Drip feeding a s&s isa vs a etf

Drip feeding a s&s isa vs a etf

Author
Discussion

egor110

Original Poster:

16,818 posts

202 months

Thursday 16th May 2019
quotequote all
I'm considering putting more of my cash into a shares isa or etf as it's earning bugger all in a savings account .

The shares isa will be tax free so are there any advantages to go with the etf instead ?

Rather than dumping a load in a couple of times a year i plan on either dripping it in monthly or weekly .

egomeister

6,698 posts

262 months

Thursday 16th May 2019
quotequote all
Can't you get the ETF within the S&S wrapper?

egor110

Original Poster:

16,818 posts

202 months

Thursday 16th May 2019
quotequote all
Yes , perhaps should i get a etf or a index tracker would be a better question ?


putonghua73

615 posts

127 months

Thursday 16th May 2019
quotequote all
egomeister said:
Can't you get the ETF within the S&S wrapper?
I too read the OPs post as inferring an incorrect belief that an ETF cannot be included in a S&S ISA.

An ISA is just a tax-wrapper i.e. tax-free accounts for savings or investments - ETFs can be included in a S&S ISA. The reason it is generally not advisable to use an ETF with smaller (<£1k per contribution) regular contributions is because ETFs are traded like shares i.e. you pay brokerage costs to buy and sell an ETF.

If you invested £1.2k over a year (£100 p/m), you would end up paying 12 lots of buying costs, which could equate to up to c10% of your total pot in fees. However, I believe that Vanguard (maybe other brokers) offer free dealing on the proviso that you use bulk dealing i.e. bulked transactions twice a day. If you want an intra-day price, you pay £7.50.

Once you identify a fund that you wish to invest in, look at the on-going management fees and any transaction costs for making regular contributions for a mutual fund and for the ETF. You can then decide what is the better option. Note: make sure that you read the factsheets very carefully to understand how each is tracking the underlying asset. They may track in very different ways, that may give different results [variance to the underlying asset] and be more riskier than initially suspected.

Couple of articles:
Investopedia
Motley Fool

The MF article also points out the difference in treatment of dividends - another consideration when choosing a passive investment vehicle.


Edited by putonghua73 on Thursday 16th May 14:03

egor110

Original Poster:

16,818 posts

202 months

Thursday 16th May 2019
quotequote all
putonghua73 said:
I too read the OPs post as inferring an incorrect belief that an ETF cannot be included in a S&S ISA.

An ISA is just a tax-wrapper i.e. tax-free accounts for savings or investments - ETFs can be included in a S&S ISA. The reason it is generally not advisable to use an ETF with smaller (<£1k per contribution) regular contributions is because ETFs are traded like shares i.e. you pay brokerage costs to buy and sell an ETF.

If you invested £1.2k over a year (£100 p/m), you would end up paying 12 lots of buying costs, which could equate to c10% However, I believe that Vanguard (maybe other brokers) offer free dealing on the proviso that you use bulk dealing i.e. bulked transactions twice a day. If you want an intra-day price, you pay £7.50.

Once you identify a fund that you wish to invest in, look at the on-going management fees and any transaction costs for making regular contributions for a mutual fund and for the ETF. You can then decide what is the better option. Note: make sure that you read the factsheets very carefully to understand how each is tracking the underlying asset. They may track in very different ways, that may give different results [variance to the underlying asset] and be more riskier than initially suspected.
So instead of drip feeding i'd be better off dumping it in twice a year and paying less brokerage fees.

Does a index tracker have any benefits over a ETF ?

What i'm after is a alternative to a savings account where i can park money for 10 years .

I have no mortgage and paying the max into my work pension so at the moment all spare money sits in cash isa .

putonghua73

615 posts

127 months

Thursday 16th May 2019
quotequote all
egor110 said:
So instead of drip feeding i'd be better off dumping it in twice a year and paying less brokerage fees.

Does a index tracker have any benefits over a ETF ?

What i'm after is a alternative to a savings account where i can park money for 10 years .

I have no mortgage and paying the max into my work pension so at the moment all spare money sits in cash isa
The main differences are:
- ETF are traded as shares - incurs a transaction fee for each buy / sell
- Index funds have the option to accumulate dividends
- ETFs may be physical (holds all or a sample of the underlying asset / index) or synthetic (buys swaps to track the underlying asset / index)

ETFs are generally, but not always, cheaper in terms of TER [Total Expense Ratio] - but be mindful of transaction costs and dividend treatment. ETFs generally track a wider range of assets than index funds.

The important question is what asset(s) classes do you wish to invest in? MSCI World Index is a good default [equities] because it holds a mixture of different equities in different regions around the world, without the need to buy multiple funds. That said, most world indexes are still heavily driven by the US e.g. 50%+ exposure. You could then buy a global bond fund as part of your portfolio.

Congratulations on your financial position - very enviable! Also, good to hear that you have a realistic time-frame (10 years+).

egor110

Original Poster:

16,818 posts

202 months

Thursday 16th May 2019
quotequote all
I've really only started looking but these etf's seem to perform well :

i shares core s&p 500

vanguard total stock market

vanguard s&p 500

invesco qqq trust

i haven't really being much notice of 1 year results more 5-10 year results.

some of the things i've read are saying the ftse is taking a bashing because of brexit fears so that's worth buying into as the shares are low .

One other thing would it be worth putting 50-100 month in a really risky area / emerging market or maybe peer to peer lending ?

putonghua73

615 posts

127 months

Thursday 16th May 2019
quotequote all
egor110 said:
I've really only started looking but these etf's seem to perform well :

i shares core s&p 500

vanguard total stock market

vanguard s&p 500

invesco qqq trust

i haven't really being much notice of 1 year results more 5-10 year results.

some of the things i've read are saying the ftse is taking a bashing because of brexit fears so that's worth buying into as the shares are low .

One other thing would it be worth putting 50-100 month in a really risky area / emerging market or maybe peer to peer lending ?
Cliffnotes version of drip-feeding: you are not timing the market by making regular contributions, as you would with a lump-sum. It is your time in the market that is important. Thus, highs and lows are not as relevant (price is always relevant, but is mitigated via drip-feeding) because over time, you'll achieve an average unit cost.

The FTSE is nowhere near 'pound town' territory IMO i.e. real bear market (sub-4000 in 2008). That said, on both P/E and CAPE ratios, it does look somewhat undervalued - especially when compared to the S&P500. In fact, if you look at the last 10 years, the FTSE100 has been eating dust compared to both the World index, but especially S&P500. However, historical past performance does not necessarily indicate future performance - especailly with S&P500 at near historic highs, very high valuation levels, and 45% of US Corporate Dept (Morgan Stanley report) would be rated as junk based upon leverage ratios.

As Derek has pointed out, the FTSE100 is a small concentration of mostly global companies, whereas the S&P500 is comprised of a deeper pool (and is a much bigger market). Thus, you're focusing on a specific region. A global fund would incorporate these regions, plus others. Others can advise between different index funds.

I'd steer clear for the time being of any spicier areas. I'd avoid P2P lending like the plague. Have a read of DonkeyApple's excellent post on the subject.

JulianPH

9,912 posts

113 months

Thursday 16th May 2019
quotequote all
I think there is a great deal of confusion in this thread.

An ISA is a tax wrapper.

An ETF is a type of investment that can be held within an ISA.

Comparing the two is simply not possible. You can put money into an ETF either within or outside of an ISA.

ETFs generally track a certain market or asset class and are therefore are index trackers.

Unlike funds they are traded on a stock exchange (hence why they are called "Exchange Traded" Funds).

Vanguard is not a broker, it is an investment manager.

Dealing charges are important.

With regard to the ETFs you have listed they all track particular markets. It is the return of those markets that is relevant, not the name of the ETF provider (tracking error and fees aside).

IShares Core S&P 500 and Vanguard S&P 500 both track the American S&P 500 Index.

Vanguard Total Stock Market tracks the entire US stock market.

Invesco QQQ Trust tracks the NASDAQ 100 Index (so it is very technology focused) with lopsided sector weightings.

So out of the 4 ETFs you listed 2 of them track the same US index, 1 tracks the entire US stock market and 1 tracks the largest 100 NASDAQ companies (not necessarily in line with market weightings).

So I would, respectfully, suggest you may be taking to great a leap jumping out of UK deposit accounts in stocks and shares.

I think it might be an idea to move into this with something like Vanguard Life Strategy. Alternatively, if you would like to have someone there to assist you and help inform you may wish to look at the Intelligent Money thread at the top of this sections (disclosure - this is my investment company).

All the best in whatever course of action you decide to take. 10 years is a long time to lose money to inflation every year in current cash rates so looking at the markets for such a period could well be a good idea.


Phooey

12,574 posts

168 months

Thursday 16th May 2019
quotequote all
egor110 said:
What i'm after is a alternative to a savings account where i can park money for 10 years .
Without sounding like an expert (I'm not!) I would pay a lot of attention to fees/costs - it doesn't take a genius to work out the effect of high vs low costs on your investment. 10 years is a long time which you can't get back wink. I've been investing in a S&S ISA for the last 12 years, and whilst there are some very good funds within my ISA, the fees (2%) have reduced the returns. For this year (2019/2020) I am investing in the Intelligent Money (IM) ISA (top of the Finance forum). Total costs are 0.87%, and importantly (for me) I have the ability to pick up the phone and talk to someone (IM Private Client). I just want the best return/results whichever direction the markets are going in. Your situation sounds very similar to mine - straightforward. You are not going to get the best results if you are paying a middle-man (IFA) a fee too.

egor110

Original Poster:

16,818 posts

202 months

Thursday 16th May 2019
quotequote all
Minimum investment is 100k so not a option.

DodgeeDave

507 posts

194 months

Thursday 16th May 2019
quotequote all
egor110 said:
Minimum investment is 100k so not a option.
I don’t think this applies to ph members.

JulianPH

9,912 posts

113 months

Friday 17th May 2019
quotequote all
DodgeeDave said:
egor110 said:
Minimum investment is 100k so not a option.
I don’t think this applies to ph members.
That is right.

PHers can put in the code PH2607 into the "Additional Information" box when applying and this completely removes the minimum investment requirement (and the initial charge).


egor110

Original Poster:

16,818 posts

202 months

Friday 17th May 2019
quotequote all
JulianPH said:
DodgeeDave said:
egor110 said:
Minimum investment is 100k so not a option.
I don’t think this applies to ph members.
That is right.

PHers can put in the code PH2607 into the "Additional Information" box when applying and this completely removes the minimum investment requirement (and the initial charge).
You mentioned the vanguard life strategy product , 60% equity 40% bonds .

It's got ongoing charge fee of 0.22% , would the transaction costs be on top of that and is that every time a share is bought/sold

I've also been looking at the legal and general index trust c , via hargreaves lansdown it only has a fee of 0.8%

Lastly would it be worth having a coffee money punt on emerging markets ?

I could quite easily dump £20 week £100 month into a something a bit risky and worse case all i've lost is money i'd of spent on take away coffee , would it be worth it with this amount of money ?

The product i was looking at is i shares pacific excluding japan equity index which has a 0.15% fee

Thanks everyone for your time replying ,


Edited by egor110 on Friday 17th May 17:21

Derek Chevalier

3,942 posts

172 months

Friday 17th May 2019
quotequote all
Phooey said:
I would pay a lot of attention to fees/costs
Agreed

Phooey said:
I just want the best return/results whichever direction the markets are going in
Abraham Okusanya looked at this back in 2014 and he found that it was very hard to outperform low cost, dumb portfolios

https://finalytiq.co.uk/vanguard-hits-back-beta-is...
https://finalytiq.co.uk/art-delivering-negative-al...


" If clients can access global asset allocation portfolio for less than 25bps, what is the value add for paying any more than that?"

"If you run risk rated multi-asset portfolio, do me a favor, will you? Benchmark them against Vanguard Lifestrategy on a risk-adjusted basis. I am not talking about simply comparing your current portfolio allocation with LifeStrategy, make sure all the historical changes (asset allocation/fund changes, rebalancing) are reflected and then benchmarking your historical portfolios against appropriate LifeStrategy funds. The result might surprise you All that tactical changes to asset allocation and funds, is it really worth it?"

I think he's probably still waiting for outperforming equivalents smile

Phooey said:
You are not going to get the best results if you are paying a middle-man
Agreed (on the assumption you can control your emotions in turbulent times), and I'm assuming you are removing as many middle men as possible and going down the ~25bps fund + ~5bps fund platform DIY route? I started as a DIY investor 20 years ago and it's amazing how much information is available now compared to yesteryear, and also the availability for private investors to buy the market for a low price (and outperform the majority of professionals who incur cost and therefore underperformance trying to beat the market).


https://monevator.com/ is a good place to start if you've not been there already - best of luck with your journey and feel free to post any questions. Maybe we should start a thread with useful resources on evidence based investing.

My podcast recommendation of the day (and someone's review).



https://podcasts.apple.com/gb/podcast/the-long-vie...


egor110

Original Poster:

16,818 posts

202 months

Friday 17th May 2019
quotequote all
So if it's worth getting a low cost product would a index tracker be better than say the vanguard life strategy fund ?

The vanguard has a 0.22% ongoing charge fee ( if i drip fed in once a month would i incur that fee monthly or is it a yearly fee ) , presumably a index tracker should be a lower fee because nobodies managing it , it's just tracking a market ?

Any thoughts on putting £20 week ( coffee money ) into something more risky , emerging markets ?

It's pretty hard to see any countries that are safe at present :

Usa - highly priced so wrong time to buy , economic slowdown on the cards and high government debt

Europe - flat lining

China - entering a slump and the trade war with America , although it seem's they can weather that as so much they produce stays in China.

So is Asia-Pacific worth looking at , such as Australia , Indonesia , Vietnam ?

bitchstewie

50,781 posts

209 months

Friday 17th May 2019
quotequote all
LifeStrategy is a good one stop "lazy" but smart choice I think.

Kind of a "Choose your risk level and go" product.

Don't underestimate the fact that investing is not the same as saving.

If you put £1000 in the bank and go and look a month later you'll still have £1000.

If the concept that you might look and find you have £800 is worrying, you should spend some time thinking about your risk tolerance.

Derek Chevalier

3,942 posts

172 months

Friday 17th May 2019
quotequote all
egor110 said:
Any thoughts on putting £20 week ( coffee money ) into something more risky , emerging markets ?

It's pretty hard to see any countries that are safe at present :

Usa - highly priced so wrong time to buy , economic slowdown on the cards and high government debt

Europe - flat lining

China - entering a slump and the trade war with America , although it seem's they can weather that as so much they produce stays in China.

So is Asia-Pacific worth looking at , such as Australia , Indonesia , Vietnam ?
Look at Exhibit 3

https://us.dimensional.com/perspectives/why-should...

Anyone that can find a pattern in that and call future outperforming regions deserves a medal smile


egor110

Original Poster:

16,818 posts

202 months

Friday 17th May 2019
quotequote all
bhstewie said:
LifeStrategy is a good one stop "lazy" but smart choice I think.

Kind of a "Choose your risk level and go" product.

Don't underestimate the fact that investing is not the same as saving.

If you put £1000 in the bank and go and look a month later you'll still have £1000.

If the concept that you might look and find you have £800 is worrying, you should spend some time thinking about your risk tolerance.
I currently have no mortgage and pay the max into my workplace pension so at present all the spare cash is just sitting in cash isa's doing nothing .

I'm fine sticking a lump sum in then drip feeding over 10 years so from what i've read i should smooth out the peaks and troughs.

I'm also fine drip feeding the £20 a week i spend on coffee into something high risk , knowing full well it could go tits up but i wouldn't of had that money in the bank anyway as it would of been spent on coffee .

To sum up i just want more money to work a bit harder , i'd like to just set up a direct debit that drips feed each month then forget about it .

Thanks for the reply's.

Phooey

12,574 posts

168 months

Friday 17th May 2019
quotequote all
No offence meant OP, but I think you need to avoid trying to be too clever. Risk vs Reward and all that, but unless you already have a good degree of financial knowledge (I certainly don't!) I would avoid getting too technical. I'm sure the above links posted are informative, and nice of DC to offer PH members some free advice, but to me they may as well be in foreign, and are exactly the reason why I've chosen a low-cost fully managed ISA.