Guidance and advice to investing in a Stocks and Shares ISA please

funguy

Hi everyone,

In common with a lot of other people, i have saved in a Cash ISA. However, i have always been a bit cautious about S+S isas.
I would be grateful for anyone pointing me in the right direction about investing the £5100 balance of my ISA allowance in the above.

I am a cautious investor and so would look at a low risk investment but maybe one offering more potential growth / income than the low rates on for savings accounts at present. I'm not keen on choosing my individual shares etc so would be looking at a managed fund. what sort of rates could i expect etc?

Any advice for a newbie appreciated

thanks

dunstonh

I am a cautious investor

Define what you mean by cautious as different people will give different answers to what they think cautious is. In very simple terms, how much of a capital loss over 12 months could you accept before getting cold feet and pulling out?

I'm not keen on choosing my individual shares etc so would be looking at a managed fund. what sort of rates could i expect etc?

You cant say that you would expect a certain rate as that isnt how it works. Investments zig zag in value. Always have, always will. You could get 8% in 6 months and then nothing for another 6 months and then minus 4% for 3 months etc etc. You know that periodically there will be a significant loss and that there will periodically be gains above the more typical. You never know when these will occur. All, you can really do is invest within your risk profile and know what can happen and will happen at some point and let it average out the ups and downs. If you cant handle that then you either need to invest lower risk still or not invest at all. Although if its income you are after than cash can actually be higher risk than many investments.

jimjames

dunstonh wrote: »

Although if its income you are after than cash can actually be higher risk than many investments.

Absolutely. Inflation currently 4.6% (RPI), if your cash return is lower than this your money is gradually being eaten away.

Some equity income funds are yielding rates of around 4.6% with the potential for capital growth. If you don't need to access the funds immediately or need look at the value each day then share based funds could be worthwhile long term investments.

On the whole the income is likely to be fairly steady with potential to grow regardless of the value of the capital on a specific date. So even if the fund has dropped 20% the income you receive is unlikely to do the same so as long as you don't need to access your capital you may not even notice.

Andy

funguy

Thank you for the above postings.

I am essentially looking for income higher then the 5% available in long term cash savings. Ideally income in the double percentage figures. In terms of risk...I would start to get cold feet at a loss of 50% capital. I am happy for this to be long term investment in excess of 10y without me needing access if that helps...

jimjames

funguy wrote: »

. Ideally income in the double percentage figures. In terms of risk...I would start to get cold feet at a loss of 50% capital. I am happy for this to be long term investment in excess of 10y without me needing access if that helps...

I think you will struggle to find anything with secure or growing capital that is giving double percentage income. There are high income funds that are giving yields of 7-8% that could grow the capital and therefore income over the long term.

Other income funds are in the 4-5% range but could be argued to have better chance of long term growth as they are not constrained to get the highest income shares or bonds now which could limit their ability to grow.

Loss of capital is possible as we have seen over the last few years but even when the headlines screamed out about a 40% drop in the stock market you would have only experienced that if you sold. The papers don't then tell you the story since that the market has gone back up by 60% (figures are an example as I don't have exact number to hand)

dunstonh

I am essentially looking for income higher then the 5% available in long term cash savings. Ideally income in the double percentage figures

You wont find income at at that level currently. You missed the boat on that one (yields in double digits were possible 18 months ago).

I would start to get cold feet at a loss of 50% capital.

Thats not cautious. Thats more medium/high to high. At that level of risk, double digits is possible with income and growth but so is the loss potential.

jamesd

funguy, given that brief you might look at kickout plans and a range of funds that have relatively high yields if you want yield, else a mixture that has more capital growth potential. There are some kickout plans that pay over 10%, though not without risk.

For the funds, here's a list sorted by yield (mixture of interest and dividends), no more tax to pay inside an S&S ISA. Capital value will vary. Some interesting ones there are Newton global High Yield Bond, Artemis High Income, Newton Higher Income and Invesco Perpetual Monthly Income Plus. For all funds the return on investment can be in two parts, an income part and a capital value variation (hopefully growth on average) part.

However, those fund are appropriate if you want to take an income. It seems from your description that you don't need an income but want a high total return (growth plus income that doesn't need to be paid out). With that brief you would look at a broader mixture of funds, starting out perhaps with Invesco Perpetual Income, accumulation units. Accumulation units mean the income is retained, increasing the value of the units.

pqrdef

funguy wrote: »

I am a cautious investor and so would look at a low risk investment

What people call risk and what the industry calls risk aren't really the same thing.

Gilts, for instance, are right at the low-risk end, but they're selling at historically high premiums, will go down sooner or later, and very likely won't go back up to present levels. Unless we keep getting into the same sort of mess that forces Bank Rate down to 0.5%.

The risk categories of funds are abstractions that have no relation to prevailing economic conditions at any particular time. Near as I can tell, they describe the likely volatility of the assets in times of a relatively stable economic environment. Which isn't what we've got.

dunstonh

What people call risk and what the industry calls risk aren't really the same thing.

The risk is the level of volatility on average. Not where they are in the economic cycle. A bubble in gilts which then bursts will not be the same scale as a bubble in equities that then bursts. Over the long term, people will go through a number of cycles so the important thing is to look at level of loss they wish to accept as the current economic cycle will not be the same as that in future years.

pqrdef

dunstonh wrote: »

The risk is the level of volatility on average.

What I call risk is the likelihood of losing money.

Volatility is good. Without it, markets would be building societies. Volatility creates the opportunity for gain, because there's very little of that in long-term trends, after reinvested dividends are factored out.

Whether volatility puts my money at risk depends whether I bought in at the top or the bottom.

dunstonh wrote: »

Over the long term, people will go through a number of cycles so the important thing is to look at level of loss they wish to accept

Zero, please. It's not as if I have to take a loss to lock in a buying opportunity - the shares will still be there later. If I expect them to go down and they go up, well, missed that one. If they go down after I bought them, that's real money. I'll make that mistake sometimes, but that's all the more reason not to buy into an overpriced market which I'm actually expecting to fall.

dunstonh

What I call risk is the likelihood of losing money.

Volatility is good. Without it, markets would be building societies. Volatility creates the opportunity for gain, because there's very little of that in long-term trends, after reinvested dividends are factored out.

Whether volatility puts my money at risk depends whether I bought in at the top or the bottom.

The problem is that trying to time the market is so often futile. You cant tell whether you are buying at the top or bottom of a market until sufficient years have passed and you look back. Whilst, I agree with you on volatility, you have to remember that the typical consumer doesnt have a clue when it comes to investing. So,expressing it in things like loss potential positions it with them. i.e. if they accept a 40% loss is possible and they can handle it, then when that 40% loss comes along, they won't complain about it (note: complaints are a driver to the style of risk profiling that takes place today compared to 5-15 years ago).

An experienced investor will look more closely at potential and risk vs reward at a given time. An inexperienced investor is unlikely to be able to do that. So, better they know what it could do when a bad period comes so they are not shocked when it does inevitably happen.

On the advice front there is a greater movement away from fund picking for "lazy investors" but using active portfolio management funds instead, such as portfolio funds, which can adjust sector allocations and rebalance and retain a risk profile within the fund. Servicing advice is more hands on with ever evolving sector/asset allocations based on the economic cycle. You have to cater for the different types of people and that means that there will be different approaches and that no one option is best for all. Add on top of that the differences that will occur with opinions how to invest and what to invest in.