Making use of £4000 equity part of ISA allowance

newfoundglory

I want to make use of the £4,000 shares part of the ISA allowance which I waste each year. I want minimum risk.... I am led to believe a fixed-rate corporate bond thingy will allow me to do this.

Can someone point me in the direction of how and where I should start and go about selecting/finding one of these (i am prepared to do my research).... without going to my bank who will charge fees and % etc

Cheers:D

dunstonh

corporate bonds would make up one of a number of different low risk sectors. You wouldnt go sticking all your money into that one sector but ideally utilise the other low risk sectors as well. With £4000, you would use at least 4 funds with £1000.

Can someone point me in the direction of how and where I should start and go about selecting/finding one of these

https://www.morningstar.co.uk will give you some fairly comprehensive detail (as far as the free feeds go). Like anything that focuses on past performance, it is only information on what has gone before and not what is to come.

without going to my bank who will charge fees and % etc

Banks rarely offer the fee route but they will take a large percentage normally and they cannot offer investment portfolio advice anyway. They will just stick you in their version of the fund you request. Bank funds tend to be fairly poor quality as well.

Dont rule out quality advice though. It doesnt cost much more than the DIY options if bought through the right sources.

whambamboo

dunstonh wrote:

corporate bonds would make up one of a number of different low risk sectors. You wouldnt go sticking all your money into that one sector but ideally utilise the other low risk sectors as well. With £4000, you would use at least 4 funds with £1000.



https://www.morningstar.co.uk will give you some fairly comprehensive detail (as far as the free feeds go). Like anything that focuses on past performance, it is only information on what has gone before and not what is to come.

what more non-free information might you want?

newfoundglory

Thanks for the info!

dunstonh wrote:

ideally utilise the other low risk sectors as well.

What would be examples of other low-risk sectors?

whambamboo

newfoundglory wrote:

Thanks for the info!

What would be examples of other low-risk sectors?

Why don't you want any risk? It doesn't have to mean 50% rises and falls in 2 2 weeks.

dunstonh

what more non-free information might you want?

Morningstar data can be quite a bit out of date and not all funds are detailed in their free offering. Their paid for feed is £100pm and it contains more analysis and data and a number of tools to make the fund selection choice easier. Alpha, Beta, Sharpe, tracking errors and volatility are some of the things that can be filtered in the paid for version (noting that apart from a trial a few years ago, I didnt bother using it as it offered little that IFAs with other paid for software can already use).

What would be examples of other low-risk sectors?

Sticking at the cautious end (these are not all equal risk but are at the lower end):
Commercial Property (bricks and mortar)
UK Corporate bonds
Global Bonds
Gilts & Fixed Interest
UK Zeros
UK Other bonds

There are some funds within those categories which would go to medium risk so dont assume they are all the same.

Why don't you want any risk? It doesn't have to mean 50% rises and falls in 2 2 weeks.

Its a very good point. With £4k, you could have 3k in the lower risk side and £1k in an equity and bond fund or an equity income fund. Risk is long sliding scale and you dont have to jump between extremes.

newfoundglory

I dont want any risk because:

(a) I graduated in the summer with £10,000 of student loans
(b) I have a lot of savings, with total running into a "low" 6-figure sum which is held on deposit.
(c) Although I have a lot in cash ISAs, I pay tax on the interest from the rest.
(d) I don't own any property or other assets, so I might want to use the money from (b) in order to get on property ladder in next few years.
(e) I don't know if I can commit to investments of 5 years or longer, due to (d).

whambamboo

newfoundglory wrote:

I dont want any risk because:

(a) I graduated in the summer with £10,000 of student loans
(b) I have a lot of savings, with total running into a "low" 6-figure sum which is held on deposit.
(c) Although I have a lot in cash ISAs, I pay tax on the interest from the rest.
(d) I don't own any property or other assets, so I might want to use the money from (b) in order to get on property ladder in next few years.
(e) I don't know if I can commit to investments of 5 years or longer, due to (d).

(a) £10k of index-linked government loans repayable only out of income is not a risk
(b) If you have a lot of savings, you can afford to take a larger risk on a small sum, as you've got plenty of other money
(c) This does not affect your attitude to risk
(d) This is a fair point, though (1) it's not a ladder, (2) prices look high at the moment (3) if you have >£100k in savings, then £4k in equities is not going to make any difference to you buying a house at all.

dunstonh

I dont want any risk because:

None of the options are risk free, including corporate bonds. However, the level of volatility is low. With the cash holdings and the small amounts involved, the risk is hardly worth the worry though.

However, based on what you are saying, you probably shouldnt be considering investing and sticking to savings accounts.

(d) This is a fair point, though (1) it's not a ladder,

Wonder if they will call it a property snake when prices drop?

newfoundglory

Hmmm, i'm just thinking that if i dont do anything now and not buy a house for 3 or 4 years say... then that might be 16-20k of missed ISA allowance.

I am beginning to think that perhaps 4 or 5 corporate bond funds, perhaps some with slightly higher-risk and higher predicted yield might be better. I have money left over each month from salary too, and that just goes into the one big pool of cash at the moment.

moneyandmountains

newfoundglory wrote:

I am beginning to think that perhaps 4 or 5 corporate bond funds, perhaps some with slightly higher-risk and higher predicted yield might be better.

If you bear in mind that funds are holdings of multiple bonds, then you might end up with some overlap here.

Corporate bonds haven't been a wonderful sector in recent years. Be aware that there are different levels of risks with bonds. If you look at the rating you will see AAA (low risk), but more at BBB these days. The value of a fixed interest bond will go down as the bank base rate of interest goes up.