Advice on S&S ISA Funds

Hi All,

I have recently become interested in investing my savings, and over the last couple of months have spent some time researching the various methods available.

I have just finished some extensive renovation work on my property, so have poured all my money into that. Thankfully that is finished now (well got the garden left to do...), so now I am back to saving up the pennies.

The first thing was to build a small emergency fund. Both me and my partner have in excess of £10k now, which we have saved since July, so think we have that sorted. Both are kept in cash ISA accounts at about 0.5% interest, but obviously earning interest is not the aim of these accounts. I think £10k is probably too much, so after paying for the garden work, we will probably look to have about £6k in total.

So I have about £900 each month from my full time work that is not going towards bills and living costs. I plan to put this into a S&S ISA that I set up with H&L a couple of months back.
I realise now that H&L is one of the most expensive platforms, so my first question is whether it is worth moving to another platform before I build any substantial funds in my account?

I am planning on a largely passive investment strategy using funds, drip feeding money in each month. I have settled on the following break down, but would appreciate any advice:

£495 (55%) into the Vanguard Life-strategy 60% fund
£135 (15%) into the HSBC FTSE 250 fund
£135 (15%) into the Vanguard US Index fund
£135 (15%) into the iShares pacific (exc. Japan) fund

My reasoning is that I wanted to use the Vanguard 60 to give me a decent foundation, seeing it as an 'all-round' fund for the bulk of my investment. I want to increase my exposure and risk by introducing a UK FTSE 250 tracker index for smaller companies, and then increase my exposure to the US and Asian markets through their tracked index funds. Using Trustnet and looking at the risk scores, I think given the proportion of my funds that are allocated to each, I end up with a total risk score of around 81, although my maths could be off...! If this is true, is my strategy above sensible, or would I just be better off investing in the Vanguard 80%, or indeed lower at Vanguard 70%? I guess that's a question for myself and the amount of risk I am willing to take.

I am 30 and have no real plans for the money (not sure if this is unwise too...), but will be looking at keeping this invested for easily 10years+. If not longer. I think I am happy with a risk of about 80 at this stage.

I also have additional funds coming in from a self-employed work (consultancy), so could look at increasing the amount I invest each month further. Although I am looking at additional contributions to my pension and overpaying the mortgage with that money. The additional income pushes me into the higher tax bracket, so additional pension contribution seems sensible, although I already contribute 8% and my employer contributes 16%, so is quite healthy I think?

Thanks in advance for any help or guidance.
«13

Comments

  • Alexland
    Alexland Posts: 9,653
    First Anniversary Photogenic Name Dropper First Post
    Forumite
    edited 4 January 2018 at 10:44PM
    We don't give advice but pointers for your consideration.

    On the emergency fund look at using your personal savings allowance to hold the money in 5% FlexDirect and cycling through 5% regular saving accounts.
    DrEskimo wrote: »
    I realise now that H&L is one of the most expensive platforms, so my first question is whether it is worth moving to another platform before I build any substantial funds in my account?

    Given your fund choice you will be paying at least 0.25% with an alternative platform so it's up to you if you can be bothered moving for a 0.20% saving. Also bear in mind HL might charge an exit fee too...
    DrEskimo wrote: »
    If this is true, is my strategy above sensible, or would I just be better off investing in the Vanguard 80%, or indeed lower at Vanguard 70%? I guess that's a question for myself and the amount of risk I am willing to take.

    Your choice but there isn't a VLS70 but you could split your investment 50:50 between VLS60 and VLS80 and rebalance periodically. If you did this you could go to the lower cost Vanguard Investor platform at 0.15% for a total cost of 0.37%

    Also if you don't need access to 60 consider a S&S LISA for a 25% government bonus on up to £4k per year but the platform choice is limited so the fees slightly higher.
    DrEskimo wrote: »
    Although I am looking at additional contributions to my pension and overpaying the mortgage with that money. The additional income pushes me into the higher tax bracket, so additional pension contribution seems sensible, although I already contribute 8% and my employer contributes 16%, so is quite healthy I think?

    Yes healthy but you could still contribute a lot more into your pension to avoid higher rate tax and child benefit clawback (if applicable). Have you seen how much money you need to accumulate and grow above inflation for a comfortable early retirement?? I tune my income to keep within basic rate tax. This year my pension contribution is worth about 5x the value of my car.

    Overpaying the mortgage might be worthwhile if it improves your LTV and resulting interest rate but once you own about 40% of the property the money is usually better invested for a greater long term return than the interest avoided by overpaying. However some people sleep better knowing they have less liabilities and sensitivity to future interest rate rises.
  • DrEskimo
    DrEskimo Posts: 2,337
    First Anniversary Name Dropper First Post
    Forumite
    That's great, thanks for taking the time to respond.
    Alexland wrote: »
    We don't give advice but pointers for your consideration.

    On the emergency fund look at using your personal savings allowance to hold the money in 5% FlexDirect and cycling through 5% regular saving accounts.

    I have indeed. I will look at the terms and conditions and see what is involved. The added interest is certainly welcome, but I do have to balance this with the additional work involved with switching accounts etc. While two jobs is nice from an income perspective, it doesn't leave much free time...!
    Alexland wrote: »
    Given your fund choice you will be paying at least 0.25% with an alternative platform so it's up to you if you can be bothered moving for a 0.20% saving. Also bear in mind HL might charge an exit fee too...

    Yea just had a look at it seems to be about £25 + VAT. I need to think about my fund strategy. I don't think I would change if keeping the funds I have stated, but....
    Alexland wrote: »
    Your choice but there isn't a VLS70 but you could split your investment 50:50 between VLS60 and VLS80 and rebalance periodically. If you did this you could go to the lower cost Vanguard Investor platform at 0.15% for a total cost of 0.37%

    This is a very intriguing proposition and I probably would look at transferring if I chose this strategy. Again, time is the only aspect that needs consideration.
    Alexland wrote: »
    Also if you don't need access to 60 consider a S&S LISA for a 25% government bonus on up to £4k per year but the platform choice is limited so the fees slightly higher.

    Thanks I will look into this. I suspect I will access the money before 60 though.
    Alexland wrote: »
    Yes healthy but you could still contribute a lot more into your pension to avoid higher rate tax and child benefit clawback (if applicable). Have you seen how much money you need to accumulate and grow above inflation for a comfortable early retirement?? I tune my income to keep within basic rate tax. This year my pension contribution is worth about 5x the value of my car.

    No I haven't. I must confess I haven't thought much about my pension at all. I contributed a small amount between ages 20 and 25, but then stopped when I did my PhD. I worked in the private sector for 10months and didn't pay anything into a pension (the work place pension was brought in when I resigned), so really it's only in the last 6months since working with my current employer (academic) that I am contributing anything meaningful unfortunately. I think all my additional income will be at the 40% rate. In principal I fully understand the logic, but not sure I want to contribute all of it! I will research how much I would want at retirement and go from there I think.
    Alexland wrote: »
    Overpaying the mortgage might be worthwhile if it improves your LTV and resulting interest rate but once you own about 40% of the property the money is usually better invested for a greater long term return than the interest avoided by overpaying. However some people sleep better knowing they have less liabilities and sensitivity to future interest rate rises.

    Part of my mortgage is due renewal next month, but think its about 2.4%. The LTV is around 70% based on the purchase price, but I hope the value has increased substantially given the amount of work we carried out. I would estimate we are around the 55% mark now, but not had a formal valuation. I'm not too fussed about paying it all off. Both me and my partner are in well paid jobs and have done very well in terms of house value increase, so it's a sound investment from my perspective. We are likely to move in the next 3-5years as we continue to climb the property ladder. But thank you for the suggestion about 40% being the 'cut-point', very useful to consider.

    Thanks again!
  • ValiantSon
    ValiantSon Posts: 2,586 Forumite
    edited 5 January 2018 at 12:19AM
    DrEskimo wrote: »
    The first thing was to build a small emergency fund. Both me and my partner have in excess of £10k now, which we have saved since July, so think we have that sorted. Both are kept in cash ISA accounts at about 0.5% interest, but obviously earning interest is not the aim of these accounts. I think £10k is probably too much, so after paying for the garden work, we will probably look to have about £6k in total.

    Your ISA rate is rubbish, as you rightly recognise. There is no real advantage in cash ISAs for basic rate tax payers unless they have very significant cash savings and do not wish to transfer those into investments.

    I agree with Alex that moving your emergency fund into better paying current accounts and regular savers is a good way forwards. Nationwide FlexDirect will pay you 5% on £2500 for one year, so I would split the fund across that and another one or two accounts, e.g. Tesco (paying 3% on £3000 - although you do need two direct debits to operate that account) and TSB Classic Plus (paying 3% on £1500).

    You'd have access to Nationwide's regular saver allowing £250 p/m at 5%. I'd suggest a First Direct or HSBC current account also to give acess to their regular savers too - First Direct gives 5% on £300 p/m and HSBC 5% on £250 p/m. (Neither of those accounts require direct debits - HSBC needs 2 standing orders, which you could use to help shift the money around between the different accounts). If you were able to switch an account to HSBC you would also get £150 swithching bonus (+£50 in 12 months), or switching an account to Frist Direct would get you £125 switching bonus. Obviously both acounts need to be funded each month, bu the money doesn't have to remain in them so you can move it around (First Direct = £1000 p/m and HSBC = £1750 p/m).
    DrEskimo wrote: »
    So I have about £900 each month from my full time work that is not going towards bills and living costs. I plan to put this into a S&S ISA that I set up with H&L a couple of months back.
    I realise now that H&L is one of the most expensive platforms, so my first question is whether it is worth moving to another platform before I build any substantial funds in my account?

    Factor in exit fees from Hargreaves Lansdown. They charge £30 plus £25 for each fund. Depending on how many funds you currently hold then it may total quite a lot. Would you save this with another platform? (If you already hold the funds you list then your exit charges would come to £130). Although you might want to think beyond just the one year saving/cost.

    However, see comments below....
    DrEskimo wrote: »
    If this is true, is my strategy above sensible, or would I just be better off investing in the Vanguard 80%, or indeed lower at Vanguard 70%? I guess that's a question for myself and the amount of risk I am willing to take.

    If you did decide to consolidate those funds into just Vanguard LifeStrategy then you could sell the existing funds on Hargreaves Lansdown and purchase the Vanguard fund(s) there too - with no trading costs on funds - (thus keeping everything inside the ISA wrapper) and then transfer to Vanguard's ISA for a much lower fee.

    If you went for just VLS60 or VLS80 then you would pay 0.37% p.a. If you mixed VLS60 with VLS80 then you'd pay two fund OCFs, so your annual fees would be 0.49%, i.e. 100th of a percent more than Hargreaves Lansdown charge for just the platform fee. At some point your investment will get to a point where Vanguard are no longer the cheapest provider, so keep an eye on that and re-evaluate the costs. N.B. Vanguard charge no exit fees.

    If you went for a regular monthly payment into your ISA then, of course, Vanguard charge nothing for this. They also allow you to set a direct debit up to make those payments and you can allocate them straight away to purchasing new units in your funds. They also allow you to pay your account fees by direct debit, so there is no loss in investments.

    Alex has mentioned the advantage of a LISA, but that the available S&S LISAs are very limited. Oddly, the best option seems to me to be with Hargreaves Lansdown. I've posted in another thread on this today, but can't find it now :o . In it I've tried to give some cost comparisons for the different providers. You might want to have a look. (If it find it again I'll post the link.
    DrEskimo wrote: »
    I am 30 and have no real plans for the money (not sure if this is unwise too...), but will be looking at keeping this invested for easily 10years+. If not longer. I think I am happy with a risk of about 80 at this stage.

    Certainly doesn't sound silly. You do need to look at this as a long term thing and 10 years is probably a minimum. At 30 you have probaby got another three decades before retirement, so you shouldn't need to touch it for some time. You seem to be in a good financial position.
    DrEskimo wrote: »
    I also have additional funds coming in from a self-employed work (consultancy), so could look at increasing the amount I invest each month further. Although I am looking at additional contributions to my pension and overpaying the mortgage with that money. The additional income pushes me into the higher tax bracket, so additional pension contribution seems sensible, although I already contribute 8% and my employer contributes 16%, so is quite healthy I think?

    I'd look to keep your income below the higher rate threshold, assuming you aren't pushing significantly over it, and it sounds like you aren't. If you are well into the higher rate bracket then you should probably maximise pension contributions, but accept the tax for what it is and enjoy the benefits of your income!

    8% isn't bad, but there are plenty of us paying double or more, so if you could put more in, which it sounds like you could, then I'd suggest doing so. And the tax relief is an additional incentive!

    As to the mortgage, overpayments are probably a good idea, assuming you don't incur fees - double check what you are allowed to pay. Obviously it will save you interest, but in reducing your LTV you also increase the potential for better deals on remortgaging and, paying it off faster will give you more disposable income sooner to plough into investments and/or pension.
  • Alexland
    Alexland Posts: 9,653
    First Anniversary Photogenic Name Dropper First Post
    Forumite
    edited 5 January 2018 at 12:55AM
    DrEskimo wrote: »
    No I haven't. I must confess I haven't thought much about my pension at all. I contributed a small amount between ages 20 and 25, but then stopped when I did my PhD. I worked in the private sector for 10months and didn't pay anything into a pension (the work place pension was brought in when I resigned), so really it's only in the last 6months since working with my current employer (academic) that I am contributing anything meaningful unfortunately. I think all my additional income will be at the 40% rate. In principal I fully understand the logic, but not sure I want to contribute all of it! I will research how much I would want at retirement and go from there I think.

    Yup although ISAs are fun it sounds like your attention may be best spent thinking more about your pension position. If you haven't contributed much in your 20s then you are likely to have some catching up to do.

    There are many pension planning tools online which generate impressive looking forecasts but remember to consider if they are projecting returns above both inflation and fees. And if those are realistic returns for your asset allocation and our position within the economic cycle. Suggest you learn more about each of your plans and consolidate the smaller ones if appropriate.

    You may read articles about the 4% drawdown rule (so you could get an income of £4k per year for every £100k invested) but some of us think it is more prudent to plan for 1/30th or even 1/35th if retiring early. Also if you wish to retire early there is the 10 year gap before the state pension begins in which you are likely to be drawing down an extra £8.5k per year so that's another £85k each (in today's money) that needs to be accumulated.

    It is worth considering your partner's pension provision and in addition to regular expenditure don't forget to plan any capital expenditure in retirement (such as new cars, kitchens, bathrooms, carpets, driveways, etc). Over such a long time period stuff will break and wear out.

    Alex
  • Alexland
    Alexland Posts: 9,653
    First Anniversary Photogenic Name Dropper First Post
    Forumite
    edited 5 January 2018 at 1:11AM
    ValiantSon wrote: »
    If you went for just VLS60 or VLS80 then you would pay 0.37% p.a. If you mixed VLS60 with VLS80 then you'd pay two fund OCFs, so your annual fees would be 0.49%

    No because each fund fee would only be on half the money:

    £5k in VLS60 0.22% would be £11 fund fee
    £5k in VLS80 0.22% would be £11 fund fee
    £10k platform 0.15% would be £15 fee
    Total cost = £11 + £11 + £15 = £37
    ValiantSon wrote: »
    Alex has mentioned the advantage of a LISA, but that the available S&S LISAs are very limited. Oddly, the best option seems to me to be with Hargreaves Lansdown.

    I reckon Nutmeg are cheaper for early years at 0.62% (compared to HL+VLS at 0.67%) and AJ Bell are cheaper for later years if investing in ETF/ITs when platform fees are capped. AJ Bell could be cheaper for early years if investing lump sums and waiting for bonus to be added in funds to minimise the £1.50 trade fee.

    HL are close in all LISA scenarios but there is also a point you need to move from funds to ETF/ITs. As my LISA grows I will probably move from Nutmeg to HL as I have a pension linked to AJ Bell and I like to spread my risk across multiple platforms.

    Alex.
  • ValiantSon
    ValiantSon Posts: 2,586 Forumite
    Alexland wrote: »
    No because each fund fee would only be on half the money:

    £5k in VLS60 0.22% would be £11 fund fee
    £5k in VLS80 0.22% would be £11 fund fee
    £10k platform 0.15% would be £15 fee
    Total cost = £11 + £11 + £15 = £37

    Yeah, good point!

    Didn't think that one through did I?
    Alexland wrote: »
    I reckon Nutmeg are cheaper for early years at 0.63% (compared to HL+VLS at 0.67%) and AJ Bell are cheaper for later years if investing in ETFs when platform fees are capped. AJ Bell could be cheaper for early years if investing lump sums.

    HL are close in all LISA scenarios. As my LISA grows I will probably move from Nutmeg to HL as I have a pension linked to AJ Bell and I like to spread my risk across multiple platforms.

    Alex.

    I make it 0.72% for Nutmeg on their Fixed Allocation Portfolio (0.45% platform + 0.17% fund + 0.1% market spread) and 1.04% on their Fully Managed Portfolio (0.75% platform + 0.19% fund + 0.1% market spread).

    Agree about AJ Bell if investing ETFs, but not if funds.
  • ValiantSon
    ValiantSon Posts: 2,586 Forumite
    Here's the link to the other thread I mentioned.

    http://forums.moneysavingexpert.com/showthread.php?t=5767660
  • Alexland
    Alexland Posts: 9,653
    First Anniversary Photogenic Name Dropper First Post
    Forumite
    edited 5 January 2018 at 1:21AM
    ValiantSon wrote: »
    I make it 0.72% for Nutmeg on their Fixed Allocation Portfolio (0.45% platform + 0.17% fund + 0.1% market spread) and 1.04% on their Fully Managed Portfolio (0.75% platform + 0.19% fund + 0.1% market spread).

    Agree about AJ Bell if investing ETFs, but not if funds.

    The market spread is a transactional cost of buying and selling ETFs not an ongoing cost (well slightly if you consider the reinvestment of Nutmeg ETF dividends). Vanguard also have similar transactional costs when buying or selling fund units but with funds it gets a bit complex.

    I corrected my Nutmeg cost from 0.63% to 0.62% sorry I was working from memory - forgive me 0.01%

    Both AJ Bell and HL are uncapped for LISA funds.
  • ValiantSon
    ValiantSon Posts: 2,586 Forumite
    Alexland wrote: »
    The market spread is a transactional cost of buying and selling ETFs not an ongoing cost (well slightly if you consider the reinvestment of Nutmeg ETF dividends). Vanguard also have similar transactional costs when buying or selling fund units but with funds it gets a bit complex.

    I corrected my Nutmeg cost from 0.63% to 0.62% sorry I was working from memory - forgive me 0.01%

    Both AJ Bell and HL are uncapped for LISA funds.

    Yeah, appreciate complexity with funds. The way I read Nutmeg's fees they were rounding out the spread costs and transferring them to an individual investor as a p.a. charge of 0.1%. If this isn't the case then I apologise.

    Wasn't correcting you over the 0.01%.
  • AlanP_2
    AlanP_2 Posts: 3,250
    Name Dropper First Anniversary First Post
    Forumite
    Whilst you may not want to tie money up in a LISA at present, as you "may" need it before Age 60 I would suggest that you open one each whilst you are still eligible (under 40) as you may want to use it in a few years time.
This discussion has been closed.
Meet your Ambassadors

Categories

  • All Categories
  • 342.5K Banking & Borrowing
  • 249.9K Reduce Debt & Boost Income
  • 449.4K Spending & Discounts
  • 234.6K Work, Benefits & Business
  • 607.1K Mortgages, Homes & Bills
  • 172.8K Life & Family
  • 247.4K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 15.8K Discuss & Feedback
  • 15.1K Coronavirus Support Boards