice but not required car etc)

As far as I see it, you are never too late, and if I have the funds to contribute to all schemes, then I might as well start now. If the LISA product doesn't continue to receive the backing of the government, then I'm working on the basis that they'll have to allow transfers out/across without penalty, in which case, which not at least take £1k for a £4k contribution; you won't get interest like that in many places.

The pension has never been a consideration to me, for the most part because I've always run my own companies, and so taking money out of either my pocket or that of my company wasn't viable to me. I now realise that this was short-sighted, but hey, life goes on.

I'm going to sort this LISA first (drip feeding it), then before I tackle the S&S ISA, I will research the SIPP much more. Unfortunately I do feel that I'm jumping in on the crest of a wave with the indexes, but I have to readjust my thinking to a long term approach.

[mdianuk]

FredClogs said:

I think the LISA is doomed to be a failure. Pension regs are bound to change in the next 20 or 30 years,just treat it like an ISA that you get 25% tax relief on the money going in and that's locked away until you're 60 ish.

But (and this might be the issue I have with SIPP's and pensions in general) I have to pay tax on 75% of the fund, where as any money contributed or invested in a LISA or S&S ISA is tax exempt (poor choice of wording no doubt).

Am I understanding it wrong because of that 75%, it is actually not taxed at salary, and therefore it cancels itself out? What about a large sum contribution, that has of course already been taxed!

(The majority of my 'pay' is in dividends FYI, and I keep below the higher tax band as I don't need more and don't wish to pay 40% tax on anything above)

Edited by mdianuk on Wednesday 19th April 18:30

[FredClogs]

WindyCommon said:

FredClogs said:

... But the beauty of a fund rather than just straight trade deals is that there is new money going into the fund all the time and the fund is buying more equity all the time so in time the things will even itself out as the new money coming in now buys more US/EU/JP stock per £...

Fred - when new money enters the fund it does (as you say) buy more underlying stock per £. But, existing holders don't benefit from this as the price per share for the fund itself is lower so the new owners receive more fund shares per £ invested themselves. In this way, equity between shareholders is retained. I hope this makes sense.

Yes, it does. So unless you're regularly investing in a global or US based equity fund the next few months as the pound rises against the dollar could be quite a painful exercise.

[WindyCommon]

FredClogs said:

Yes, it does. So unless you're regularly investing in a global or US based equity fund the next few months as the pound rises against the dollar could be quite a painful exercise.

Yes - unless you own a GBP-hedged share class.

[FredClogs]

WindyCommon said:

FredClogs said:

Yes, it does. So unless you're regularly investing in a global or US based equity fund the next few months as the pound rises against the dollar could be quite a painful exercise.

Yes - unless you own a GBP-hedged share class.

Which is where we came in...

So maybe currency hedged funds are a good idea - thanks for the advice I'm going to transfer all my money into a currency hedged fund right now ;o)

The Pound didn't gain today and to be honest my ill informed opinion is tending towards the pound being cheap for quite some time yet, I can't see a 10% or 15% strengthening against the dollar or Euro coming quickly if it ever does happen. Farage has a lot to answer for.