Virgin Money FTSE Tracker ISA

adonis10

Any thoughts on this?

I've been thinking about investing in something like this for a while but have not got around to it. I've noticed that quidco are offering £50 cashback for new accounts and am now tempted - at least £75 for at least 6 months.

Yes, there is an annual management charge of 1%, which is £4.50, but the interest I'd lose on this £450 in my savings account would be £10.80 (£450 * 3% * 0.8).

Therefore, assuming the cashback is legit, I'd be looking at:
Cashback - £50
Mgmt fee - (£4.50)
Interest lost - (£10.80)
Profit before
FTSE +/- - £34.70

Is it as simple as a 2% drop in the FTSE over a year would mean a 2% drop in my investment? If that's the case, it's a risk I'd take for the sake of £450.

Any thoughts?

Reaper

Assuming you have got your figures right it sounds ok, however:
1) the AMC is high for a tracker, you can get much cheaper ones which would work out better over a longer period of time.
2) you ought to be looking at a longer period of time. As a rough rule most investments outperform savings over the long term. However over the short term they can fluctuate up and down. Most people would say 6 months is too short a time to invest over. 6 years would be better.

As for whether a 2% FTSE fall would mean a 2% fall in your investment: Yes but:
1) There is usually a degree of tracking error which means trackers never perfectly follow the stock market.
2) As you are drip feeding in a 2% fall at the begining would have less effect than a 2% fall at the end. The same goes for any growth.

adonis10

Reaper wrote: »

Assuming you have got your figures right it sounds ok, however:
1) the AMC is high for a tracker, you can get much cheaper ones which would work out better over a longer period of time.
2) you ought to be looking at a longer period of time. As a rough rule most investments outperform savings over the long term. However over the short term they can fluctuate up and down. Most people would say 6 months is too short a time to invest over. 6 years would be better.

Yeah, I've thought about this but my primary motive is to obtain the £50 cashback, learn a bit about this type of investment and then probably switch to a different fund after 6-12 months. I can live with a £4.50 charge as I'll just put the bare minimum in for the time being. I know that this is 'short-termist' thinking but the £450 would only be in a 2.4% (after tax) savings account (have reached my cash ISA allowance this year) for the time being so I'm not losing much there.

Rollinghome

L&G were offering a £50 cashback on their tracker fund via Quidco I believe and charge only half as much AMC for their FTSE all share tracker.

As for the return on equities, don't lose sight ot the fact that the FTSE is still below the peaks of 10 years ago and the Nikkei only a quarter of what it was 20 years ago. The hope is to get a better return than cash but the price for that is the risk of getting far less. You pays your money and takes your choice.

adonis10

Rollinghome wrote: »

L&G were offering a £50 cashback on their tracker fund via Quidco I believe and charge only half as much AMC for their FTSE all share tracker.

Yeah, I saw that one. However it's £500 lump or £125/month for at least 6 months. Only issue is not having a £500 lump sum just yet.

Yup, I like a little risk so think that it may be worth starting slowly.

mac2008

I agree that the TER is much higher than the norm, but if investing small sums, the £50 cashback is a big incentive. Are there any fees with virgin to transfer out? Could simply pocket the cashback, invest a small amount then move it to another ISA provider with lower cost trackers and a better range of funds when you want to diversify?

adonis10

mac2008 wrote: »

I agree that the TER is much higher than the norm, but if investing small sums, the £50 cashback is a big incentive. Are there any fees with virgin to transfer out? Could simply pocket the cashback, invest a small amount then move it to another ISA provider with lower cost trackers and a better range of funds when you want to diversify?

This is what I am thinking about doing, but £75/month to qualify for the cashback.

"
Both the FTSE All-Share Tracker ISA and the Bond and Gilt ISA have an annual management charge of 1% a year.
There are no other charges, and no charges at all on our Cash ISA"

Looks like the 1% is the only charge and, as I said, £4.50 isn't a great deal in the grand scheme of things Vs 0.55% for L&G.

VT82

adonis10 wrote: »

Is it as simple as a 2% drop in the FTSE over a year would mean a 2% drop in my investment? If that's the case, it's a risk I'd take for the sake of £450.

Any thoughts?

There have been 11 days since 2008 that the FTSE has dropped by 5%+ in a day, let alone a 2% fall over a year. If this happens at the end of your drip-feeding, it will wipe out any earlier gains, if there had been any at all. Quite a bit of risk for £35?

Not saying I would or wouldn't use your scheme, just adding another perspective.

jimjames

I'm not sure where the 2% over a year comes from. The chances are that it will be much higher or lower than that. The FTSE rose by virtually 2% on day last week alone but lost around 40% of value in 2008/9.

adonis10

jimjames wrote: »

I'm not sure where the 2% over a year comes from. The chances are that it will be much higher or lower than that. The FTSE rose by virtually 2% on day last week alone but lost around 40% of value in 2008/9.

It was a hypothetical number plucked out of the sky.