New stocks and shares ISA

savingforoz

I am considering venturing into a shares based ISA for the first time. I am thinking of using up my allowance for 2006/06 and puttting in £4,000. My requirement is for capital growth, not income. I am a complete novice at this, so would welcome any comments.

I have been looking at some funds supermarkets and their suggested portfolios for growth, and so far have come up with the following:

Best Invest - £1000 in each of Fidelity Euopean, Framlington UK Select Oppotunities, Lion Trust 1st Growth and New Star Sterling Bond.

Fund Choice - £800 Artemis European Growth, £800 First State Asia Pacific Leaders A Fund, £1200 Investec Global Free Enterprise Fund, £1200 Jupiter Merlin Worldwide

Based on what I can find in Moneywise and What ISA magazines, the Fund Choice selection looks the better one. Does anyone have any comments? Also, I couldn't find any info ref exit charges if I and when I sell up - am I right in thinking that with an ISA there aren't any exit charges?

All help gratefully received!

penrhyn

Have you thought about a tracker?

savingforoz

Thanks Penrhyn - yes I have, and they seem like they might be a good idea for a novice like me but I read conflicting advice as to whether they're better or worse than managed funds. It's hard to know what to do (where's my crystal ball when I need it!)and half of me says that as I don't fully understand all this as yet (I intend to learn more) perhaps I shouldn't invest just yet. I presume I can pick a tracker that targets growth rather than income?
I don't want to put money into something that I am unsure about just because April 5 is looming and I feel the pressure of "use it or lose it" on the 2005/06 ISA allowance.

Money_Watch

Hi,

Regarding charges, there should be no exit charges - the vast majority of retail funds do not charge an exit fee, but there may be one or two exceptions (don't think any of the funds you mention have them though).

You will of course be charged an initial fee, which is taken from the investment amount by the fund manager, but this can be reduced by using a broker such as Best Invest.

Also, there will be annual management fees which come out of the amount built up in your investment, typically this is between 1 - 1.5%.

Tracker funds tend to have lower charges than managed funds, and you have to factor in all charges when looking at how well a fund performs, as charges can quickly eat in to the growth.

Perhaps if you're very unsure about the investment then, as you say, it might not be the right thing for you - have you already got mini cash ISAs?

Rob.

penrhyn

There is some info about Virgin ISA's here, which might help your descision making process. Rob makes a good point, if you have a partner you could but £6000 into a couple of mini cash ISAs befor ethe end of the current tax year.

http://uk.virginmoney.com/isa/

savingforoz

Thanks Penrhyn amd Rob - no partner (bar the cat, who frankly isn't much help) and cash ISA already maxed out. I did look at the Virgin site last night, and was interested, but more so in their pensions, which I also want to increase. Does anyone have any comments about the funds from the Fund Choice - they look to be good, but I do understand the thing about past performance, etc.

I am reluctant to ask my IFA because although he's a lovely chap he can be very slow about doing things.

cheerfulcat

savingforoz wrote:

Thanks Penrhyn - yes I have, and they seem like they might be a good idea for a novice like me but I read conflicting advice as to whether they're better or worse than managed funds. It's hard to know what to do (where's my crystal ball when I need it!)and half of me says that as I don't fully understand all this as yet (I intend to learn more) perhaps I shouldn't invest just yet. I presume I can pick a tracker that targets growth rather than income?
I don't want to put money into something that I am unsure about just because April 5 is looming and I feel the pressure of "use it or lose it" on the 2005/06 ISA allowance.

Trackers are very good for novices but they are IMHO best when regular contributions are made, rather than one lump sum. The regular contribution could be a lump sum once a year, of course.

The thing with managed funds is that they require a fair bit of research; the most important factors are the manager and whether or not s/he is allowed to invest as s/he chooses. Independence is crucial, as most funds are simply benchmarked to an index and will underperform a tracker of the same index.

The single biggest impact on investment returns comes from compounding. This is as true for charges as it is for dividends. So it's a good idea to keep charges low, and re-invest any income.

You don't have to invest before the 6th of April; the money just needs to be in the wrapper.You can open an ISA with a broker ( I like Squaregain but there are others ), deposit the cash and take your time to choose an investment.

The cheapest trackers are exchange traded funds or ETFs; you can read more about them here. You can choose which indices to track; I would suggest choosing several different sectors and geographical areas ( this is true for any funds you choose, btw ).

Edit: Sorry meant to add that if you invest in an index tracker you will only ever get average performance. Nothing wrong with that, of course, and if you have invested in the right areas your returns will be very good. However some fund managers can and do outperform.

HTH

Cheerfulcat

carnet

The most important point to bear in mind when fund investing is that endeavouring to be in the "right" asset class/sector/geographical area going forward will prove far more profitable than being in the "right" fund.

The latter is relatively easy. The former is where the hard work lies.

Of course this is considerably more crucial to an active investor.

However, even for a "buy and hold" strategy it is also important to have a diversified portfolio in a range of funds, each with a good performance record (where the current manager is responsible for all or at least the most recent part of it ) that you have confidence in (and feel comfortable with).

Even then you must regularly monitor your choices to check that they are still performing against their sector peers - and that the original fund manager is still in place . If not, consideration must be given to either stay put, depending on the track record of the new manager or, more often, following the old manager to his/her new pastures (assuming it is in the same sector).

EdInvestor

savingforoz wrote:

New Star Sterling Bond.

This would appear to be a bond fund, providing income.

BTW when you say you want growth not income funds, this presumably excludes both bond funds and equity income funds.

But an equity income fund can be turned immediately into an equity growth fund simply by reinvesting the dividends ( choose the "Acc -for accumulation -version of the fund rather than the "Inc" - for income.)

Since it is the reinvested dividends which provide the majority of long term returns from the stockmarket, it would seem unwise to ignore them.Usually it's the Equity Income funds that choose shares that pay high divis, not Equity Growth funds.

savingforoz

Quote - "You don't have to invest before the 6th of April; the money just needs to be in the wrapper.You can open an ISA with a broker ( I like Squaregain but there are others ), deposit the cash and take your time to choose an investment".

That's really useful to know Cheerful Cat. I had no idea you could do that. I don't want to feel pressurised by the April deadline into doing something where I freely admit I presently lack knowledge. As to the tracker and regular contribution, I am considering that as well - so a monthly contribution into a ISA tracker (in 2006 -2007) plus a lump sum into something else in 2005/06 could be an idea, to max out the ISA limits for both years.

There's been some very useful ideas posted and I am grateful to everyone.

dunstonh

Do not use Virgin for pensions or ISAs. Poor fund range, almost full charged contract which can be beaten easily, even on full advice basis and commission, let alone on discounting.