Trying lo learn about Stocks and Shares ISA's

masonic

King_Weasel wrote: »

What costs put you off? I find The Share Centre charges acceptable for low-value transactions, and there are others too. (1%, min £7.50.)

The poster I was replying to was considering building a portfolio of shares with about £2000, but I've considered the same with about £5000 and still decided it is not cost effective. Here's how I considered the costs (using your own £7.50 per deal figure):-

Shares
Invest new funds, split between 10 shares, cost 10 x £7.50 = £75
Fund switches and rebalancing (say 10 buy + 5 sell each @ £7.50) = £112.5

Funds
Invest new funds, split between 10 funds, cost £0
Annual management charge - discount, average TER approx 1.7% of £5000 (in first year) = £85

So for a small value invested, the cost of managing a portfolio of shares is relatively expensive. Ultimately, if I was investing regularly, shares would become relatively cheap to trade as the value of my portfolio increased and maybe after several years I would recoup my theoretical losses.

However, it seems to make much more sense sticking with funds and then transferring out (for example the UK sector of my funds portfolio, when large enough) to a separate sharedealing S&S ISA when the dealing costs look more attractive compared with the fund management charges I'd otherwise be paying.

SteveSilva

Also when searching through a fund, where does it say whether it is a low, medium or high risk fund?


http://www.h-l.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/j/jpm-europe-income/


Also where it says its worth 49.56 pence, is that each unit and we just decide how many units we want, and where does it say what type it is i.e, OEIC, etf etc

masonic

SteveSilva wrote: »

Also when searching through a fund, where does it say whether it is a low, medium or high risk fund?

Also where it says its worth 49.56 pence, is that each unit and we just decide how many units we want, and where does it say what type it is i.e, OEIC, etf etc

As far as risk goes, it won't tell you on H-L in most cases. You have to look at the prospectus or on Trustnet, where you'll be able to see the 'volatility' figure and how it compares to other funds within the same sector (and other funds in general) to judge the risk level.

Prices are per unit, but you don't have to buy whole units for OEICs, so you can buy and sell in £ without needing to worry about them.

The fund type (ICVC = Investment Company, Variable Capital, AKA OEIC) is actually shown on the at a glance page, but you probably didn't recognise it because of the strange acronym.

SteveSilva

masonic wrote: »

As far as risk goes, it won't tell you on H-L in most cases. You have to look at the prospectus or on Trustnet, where you'll be able to see the 'volatility' figure and how it compares to other funds within the same sector (and other funds in general) to judge the risk level.

Prices are per unit, but you don't have to buy whole units for OEICs, so you can buy and sell in £ without needing to worry about them.

The fund type (ICVC = Investment Company, Variable Capital, AKA OEIC) is actually shown on the at a glance page, but you probably didn't recognise it because of the strange acronym.

OK so an ICVC is the same OEIC, that makes it easier LOL

I have read about them but still don't understand the difference between an unit trust, an OEIC, or a etf. They sound the same but obviously they aren't.
Is it that Unit trusts invest in stocks, bonds, cash etc but etf's only invest in shares of a certian index thus making it more risky?

masonic

SteveSilva wrote: »

I have read about them but still don't understand the difference between an unit trust, an OEIC, or a etf. They sound the same but obviously they aren't.
Is it that Unit trusts invest in stocks, bonds, cash etc but etf's only invest in shares of a certian index thus making it more risky?

Unit Trusts and OEICs are essentially the same as far as a casual investor is concerned.

ETFs normally track something, whether it's an index or the price of a commodity etc. They can be geared so that the rise or fall in whatever they are tracking is magnified, so that is a source of added risk in some cases. The other source of added risk in ETFs is that they are not normally actively managed and therefore when markets are falling you get no protection from a fund manager moving into less risky assets - the same argument holds for an OEIC that tracks an index. Of course, managed funds exist that are more risky than a corresponding tracker, so it depends on what you are comparing.

ETFs are also traded like individual shares, so you have dealing costs to consider (HL is not the cheapest place to buy them).

SteveSilva

masonic wrote: »

Unit Trusts and OEICs are essentially the same as far as a casual investor is concerned.

ETFs normally track something, whether it's an index or the price of a commodity etc. They can be geared so that the rise or fall in whatever they are tracking is magnified, so that is a source of added risk in some cases. The other source of added risk in ETFs is that they are not normally actively managed and therefore when markets are falling you get no protection from a fund manager moving into less risky assets - the same argument holds for an OEIC that tracks an index. Of course, managed funds exist that are more risky than a corresponding tracker, so it depends on what you are comparing.

ETFs are also traded like individual shares, so you have dealing costs to consider (HL is not the cheapest place to buy them).

Ok and how does an investment tracker differ from an etf? That also tracks an index but according to the link they are less risky.


http://www.tdwaterhouse.co.uk/Investment-Choices.aspx


Thanx again

StevieJ

SteveSilva wrote: »

Ok and how does an investment tracker differ from an etf? That also tracks an index but according to the link they are less risky.


http://www.tdwaterhouse.co.uk/Investment-Choices.aspx


Thanx again

One of the main advantages for me personally is the fact you can sell them immediately whereas funds take a few days. I think the main difference is that the ETF may not actually invest directly in the index it is tracking but mutual funds do.

General

As the underlying holdings of an ETF are openly traded securities, they will be vulnerable to market price fluctuations and the value of the investment may rise or fall in value and neither the capital or income is guaranteed. Although ETFs will closely track an index, during times of market volatility, the tracking accuracy of an ETF may be affected.

More info here
http://www.h-l.co.uk/shares/exchange-traded-funds-etfs/risks-of-etfs

masonic

SteveSilva wrote: »

Ok and how does an investment tracker differ from an etf? That also tracks an index but according to the link they are less risky.

I don't believe ETFs are necessarily higher risk than a corresponding index tracking fund. If you are really comparing like with like, there should be no difference in risk. ETFs are probably more biased towards higher risk because of the nature of what they invest in. You can get exposure to investment areas within an ETF that you could not get exposure to in a fund, and many of those areas are by nature 'specialist' and higher risk.

The main difference between an ETF and a tracker fund is how you pay to hold each investment. Generally, with an ETF you pay a fixed cost or percentage of each trade, whereas for a fund you'll pay a percentage of the fund value every year. Also, as StevieJ points out, ETFs are more suited to active trading as you can buy and sell without waiting for settlement periods.

arsernal2011

The_Gerbil wrote: »

As far as I know there is no point in having a Stocks and Shares ISA with such a (relatively) small amount of money.
You don't pay capital gains until you make £10,000 anyway so there is no advantage in an ISA.

Don't take my word for it of course. Get some proper advice

Mike

The advantage of having them in an ISA is that as well as CGT you also dont pay interest on revenue from dividends this is classed as income and taxable outside of an ISA

masonic

arsernal2011 wrote: »

The advantage of having them in an ISA is that as well as CGT you also dont pay interest on revenue from dividends this is classed as income and taxable outside of an ISA

Dividends are paid net of corporation tax (10%) regardless of whether or not they are within an ISA. For basic rate taxpayers there is no further tax to pay outside of the ISA. Therefore only higher rate taxpayers derive a benefit from this.