poorly performing isa

molly1706

Hi
We have a s&s isa with L &G which was set up in 1999 to pay off £45 000 from our mortgage, the value of our fund is now £7900 which has fallen since january and is still less than we have paid in.

What do we do now?
Do we cash it in and invest in a high interest savings account (at least it will start to grow)
Or transfer to a different s&s provider?

dunstonh

the value of our fund is now £7900 which has fallen since january and is still less than we have paid in.

As you would expect it to have done.

What do we do now?

stick with it noting that each month you are buying more units as the unit price has fallen. Or perhaps start to diversify the investment as no doubt you only have one fund being used.

Do we cash it in and invest in a high interest savings account (at least it will start to grow)

But it wont pay your mortgage off at the end and in the long term would be expected to pay out less than the fund you are in now.

Or transfer to a different s&s provider?

That would be my choice but not for the reasons you think. If you pick a similar fund with a new provider then you are going to get similar performance. You need to understand how investments work and build a spread that matches your risk profile. You have an amount that allows a spread of funds to be used now so that is the option i would go with personally but you need to understand why first.

You started in 1999 and you would have suffered a 45% loss at the worst point during the last major decline but obviously went through it (and took advantage of buying cheap then) so what is different now?

molly1706

Thanks for your speedy response (again!) I have just sent you a message regarding an old thread about this isa. We have just received the latest statement from L and G and after 9 years would expect to see the investment growing by now. We would like to improve the funds used but really don't understand how they work.

We would definitely like to transfer away from L and G though.

molly1706

Also, sorry if this is a silly question, but how can this isa pay out more than savings in the long term when it is still less than we have paid in after 9 years and we could have had 9 years worth of savings plus interest growing at a guarranteed 6%.

dunstonh

molly1706 wrote: »

Also, sorry if this is a silly question, but how can this isa pay out more than savings in the long term when it is still less than we have paid in after 9 years and we could have had 9 years worth of savings plus interest growing at a guarranteed 6%.

It takes much longer for regular contribution plans to get their growth. For example if you pay in £50pm, then at the end of year one you have £600 in there. If that goes up by 10%, over the year then you only grow by around £30-£50. If the next year goes down by 10% then the whole amount invested so far goes down although monthly payments made from that point are cheaper so when it goes up again, it is those that make the most money.

It can take 15 years or so to really start showing stronger profits. Over the long run you would look for double digits with sensible diversified investing. However, if its just in a FTSE100 tracker than I fear that you are likely to have suffered barely average returns if you are lucky. Many of these mortgage linked ISAs are in pretty basic investments which in my opinion are not really up to the job.

molly1706

Thanks dunstonh
Just got your pm reply also, I think we will be best going through an IFA as we don't really understand the ins and outs ourselves, do you have any idea of the fees involved in managing our fund?
We currently pay in £642 per 6 month period of which £487 is allocated to buy funds (UK index fund) the rest is fees (£14) and life cover

molly1706

We would really like to transfer our isa from legal and general to a better spread of funds,
a) How do we go about this?
b) How much can we expect to pay in fees for an ifa to manage this for us?

Thanks in advance

dunstonh

The IFA will be no more expensive than what you are paying now so thats the good news. It may be a bit cheaper as well. Especially if the ISA and life cover are taken apart and arranged independently.

You can pay on fee basis or commission. Fee basis tends to be cheaper with larger values. Commission is cheaper with smaller values.

molly1706

Thanks very much for all your advice Dunstonh. Will source a local ifa and get cracking today.

earlgrey_3

Molly, you also need to be aware of how IFAs make their money when you consider their advice. If you want completely unbiased advice you need an IFA who only gives advice on a fee basis and rebates all commission.

For example, your L&G tracker fund has very low annual management fees and therefore pays little or no annual commission to an IFA. The temptation for them is to sell collective products with higher fees where the fund managers pay them annual renewal commission.

You do need to diversify to minimise risk but geting advice that is completely unbiased is extremely difficult. Buyer beware.

dunstonh

For example, your L&G tracker fund has very low annual management fees and therefore pays little or no annual commission to an IFA. The temptation for them is to sell collective products with higher fees where the fund managers pay them annual renewal commission.

Its a bit of a myth that trackers dont pay trail. The L&G trackers do pay IFAs trail.