Is it worth investing small amounts?

Eco_Miser

Svenena wrote: »

I've read that it's not that worth using an S & S ISA if you're a basic rate tax payer and CGT isn't an issue, but I thought I would anyway, as it's possible I could become a higher rate payer in the future. I assume there wouldn't be any negatives about using an ISA?

CGT is always an issue, since it is charged at some future date when the rules may have been changed. Of course the ISA rules could be changed too, but that's less likely.

A further advantage to a S&S ISA is the simplicity of not having to keep records or tell HMRC (they know anyway) about your dividends.

The only negatives about using an ISA would be if the manager charged either management fees or exit fees.

fimonkey

H&L are best for funds in terms of costs etc, but if you're thinking of adding individual shares in the future then H&L are not the cheapest. They charge a flat fee (about £10.00 I think) which is a high percent if you're only investing small amounts.

I was in your position last year and opened an S&S ISA to begin drip feeding into funds. This year I want to try to buy a few individual shares, though only about £150 a time. Rather than pay a high buy fee through H&L I have opened an interactive investor account using their portfolio builder which only charges £1.50 per deal (but only deals on certain days of the month). Hence my shares are not in the ISA at this point - this was the best way round my dilemma for me. I am continuing to drip feed into the S&S ISA though - through H&L,

middlepuss

fimonkey wrote: »

This year I want to try to buy a few individual shares, though only about £150 a time. Rather than pay a high buy fee through H&L I have opened an interactive investor account using their portfolio builder which only charges £1.50 per deal (but only deals on certain days of the month). Hence my shares are not in the ISA at this point - this was the best way round my dilemma for me. I am continuing to drip feed into the S&S ISA though - through H&L,

Are you going to end up with small amounts of lots and lots of different shares? It sounds as if you could end up with a lot of work keeping track of many many shares.

nufc_fan

Really good thread, exactly the answers I was also looking for.

Would people advocate a FTSE 100 tracker or a FTSE all market? Difficult to find info on which would give the better returns?

DavidHayton

nufc_fan wrote: »

Really good thread, exactly the answers I was also looking for.

Would people advocate a FTSE 100 tracker or a FTSE all market? Difficult to find info on which would give the better returns?

Hi nufc_fan,

You will probably find that there is virtually no difference between the fortunes of an FTSE-100 tracker and an All-share tracker. Certainly hasn't been much over the past five years:
http://www.h-l.co.uk/funds/fund-disc...ulation/charts
http://www.h-l.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/h/hsbc-ftse-all-share-index-inst-accumulation/charts

The reason is that the 100-share index comprises about 80% of the all-share index (it is weighted by value). If you want to follow the fortunes of the other 20% then you could choose an FTSE-250 tracker.

Bear in mind that any tracker that follows the 100-share index will invest about a quarter of your money in just four companies ... Vodafone, BP, Shell, and HSBC. This is risky! The proportion invested by an all share tracker in the same four companies will be slightly less ... but not much.

Whatever you do, check the TER figure on the fund (this tells you the percentage being deducted every year in charges). No point paying 1% a year when another fund manager can track the same index for a 0.25% charge.

David

nufc_fan

Yes, that is my main concern on a FTSE tracker, if anything happened to one of those big companies then I could loose out.

Would a managed fund be a better idea, I am thinking along the lines of the OP with around £50 pcm to begin with. I have been looking on the Legal and General Website, their options do not seem to have massive fees.

mr_fishbulb

Svenena wrote: »

So I'm wondering whether it's worth even bothering? I can probably spare £100 a month, which would mean only investing in a couple of funds.

Totally worth it. I started off a 3 years ago in exactly the same position (2 funds, £50 a month into each - First investment was May 2008).

As my salary has grown, I've added more lots of £50 per month - I'm now putting away £250/month and as I have increased this in line with my salary, it hasn't affected my ability to enjoy life (i.e. I still have beer money).

It soon adds up - I'm now up to 7K across 10 funds, 3 years later. Once I get up to 10K I'll start to look at lump sum purchases of exchange traded stuff like Investment Trusts, ETFs and even some shares directly in companies. I've learn so much during this time that I feel confident to do this.

Go for it!

nufc_fan

Mr_Fishbulb, thats my plan, start with one and maybe give it 6 months or so then add a few more in £50per month at a time, Im not going to be going over the ISA limit and I still plan to fill a cash ISA each year to have more immediate access savings available. Difficult part is just selecting which funds to start off with.

mr_fishbulb

nufc_fan wrote: »

Yes, that is my main concern on a FTSE tracker, if anything happened to one of those big companies then I could loose out.

Would a managed fund be a better idea, I am thinking along the lines of the OP with around £50 pcm to begin with. I have been looking on the Legal and General Website, their options do not seem to have massive fees.

The big companies on the FTSE have their fingers in so many pies that if something bad happens, then it will happen across the entire sector or market, affecting the majority of companies. An actively managed fund could possible mitigate against some of those falls, but you are still going to see losses.

My view is if you want to invest around an established index in a mature market (FTSE, S&P500, etc), then go for the lowest cost tracker you can find. But only if your goal is to follow what happens with that index - for example I have a chunk of exposure to FTSE companies, but I'm interested in dividends rather than the whole index, so I pay Neil Woodford to actively manage that. In the US I just want to track the S&P500 so I have a low-cost HSBC tracker fund.

mr_fishbulb

nufc_fan wrote: »

Mr_Fishbulb, thats my plan, start with one and maybe give it 6 months or so then add a few more in £50per month at a time, Im not going to be going over the ISA limit and I still plan to fill a cash ISA each year to have more immediate access savings available. Difficult part is just selecting which funds to start off with.

Have you taken any of these online things to assess the level of risk you're willing to take? Fidelity do one here - https://www.fidelity.co.uk/investor/guidance-planning/plan-portfolio/myplan-portfolio-quickstart.page?

Also sometimes you have to go with your gut felling. Sites like this one are great for getting ideas. You'll see people talking about Japan, Europe, Technology, Agriculture, Precious Metals, Oil, Mining, etc, etc, etc, ... but where to start?

Discard the themes you don't want to invest in just now. For example you might look at that and think "Japan is too high risk right now, Europe has lots of countries going to the IMF with their cap in hand, Precious Metals seems to be in a bubble, but because of the global recovery and population growth, I do see potential for Energy, Mining and a bit of Agriculture. So then you would start looking for funds that cover Global Equities and Natural Resources. How do you do that? You can go on sites like morningstar, trustnet, and citywire which group funds into their categories; you can ask on here for some ideas of funds to look into; you can google search for articles in newspapers/magazines for investing in these sectors.

At this point you have done a little bit of your own research, but not enough. Each fund will have a objective. This will tell you how the fund intends to give you a return - what areas it will invest in, what %age it can have in stocks/bonds, etc. If you agree with this then set it to one side. If you think "I don't agree with that" then discard the fund.

Next go the the websites for each fun on your shortlist and read through the fund brochure and recent newsletters. It will tell you how the fund has done, where the fund manager sees growth, and how they justify any losses. Again if you think it makes sense, then keep, if you think they are spinning BS then toss it.

Next take your shortlist and look into the fund managers themselves (citywire is great for this). You may have found the perfect fund for you, with strong, and regular past returns, but if the fund manager left 3 months ago and has been replaced by a 23-year-old with no prior experience, then you're probably going to want to think twice.

By now you should have got down to 2 or 3 funds in the area you like, all with roughly the same strategy, so now you take a look at the fund charges. If you have 2 funds that invest in almost exactly the same things, but 1 charges 1.5% and the other is 2.5%, then I'd lean towards the cheaper one (everything else being equal).

Once you've chosen a fund then start investing straight away. You might be thinking "what if I've chosen the wrong one? What if the other fund will give better returns?" Well you're not going to get any returns unless you are invested. And at the end of the day, if the fund you chose performs slightly less well than the one you didn't, it's down to luck at this stage - you've done all you could and at the end of the day it's £50. If one fund performs 5% better than another then it's only £2.50.

So. Breakdown:
- Chose an/some areas you like.
- Find a fund that does that, plus other things (if you can only invest in 2 funds then look to the funds to give you diversification).
- Your second fund should be something completely different from the first.

Anecdotally my first 2 funds were:
Invesco Perpetual High Income - got a 27.5% return from that. When compared to the other UK equity income funds, it hasn't performed as well as it used to, but it seems to be coming back.

JM Finn Global Opportunities - 48% and still going well.

But that was 3 years ago, so might not be appropriate today.