HL Vantage Stocks & Shares ISA

Victors_Bruvver

Both my wife and I each have about 17K in a Nationwide ISA returning something like 2.75%, I think.

We are tempted to, before the end of this fiscal year, to transfer this money along with a further £5,100 top up and invest it with HL.

Can someone just help me out here please and confirm that the HL Vantage Stocks & Shares ISA should give us a better return than letting that money sit in the cash ISA please? For the record I am not a risk taker and want to invest it somewhere fairly safe, hence HL units.

By the way, are there any costs in setting this up and managing it? I see that there are charges but I think these are other products & services of theirs

Vantage Stocks & Shares ISA

redmalc

If you are not a risk taker stay in cash

xrjtg

Make very sure that you understand the difference between a cash and S&S ISA. With a cash ISA you are paid interest on your deposit. Inside a S&S ISA you hold assets, such as company shares, that trade on the open market and whose value can rise of fall. In particular, there are no guarantees that you would get back the money you invest.

Victors_Bruvver wrote: »

Can someone just help me out here please and confirm that the HL Vantage Stocks & Shares ISA should give us a better return than letting that money sit in the cash ISA please? For the record I am not a risk taker and want to invest it somewhere fairly safe, hence HL units.

By the way, are there any costs in setting this up and managing it? I see that there are charges but I think these are other products & services of theirs

I think you may be a little confused, as there's no such thing as "HL units". HL are a discount broker, meaning that they sell unit trusts and OEICS and rebate some of the initial commission to reduce the costs to the purchaser. For those looking to take out a certain kind of investment, HL are one of the cheapest ways to go about it, but there's no guarantee that any particular fund (or mix of funds) will outperform a cash ISA over any period of time, although many would expect them to over the long term.

DavidAC

I was investigating investing in a Vantage ISA but am a bit confused about the example they give in the last page of their key features document.

http://www.h-l.co.uk/__data/assets/pdf_file/0013/37120/Vantage_Key_Features.pdf

The Cazenove UK example shows the effect of deductions on £1000 as £85 at the end of year one. The fund on their site shows no net initial charge and an annual charge of 1.5% with an annual saving of 0.25%. So how do the deductions amount to 8.5%? I sent an email to them but have not received a reply yet.

dunstonh

So how do the deductions amount to 8.5%?

It doesnt. You are mixing up deductions and the effect of deductions.

Effect of deductions is if the annual charge was compounded at 6%p.a. Its quite a misleading column and the FSA has apparently considered removing it in the past. Its a bit like saying if you could by all your food at Tesco at cost over your life and that extra money you saved got 6% p.a. you would be £1 million pounds better off.

psychic_teabag

Victors_Bruvver wrote: »

Both my wife and I each have about 17K in a Nationwide ISA returning something like 2.75%, I think.

We are tempted to, before the end of this fiscal year, to transfer this money along with a further £5,100 top up and invest it with HL.

Is there any particular reason to rush to do it this year ? You could start a S&S ISA with a provider such as H&L and dip your toe in with £5,100, and then any time in the future transfer the cash ISA over.

There is a rule that you must transfer the whole of the current year's cash ISA, but you can do a partial transfer of an old ISA. - http://www.moneysavingexpert.com/savings/ISA-guide-savings-without-tax#switch With 17k, this ISA has clearly been going for several years. If you have added money to it this year, I don't know if that makes it all count as the current ISA, or if the old money is available for a partial transfer - perhaps someone here could clarify for me.

The point I'm trying to make is that if you were to wait until April, and not add any more to the cash ISA, then it would definitely count as an old ISA, and so you could definitely transfer it across to S&S gradually, rather than having to do it all as one go. There may be some benefits ("pound cost-averaging") from dripping money into the market, rather than putting in a lump sum. But holding it as cash temporarily inside a S&S ISA is likely to give an even lower rate than in a cash ISA.

jamesd

DavidAC, the examples are pretty much useless because you're not told the values for initial and annual charges that were used in the table. They aren't the actual initial and annual charges that will be paid if you buy via HL. Apparently only fidelity fundsnetwork uses the real charges after discounts while everyone else uses some form of undiscounted charge.

To get some idea of how it's calculated, it's the difference between the investment value with no charges and the investment value after the main charges at some bogus assumed rate of return on the investment.

The value without charges is easy: 6% return on £1,000 invested is £1060.

The value with charges is a bit harder. If I use the undiscounted charges HL discloses it's 5% initial and 1.25% annual or 1.39% TER. I'll use the TER in this calculation, which only serves to show that you don't have enough information to know what the table means.

Start with £1,000 invested. Deduct 5% initial charge and that leaves £950 to invest. The 6% assumed growth rate less the 1.39% TER is a 4.61% net growth rate. Grow £950 by 4.61% and the final value is £993.80.

Now the effect of charges is £1060 - £993.80 = £66.20.

That's still less than the £85 effect of deductions to date in the table and I've no idea what numbers they used to calculate that value.

If I assume that they used a typical 1.5% AMC then the calculation of return after fees is £950 grown at 4.5% and that's £992.50. Still not enough to get close to the £85 effect they show.

jamesd

Victors_Bruvver wrote: »

Can someone just help me out here please and confirm that the HL Vantage Stocks & Shares ISA should give us a better return than letting that money sit in the cash ISA please? For the record I am not a risk taker and want to invest it somewhere fairly safe, hence HL units.

Yes it should but whether it does will depend on which investments you choose to use. There are several thousand different investments available inside that ISA.

Victors_Bruvver wrote: »

By the way, are there any costs in setting this up and managing it? I see that there are charges but I think these are other products & services of theirs

Nothing worth worrying about. For some funds there's a small initial charge, up to around 0.25% (so £55 if you paid that on £22,000 invested all in a fund with that charge). There's also an annual charge deducted by the fund manager and that's typically around 1.5% of the total value of your investment a year, while Hargreaves Lansdown typically receive at least 0.5% of that and rebate 0.1 to 0.25% back to you in the form of their loyalty bonus. This annual charge is worked out daily and deducted from the quoted fund value in the background. The rebate is paid monthly. Nothing about these charges is unusual - HL is an inexpensive ISA provider.

Normally you'd pick a range of different funds that invest in different parts of the world market. You'd pick funds so that the likely drop in value in a bad year would be expected to be less than the level that would cause you to panic sell. For example, a bad year for an investment grade corporate bond fund might involve a drop of 15%, for a UK FTSE All Share Index tracker it might be 45% while for an emerging markets fund it might be 70%.

If you weren't willing to take a 70% drop before any recovery you wouldn't put all of your money in the emerging markets fund. But you might put half in that and half in the bond fund. If both dropped by the likely bad year drop at the same time then you'd see the average of a 15% and 70% drop, which would be 42.5%.

More realistically for you you might put 50% in the bond fund(s), 40% in something similar to the FTSE tracker and 10% in an emerging markets fund. Then a bad year drop for all at the same time would be 32.5%.

Do you want income, capital growth, a mixture of both? Do you want the income actually paid out to you for you to spend or just to accumulate?

DavidAC

Thank you jamesd. I have just received a reply from HL and they could not say how it was calculated. They did say it was only an example and did not include their discount of the initial charge or management fees.