Investment Trust ISA?

cheerfulcat

homersimpson wrote:

why do funds of funds have an extra layer of fees?

Because fees are charged once in the underlying funds and again by the manager of the FoF.

EdInvestor

Hi fish10

I would agree with CC about trackers being not very suitable and also fund of funds being too expensive. Going back to what the calculator said:

I was classed as a moderately conservative investor (3 on the scale)
17%cash,
26% low risk bonds,
21% medium risk big cap shares
36% higher risk mid to small cap shares and foreign shares.

I wonder if you didn't write down the last two categories the wrong way round?;)

It would make more sense if the list read

17%cash,
26% low risk bonds,
36% medium risk big cap shares
21% higher risk mid to small cap shares and foreign shares

Does that feel more comfortable?

Once we have got the money divided up into the right categories, it will make it much easier to choose the correct investments for each chunk.

fish10

I checked the figures on the calculator and they are correct; it's the13% mid cap shares going in as higher risk that makes the difference. Reversing the figures obviously makes a difference and puts them closer to my comfort zone.
I thought CC was recommending the tracker on a drip feed basis?
This is a very steep learning curve!
Thanks for the continued advice
fish10

EdInvestor

Oh I see.Medium cap really belong with big cap in risk terms. There's a big jump in the size of the gap between medium and small.

So rounding a bit , that means we are talking about

50% into mainstream UK FTSE big and medium sized shares
25% into bonds (or in the UK context, commercial property funds, which have the same kind of risk profile)
10% into higher risk small cap or foreign shares/funds
and the rest into cash.

Does that seem manageable?

I would say that is a very typical,mainstream UK asset allocation.

Moving on a bit to looking at what funds you might choose ( I assume you want funds, not shares?) there are basically three types of funds with mainstream UK blue chip shares in them.They are often the same shares, but in different proportions.

1.Equity growth funds
2.Equity income funds
3.Index trackers

The lowest risk category are the equity income funds.These contain more of the "defensive" shares which lose less when markets go down, may even rise.THey also focus on shares paying good dividends.

Equity growth funds and trackers do wll when markets are going up, but badly when they are going down.

Trackers have an additional risk, becausae they are weighted towards the largest companies, which in the UK are banks and oil and mining companies. If these two groups do well, you make money.If they don't...

As a risk averse investor I favour the equity income funds.

fish10

Thanks Ed,
It's particularly useful to see how the calculation translates into funds and the advice on differences between income and growth. With regards bonds, would these be gilts and/or corporate investment grade bonds? I got the impression that MSE thought these were inflexible and incurred high charges, or have I, once more, got it wrong?!
Thanks
fish10

Sillychuckie

Just out of interest, which discount broker do you think you will use fish10? I'll have some spare cash in a month or two, not decided which one to use yet.

EdInvestor

fish10 wrote:

With regards bonds, would these be gilts and/or corporate investment grade bonds?

Usually the latter but could be a mix of both.Trouble is the bond markets are in a bit of a mess at present.They are distorted because the company pension funds and life companies are all trying to substitute bonds for shares following some new rules from the regulator and a change in actuarial guidance to cover pension fund deficits ( you've probably read about them).

All this competition to buy bonds has caused a shortage, which has meant meant the bonds' prices have risen and their income has sunk.Thus returns are very low, and the risk is you will lose money when some kind of normality returns.

This extra risk has meant people have tended to prefer commercial property funds to bonds in the last few years as they have much the same risk level as bonds used to have and produce much the same income.

fish10

Thanks again Ed. I'll start some research on funds.
Sillychuckie, if you follow this thread from the beginning, you'll see that I'm a real novice and I haven't got as far as considering discount brokers yet, but I'll let you know.
fish10

EdInvestor

Fish10

Go no further than this site to research funds, and choose no lower than the top 10 in each category you want:

https://www.citywire.co.uk/Funds/Home.aspx


Hint: Although they say past performance is no guide to the future, a good long track record under the same fund manager often inspires confidence

Sillychuckie

fish10 wrote:

Sillychuckie, if you follow this thread from the beginning, you'll see that I'm a real novice and I haven't got as far as considering discount brokers yet, but I'll let you know.
fish10

I have been following it from the beginning but you hadn't suggested that you have been ignoring research into brokers before you decide what funds you want. You could be doing it at the same time.
As I want to use up my remaining 4k mini-ISA allowance, I looked into the brokers too because I wanted to know whether they would allow 8 funds @ £500, or 4 @ £1000 etc. Turns out many of them have a 1k minimum for each fund (e.g. Hargreaves Landsdown). I see you want to invest more anyway, so probably not going to be a factor.