new to investing - S&S ISA?

penny-counter

Hi all. I wonder if anyone might be able to give me some advice - I've used this site for a while now but not posted before.

Having cleared debts of £28k over the last 18 months, I finally became debt-free last month! What a relief. Now I am trying to save - as much as I possibly can. After doing a budget I know I can save about £1500 a month over the next couple of years.

I'm 29, married with no children, and now no debts. We both work full-time. Having sold a house I had bought years ago last month, I made a small amount of profit and have already maxed out my cash ISA allowance for this year. I plan to max it again at the start of the new tax year, and this will form the basis for my emergency fund and saving for other things like a house deposit (we are looking to buy again in approx 5-7 years time).

My husband and I both have work pension schemes, but I will be potentially leaving this in a couple of years, and want to set up some solid savings for my retirement, as to be honest with all that debt I had really neglected to save. I will continue working full-time after I leave my current job but the pension scheme that I move to may not be as good as the one I currently have.

I sought advice from an IFA a few months ago, and he did a risk profile with me, and we discussed options. He felt that a S&S ISA would be a better option than a private pension - I felt this too as I am prepared to leave my money in there for at least 5yrs, and although I am a little cautious, I am not totally risk-averse; having other colleagues who use this as savings for retirement as well I would like to do this. I also want to protect my money as much as possible from the taxman (I pay higher rate tax).

However I am very new to investment and S&S, and although I have tried to read extensively around the subject on here and other money sites, I still feel quite confused. To be honest the IFA didn't contact me again for months and doesn't really sound too keen to help me now for some reason, so I thought rather than find someone else I would post on here first to get some ideas.

Some money sites mention an index tracker ISA as the ideal place for first-time investors, and initially I thought this sounded like a great idea, and was about to open one! However after reading about them in more detail I am a bit concerned that opening one tracker ISA (following say the FTSE) means less diversification and 'putting all your eggs in one basket' so to speak. The benefits would be that I don't have to do much to help the ISA along, the fees are quite low, and it might be a good way to dip my toe in. The other option would be I suppose to self-select via a fund supermarket, which I would love to do but have absolutely no knowledge to back it up, so this may be a disaster! Could I use the IFA to help me pick??
I wouldn't mind getting a different IFA and having some professional advice on fund managers doing the investing for me in a wide range of funds, but the fees are higher. I don't mind this necessarily, but having confused myself now about S&S ISA's totally I'm just not sure! I would just like my money to grow as much as it possibly can over the years but without being too risky. I know the index trackers sell themselves because rarely does anyone outperform the markets, so I don't mind slower growth.
I would want one that is an accumulation one, putting the dividends back in to compound it, rather than one generating income.

If anyone could give me any advice on how to start in the world of S&S ISAs, I'd be most grateful - even if it's just to say 'no you definitely need to see an IFA!'.

Many thanks for reading - sorry for long rambling post!

dunstonh

some money sites mention an index tracker ISA as the ideal place for first-time investor

Yes and no. Going 100% into a single tracker is a very poor idea. A portfolio fund would be better. However, if you intend to monitor, resarch and rebalance then a spread of trackers is not a bad idea. In reality, the best option usually ends up being a spread of trackers and managed rather than just one type. However, if you are going to pick funds then you need to be active and not a lazy investor. If you are going to be a lazy investor then you should go with a portfolio fund.

I sought advice from an IFA a few months ago, and he did a risk profile with me, and we discussed options. He felt that a S&S ISA would be a better option than a private pension - I felt this too as I am prepared to leave my money in there for at least 5yrs, and although I am a little cautious, I am not totally risk-averse; having other colleagues who use this as savings for retirement as well I would like to do this. I also want to protect my money as much as possible from the taxman (I pay higher rate tax).

ISAs do have advantages over pensions but higher rate tax relief normally swings it back in favour of pensions again.

I know the index trackers sell themselves because rarely does anyone outperform the markets, so I don't mind slower growth.

The internet is full of US research. Not UK. The US markets suit trackers much better because of taxation. Those issues dont apply in the UK. There are areas in investing where trackers are not up to the job and areas where they can be better. Your opinion that funds rarely outperform the markets is wrong.

Can you clarify the timescales for investing and how you are paying as your post indicates that perhaps you shouldnt be considering S&S ISAs but sticking with cash. (monthly contributions typically need 10-15 years minimum to really be effective. 5 years is high risk)

penny-counter

thank you.

I meant to say that I would be leaving my money there for at least 5yrs - ideally I would pay into it monthly and leave it there for about 20-25 years (to just leave it and let it grow).

I didn't realise that the part about outperforming was wrong - been doing so much reading but obviously not the right articles!

I wouldn't mind being an active investor - it's just that at the moment I wouldn't have a clue as to what I was doing - I wouldn't mind learning how to monitor if it was going to get me a better return.

Thanks again

Procrastinator333

penny-counter wrote: »

After doing a budget I know I can save about £1500 a month over the next couple of years.

At that rate you are going to need non ISA products as well. I would suggest moving to First Direct (get £100 incentive for moving) and then use their £300 regular saver that pays 8%. I don't think there are many (if any) products that offer as much reward for so little risk. If you find others, please tell me!

And congrats on clearing your debts and becoming a saver! :beer:

dunstonh

I didn't realise that the part about outperforming was wrong - been doing so much reading but obviously not the right articles!

There is some truth in what is said but it is often misrepresented. If you take a passive managed fund with the same objective of a tracker fund then the tracker will beat it 9 times out of 10. However, if you start to include funds in the same sector but with different objectives then then it moves away from that. Funds with specific objectives can work better at certain times of the economic cycle.

If you look at the UK All companies sector you will find the FTSE all share tables are consistently around mid-table. So, the trackers will give consistency but not out performance. If you are after consistency then go with the tracker (consistency of position not returns). If you are after the potential of outperformance then go with managed. Don't be blinkered. often a good way of doing it is use a core and satellite approach where you use trackers for the mature markets and managed funds for Asia, emerging markets, specialist, property and fixed interest.

In America, managed funds are taxed higher than than trackers. So, before they even start they have a handicap. That handicap doesnt exist here. Most articles on trackers are sourced from the US.

The anti- managed fund brigade will tell you to go tracker only. The managed fund brigade will tell you to go managed only. In reality, a bit of both works best.

penny-counter

thank you for your replies.

I will definitely look into the first direct account as a way to maximise my regular savings.

With regards to the investment side of things - this might sound a silly question but if I went with a tracker then presumably that's 'it' for the year's personal allowance, as I don't suppose you can do a combination of tracker and managed funds in the same tax year?

Consistency is really what I am after, not outperformance, I just don't want to put all eggs into one basket and equally don't want to get too deep into the more specialist areas of funds you mentioned given that I'm a real novice at this.

psychic_teabag

No, you can mix and match funds any way you want, within your ISA. The big adverts in the newspapers tend to push one particular fund at a time, but if you go to a fund supermarket, you can pick any combination of funds you like. (And then you can switch between them at will as you learn more.)

You can of course also invest outside an ISA. As a higher-rate taxpayer, you will have to pay some more tax on dividends, but growth will be taxed only if you exceed the capital-gains-tax allowance of £10k or so. Is your husband also a higher-rate taxpayer? If not, there would be benefit in investing in his name outside an ISA.

penny-counter

Yes my husband is also a higher-rate taxpayer.

I've just had a quick look at Fidelity's website and fund supermarket - very daunting!
If I go down that routeI think I would need an IFA (to explain it to me like you would to a 5yr old) - has anyone out there started from scratch and invested in this way themselves?

izools

Procrastinator333 wrote: »

At that rate you are going to need non ISA products as well. I would suggest moving to First Direct (get £100 incentive for moving) and then use their £300 regular saver that pays 8%. I don't think there are many (if any) products that offer as much reward for so little risk. If you find others, please tell me!

And congrats on clearing your debts and becoming a saver! :beer:

Atop this there's the N&P Regular Saver at 4% AER and HSBC Regular Saver at 4% AER. You'd have to have a current account with HSBC but you can just put 500 a month in and take it back out. You can even do it by standing order save having to remember.

psychic_teabag

There was a recent thread on the forum where someone went through his fund selection process... this post is a summary with links to the earlier discussion threads : https://forums.moneysavingexpert.com/discussion/3069918 - might be worth a read.

You might find this site useful : http://www.candidmoney.com/default.aspx

momist

I can't believe that no-one here has mentioned the Stakeholder Pension scheme to you. You should at least consider that as an alternative/addition to regular S&S ISA investments.

The big advantage is that for every £100 you put in there, the treasury adds £25 to your cash (at standard rate). The big disadvantage is that you can't get it out again until you retire, and then you can only have 25% of it (as tax free cash) and the other 75% has to buy a pension. This can be either an annuity (big gamble on whether they will be worth it in 25 years) or some other investment designed for pension purposes, such as a draw-down investment.

I believe there is some way of claiming extra tax relief to make up the difference, if you pay higher rate. Never having been so lucky as to earn that much, I don't know.

Do some more research.:)