Bed & ISA during a dip?

I was having a read around the internet last night, and I came across this little tip.

If you're moving investments into an ISA, try to do it during a dip. That way you get more units into the tax shelter.

Obviously all very good in theory, although I have no idea how you're supposed to call the dip, any more than you can call the bottom of the market at any other time?

I usually subscribe to an ISA early in the tax year, reasoning that that the sooner it's in there, the better. But would a better strategy be to hold off for a while and wait for a dip of x%? (And if no dip, have a target date to bed & ISA by.)

Lets assume that the investment is staying the same, so the only 'risk' is that I achieve the opposite of what I'm trying to do - i.e. the market keeps rising through the year and I end up putting fewer units into the ISA.
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Comments

  • InvestInPoker
    InvestInPoker Posts: 1,356 Forumite
    You can't time a dip. Saying "try to do it during a dip" is bad, if that is the articles advice I would dismiss it.

    As you say the downside of bed and isa is that you will be out of the market for the time between selling the holding and repurchasing it again inside the ISA. Assuming your fund trades daily and your platform executes the instruction correctly and as swiftly as possible this might be for just 24 hours. You will just have to accept that you will miss whatever happens in the market during that time.
    I usually subscribe to an ISA early in the tax year, reasoning that that the sooner it's in there, the better

    Correct
    would a better strategy be to hold off for a while and wait for a dip of x%? (And if no dip, have a target date to bed & ISA by.)

    No, your original strategy has a higher overall long term return on your money.
  • Freecall
    Freecall Posts: 1,304
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    It is rarely discussed but if you are serious MSE it makes a lot of sense although arguably difficult to implement in practice.

    The beauty is that from an investment point of view you don't need to call the bottom of the dip as it doesn't really matter if you get it wrong.

    The downside that is usually glossed over is that in order to take advantage of such a situation you need to have not used your ISA allowance for the current year.

    it makes most sense when transferring pension funds and I suspect that there will be many who will have taken advantage during the current dip in asset values in order to minimise tax.
  • mad_rich
    mad_rich Posts: 868
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    Freecall wrote: »
    The beauty is that from an investment point of view you don't need to call the bottom of the dip as it doesn't really matter if you get it wrong.

    This is what appeals to me. As far as the underlying investment is concerned, it doesn't matter what the markets are doing. (I accept the dealing costs and being out of the market for 24 hours as part of bed & ISA.)

    The only downside I can see is if the market never dips during the year, and I end up buying fewer units for £15k in the following March than I would have done if I'd done it in April.

    Given that markets tend to rise, InvestInPoker's point would appear to make sense - the best long-term strategy is to get it tax-sheltered early.

    But equally, markets are volatile. And a policy of 'wait for the first 10% dip or do it by the end of August' (or perhaps something more cleverly worked-out than that!) also makes sense.
  • dunstonh
    dunstonh Posts: 115,911
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    Bed and ISA means you sell the funds in the GIA and wait for the money to settle. Then you move it to the ISA and then buy the funds in the ISA. You will be out of the market for approx 7 days. It is impossible to know what they next 7 days will do. A downturn could continue which would be good for you. It could bounce and you miss the bounce. You do not know what it going to happen in advance.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Freecall
    Freecall Posts: 1,304
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    dunstonh wrote: »
    ....sell the funds in the GIA and wait for the money to settle.

    I was interpreting the OP's question in terms of the general investment picture. Clearly if only considering assets which take time to realise and then re-invest there will be time out of the market during which prices can move. This would apply to moving them anywhere at any time.

    The real benefit lies where relatively liquid assets are held and particularly when switching between wrappers. This takes any investment issues out of the equation and merely operates as a tax-planning excersise.

    Also, as I say, the biggest benefits arise in situations where your ISA allowance may not otherwise have been able to have been used.

    I would have thought that a significant number of people might find themselves able to benefit.
  • westy22
    westy22 Posts: 1,105
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    Of course, if you are lucky enough to be holding cash in the bank, then the solution is to buy into the ISA with new cash when the market is low and then immediately sell the equivalent unwrapped value to recover back into your bank account.

    Of course, you suffer both buying and selling fees but then you would have at least one buy or sell fee even if using Bed and ISA.
    Old dog but always delighted to learn new tricks!
  • dunstonh
    dunstonh Posts: 115,911
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    edited 5 October 2015 at 10:53AM
    I was interpreting the OP's question in terms of the general investment picture. Clearly if only considering assets which take time to realise and then re-invest there will be time out of the market during which prices can move. This would apply to moving them anywhere at any time.

    Time is the only issue with bed & ISA though. If you hold xyz fund in the GIA and are buying it back in the ISA then the only difference (other than tax wrapper) is the movement between the sell and buy.

    That said, I tend to do my bed & ISA and rebalancing at the same time. So, often the funds and ratios being sold in the GIA are different to the purchase within the ISA.

    I wonder is we are talking bed & ISA (as per thread title) or just choosing when to invest from cash.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • N1AK
    N1AK Posts: 2,903
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    mad_rich wrote: »
    This is what appeals to me. As far as the underlying investment is concerned, it doesn't matter what the markets are doing. (I accept the dealing costs and being out of the market for 24 hours as part of bed & ISA.)

    If what appeals to you is that you think it has no downside, then it just emphasises that you don't understand what you are considering.

    Look at a chart of the FTSE100 for various years and try and come up with something approaching a consistent rule that would tell you when to buy in dips that gave you an edge.

    If you define dip as too small you'll buy buy in too early in some years, and not buy in at all in others. If you define it too harshly then you'll not buy in during many of the best performing years.

    If you can really time the market then you're wasting your time just doing this, you could make a fortune with that ability...
    Having a signature removed for mentioning the removal of a previous signature. Blackwhite bellyfeel double plus good...
  • N1AK
    N1AK Posts: 2,903
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    mad_rich wrote: »
    But equally, markets are volatile. And a policy of 'wait for the first 10% dip or do it by the end of August' (or perhaps something more cleverly worked-out than that!) also makes sense.

    If you want to maximise potential return sooner is better, if you want to control risk then spreading investment is better.

    Even if an arbitrary rule like 10% or August could be shown to work in past years there's no reason to think it will in future. For that example this year is already an example of that not working for the FTSE100, you'd have bought in in August at ~6,700 just before the large fall we've just seen. I don't think it saw a 10% fall in either 2012 or 2013 either, so you'd just be buying at August's price each year.
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  • westy22
    westy22 Posts: 1,105
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    dunstonh wrote: »
    I wonder is we are talking bed & ISA (as per thread title) or just choosing when to invest from cash.

    The principle is exactly the same - selling an asset in an unwrapped account and buying either the same, or a different, asset within the ISA wrapper.

    If you are holding the ISA and the GIA with the same platform then you can use their Bed & ISA facility to possibly save a re-buy fee and get an almost instantaneous transfer but if your GIA and ISA are on different platforms then the method of using cash in hand to effect the transfer is still preferable to selling and waiting 7 days to re-buy when you have no idea what the market will do in the meantime.

    I know exactly how much interest my loss of bank cash will cost me for 7 days (the square root of nothing!).
    Old dog but always delighted to learn new tricks!
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