How to not lose money on ISA

TH1878

Rollinghome wrote: »

I know it's difficult for you when you earn your living by persuading people to invest but is there any ISA investment that is a safer bet, less likely to lose money, or is is better to forget it all for a year or two at least? Would you suggest keeping well away from the bond funds currently being hyped (for second time around) by HL?

If you're worried about losing money in the short-term, you should really be in cash.

TH1878

Rollinghome wrote: »

I take it you don't include the Japanese markets in that assumption, still at just a fraction of their peak 20 years ago. Where is the eveidnce the UK market will be so different?

We are in a unique situation so it would be a brave or foolish man who assumes that it will all be the same as last time or relies on past history. Or maybe we'll need another WWII as it did last time it got this bad?

Fantastic example!

The main difference is two-fold:

1) The US & UK governments have done more to counter-act the recession than the Japanese government did in over 10 years. They've looked at the Japan crisis and hopefully have learnt the lessons.

2) Secondly, the Japanese are generally a nation of savers and you need to spend the way out of a recession (google paradox of thrift). At the time, interest rates were 0.0% and the Japanese government gave free money away to get people to spend (to try and spend their way out of recession). They did this by printing a voucher in a national newspaper which was exchangeable for Yen.

Firstly, there was poor take-up of the offer (free money!) and secondly, the ones that did take up the offer just put it in the bank, despite having zero percent interest rates (and inflation was eroding the real value of the capital).

They've actually done the same thing now, giving away £80 in free money - so we'll see if they've changed

dunstonh

I understand what you're saying but then isn't everyone in the industry marketing it, whether IFAs like HL or the fund managers? They all make their money by getting me to invest. Ok, fair enough, we're all grown ups and understand that.

No. Fee based IFAs make their money from providing advice. Servicing IFAs takign trail but little or no initial are paid on performance. IFAs are the biggest introducers of money to NS&I. They dont pay a penny so the money bias thing doesnt really sit that well with decent advisers. Salesforces, transactional advisers maybe but not the rest.

I know it's difficult for you when you earn your living by persuading people to invest but is there any ISA investment that is a safer bet, less likely to lose money, or is is better to forget it all for a year or two at least? Would you suggest keeping well away from the bond funds currently being hyped (for second time around) by HL?

You know events like this are going to happen every now and then. Typically on average every 7 years. The size of the drop will be different each time but you know its going to happen. So eduction and expectation is most important. Also, having an investment strategy and rebalancing the portfolio are important. You protect the profits at the peaks that way and reinvest at the troughs. You may not get the exact top point or bottom point as that is impossible but in the long run you should do better.

that isn't much compensation if the capital is going down the drain.

You take the rough with the smooth. You cant get 15% a year for 6 years without having a negative in there sooner or later. When the negative comes you dont complain about it. You look at it and start to look forward. If you rebalanced your portfolio and kept within your risk profile you wouldnt be concerned.

I take it you don't include the Japanese markets in that assumption, still at just a fraction of their peak 20 years ago.

Japan is a great place to make money on a sector allocated portfolio with reblancing. It goes up and down a lot in the short term which works well for rebalancing.

For the over 65's is that the age allowance thingy I heard about and doesn't that only effect the few whose earnings happen to fall beween £20K and £25K or is there something else?

You say "the few" but its far more than that. Most civil servants, teachers, doctors and professionals and those that have long service and half decent funding can easily run foul of it.

A common mistake is made by low earners who fall foul of it by planning all the retirement income in one name. £1000 a year extra tax in retirment for the rest of your life just because you didnt split the direct debit between the two of you.

Rollinghome

TH1878 wrote: »

Fantastic example! We exclude Japan from our portfolios!

Mr Brown will be pleased to know that at least someone still thinks he's saved the world economy in a way the those silly Japanese people couldn't figure out over more than 20 years.

The French and Germans, and even the governor of the bank of England, now seem to disagree but maybe they are just as silly as the Japanese.

If you're worried about losing money in the short-term, you should really be in cash.

Yes, that's what I was considering too. I have invested for many, many years but still don't like losing money money whether long or short term.

TH1878

Rollinghome wrote: »

Mr Brown will be pleased to know that at least someone still thinks he's saved the world economy in a way the those silly Japanese people couldn't figure out over more than 20 years.

The French and Germans, and even the governor of the bank of England, now seem to disagree but maybe they are just as silly as the Japanese.

The Japanese were quite happy to let banks go to the wall; the Bear Sterns fiasco showed our governments what happens to stock markets if you do.

It took the Japanese 10 years to realise what they had to do.

Rollinghome wrote: »

Yes, that's what I was considering too. I have invested for many, many years but still don't like losing money money whether long or short term.

If you invest long term (and the FSA say that is over 15 years) then given historical data, the chances of cash outperforming equities is less than 1%

Rollinghome

dunstonh wrote: »

A common mistake is made by low earners who fall foul of it by planning all the retirement income in one name. £1000 a year extra tax in retirment for the rest of your life just because you didnt split the direct debit between the two of you.

Yes I can imagine it must be annoying if someone just happens to retire with exactly between £20K and £25K pa and losing out on the extra age allowance thing. Bit unfair for them though if anyone is married and has savings or other investments would think it's not too difficult to mitigate it though by transferring assets between them etc.

So I take it the answer is there isn't anything safer within an ISA at the moment other getting out and into cash. Ah well, what I knew really. Thanks for your thoughts.

adambro

The way to do it, if you have the time, is to be your own fund manager. I've fully subscribed to my S&S ISA a month ago and have increased the value by around 12% in that time. That's not the result of one share doing well, it is a result of carefully managing my portfolio. I look for shares that I think will rise to buy and let any profits run whilst quickly ditching those that fall to protect my capital. Learning to take loses is essential but it is only natural that it can be uncomfortable to do so. The kind of trading I do relies upon having time during the day to keep an eye on the markets, certainly not being tied to a computer every minute, but it wouldn't be possible if you were working full time for example.

Rollinghome

TH1878 wrote: »

It took the Japanese 10 years to realise what they had to do.

Even for those in the Brown fan-club would it not be prudent to say time will tell?

Rollinghome

adambro wrote: »

I've fully subscribed to my S&S ISA a month ago and have increased the value by around 12% in that time.

Obviously four weeks is a fairly short time but good luck. You can't do much worse than many of the professional fund managers recently and could have a lot more fun.

TH1878

Rollinghome wrote: »

Even for those in the Brown fan-club would it not be prudent to say time will tell?

I don't know why you think I'm in the Brown fan-club? I'm just telling you how it is.

The Japanese did nothing for ages; the UK and US governments have acted swiftly. Of course we don't know whether it will work, but even if it doesn't I suspect it will soften the blow when compared to Japan.