Advice on ISA's needed please

Deb1969_2

Hi
I currently have a 3000.00 mini cash isa. I'm interested in investing in an index tracking ISA as I want to try to invest in something giving a higher return (potentially). I'm wondering if I can do this in the current tax year. From looking at info on the net it looks like I could invest another 4000.00 in a index tracking ISA. Is this right ??
Also is the FTSE the best place to invest, I'd be looking at a 3 - 5 year investment term and don't want anything too high risk.
Any advice would be appreciated. Thanks

dunstonh

I'm wondering if I can do this in the current tax year. From looking at info on the net it looks like I could invest another 4000.00

Correct.

in a index tracking ISA. Is this right ??
Also is the FTSE the best place to invest, I'd be looking at a 3 - 5 year investment term and don't want anything too high risk.

FTSE can be a number of places. i.e. FTSE100, FTSE250, FTSE all share... Putting your money into one of those could be a disaster potentially. As recently mentioned in a couple of other threads, had you gone into a FTSE100 tracker 5 years ago, you would be just about break even now. With your timescale, if you went in 5 years ago and came out after 3 years, you would have got about £2800 back on that £4000 investment.

You say you are not high risk but a FTSE (100, 250 or allshare) would be rated around 7 out of 10 on risk scale (1 lowest-10 highest). With the short timescale in mind, I would probably add a point or two to that to increase the risk.

With the timescale you have, you can still consider equity ISAs but it is probably best to avoid the stockmarket and pick lower risk areas such as corporate bonds, gilts, commericial property. If you do still fancy a dabble, then do it with a smaller amount of the money. ie. place £1000 into corp bonds, £2000 into comm property and £1000 in UK equity Income. Set it to annually rebalance each year automatically and this would be a lot safter than what you propose.

flashf

Set it to annually rebalance each year automatically and this would be a lot safter than what you propose.

What does that bit mean please?

dunstonh

Some of the fund supermarkets allow you to bring the investments back in line with their original percentages annually.

For example. £4000 spread equally at the start over 4 funds would be 25% into each fund. Over the year, the spread between them will change. Lets say one fund goes up, one goes down and the other two just have average performance. Your end of your spread could be 23%, 28%,22%, 27%%.

Rebalancing takes the profits out of the strong performers over the previous year and puts them into the weaker performers to bring you back to your 25% spread per fund. Now, if you use low risk funds in conjunction with higher risk funds, you are basically taking profits out of the higher risk funds and putting them into safer areas. If there was a drop in the markets, it would take the money out of the safer funds and put them into the higher risk funds again. Therefore over time, you achieve the goal of taking money out when its high and putting it in when its low.

Deb1969_2

Hi

thanks for the info. Next question is how do I set up an equity ISA. The mini cash ISA was easy as I did it all online through my bank. Should I go to a financial advisor ? Are they really Independent ? Will they charge me to set one up ? I'm sorry to be such a 'newbie' but I want to make the right decisions.

dunstonh

Should I go to a financial advisor ?

If you want to do it yourself, no.

Are they really Independent ?

Independent financial advisors are. Tied or multi-tied are not.

Will they charge me to set one up ?

Some yes, some no.

For setting up an ISA, typical comission is 3% up front and 0.5% p.a. based on fund value. That 0.5% comes out of the annual management charge on the funds.

If you go direct to fund supermarkets, you can avoid the 3% up front but they keep the 0.5% for themselves. A couple of the providers mentioned in Martins article will rebate some of that 0.5% but with £4000, you may find the fee basis they use costs more than the commission rebate you would get.

An IFA would pick the funds and provider for you. If you dont use an IFA, then you have to do both yourself. It depends really on how confident you are in picking funds and provider or how confident you are in picking an IFA that can do the job and at a fair price.

zag2me

Thats really good advice Dunstah, I like the bit about spreading your investments in things like Comercial property.

Deb1969, you dont need to see an IFA but it can be a good idea. You can setup a Stocks and shares isa online just like a cash isa. Just a few examples are smile, halifax and egg. I'm sure other people will post the best ones with the smallest charges.

dunstonh

zag, smile ISAs use fidelity fundsnetwork but keep the 0.5% trail commission for themselves. I think they do not rebate all the initial commission either. If the company setting it up are taking commission for it, they may as well give you advice.

Egg and Halifax are tied so I wouldnt use them.

cheerfulcat

Deb, you can set up a S&S ISA through a broker such as Squaregain

You just open the account, put money into it and buy whatever you want within it. The broker will usually charge an annual fee, either a fixed fee or a percentage of the value of your ISA. You can buy and sell funds in the ISA so if you decide that you don't want the tracker ( or whatever ) you can always sell it and choose something else.

You can compare brokers here

flashf

dunstonh wrote:

zag, smile ISAs use fidelity fundsnetwork but keep the 0.5% trail commission for themselves. I think they do not rebate all the initial commission either. If the company setting it up are taking commission for it, they may as well give you advice.

dunstonh is of course right on that, and I have followed that advice some time ago, going straight to Fidelity's site directly. I have also visited squaregain as suggested by cheerfulcat.

But with both of them, and this is the difficulty people like me, Deb1969 and thousands of others have, is when you get there, how the hell do you choose from the vast array of funds that are listed? Neither Fidelity nor squaregain seem to be any help on that, whereas at least smile package some things together in their funds supermarket into bundles with, o.k. questionable titles like sensible and sorted or cool and cautious . Naff they may be to experienced investors, but at least it's a recommendation of sorts.
Am I right in thinking that the "experts" who contribute to these forums are actually forbidden from saying: "O.k. - buy into Infidelity & Venus's Wonder Emerging Opportunities Fund" because it's against the rules? Because that's what we're after... (yes, I know, how do we trust that advice etc.)

cheerfulcat

Hi, flashf,

MSE frowns on discussion of individual shares and funds, which is why I generally point people in the direction of the Motley Fool, where such discussion is positively encouraged. Most of the talk there is about shares but there are a few boards specifically for funds like Investment Trusts and Unit Trusts , Index Trackers and iShares.Reading through those boards should give you a feel for what to look for.

It is important to know that there are only a very few fund managers who are allowed to invest as they like; most are given a bench mark, usually an index, to work to so they run trackers in all but name. It is my considered opinion that for someone who does not wish to do the research required to pick his or her own funds ( and make no mistake, there is as much work in choosing funds as there is in choosing individual shares ), the best investment is a selection of tracker funds and/or iShares ( trackers packaged as shares ), preferably using regular purchases.