Worth seeing an IFA?

[Deleted User]

Hi,

Can anyone advise or give an educated guess as to how much more interest I'd gain from putting 5k from my savings and £500pm in the hands of an IFA?

About me: Mid twenties, rent, single, debt free, contribute to work pension, lives comfortably. Investing long term, 5+ years is fine.

I appreciate this a difficult question; I'm Just really trying to gauge as to how much better off I'd be compared to my current 2.8% savings account. ISAs don't seem worth it even when looking at locking away for a few years with a higher interest rate only giving a few hundred quid more interest than a 2.8% savings account.

Cheers

westy22

I certainly couldn't give you an educated guess as how much you'd gain (and I doubt your IFA could either!); but I can give you an idea of how much it may cost you, about £150 - £500 initially and about £250 per year for the next 5 years!

[Deleted User]

Anyone else?

jimjames

Deleted_User wrote: »

Anyone else?

Its worth considering if you are happy to go with investment based products rather than deposits. There is obviously risk involved as the value can drop as well as rise but long term shares should outperform cash.

The amounts you have mentioned are pretty low for an IFA to deal with so you may be better off doing your own research and using a platform such as Hargreaves Lansdown to invest in an ISA where you select the funds yourself. You won't then be paying up to 10% of your funds as fees if the numbers above are accurate.

Bear in mind that investments do not have an interest rate so you cannot compare to bank account. The current yield on the FTSE 100 is approx 4% so in terms of dividends you would be better off than the 2.8% cash ISA, on top of that you should also get capital growth long term.

[Deleted User]

jimjames wrote: »

The amounts you have mentioned are pretty low for an IFA to deal with

At what level do IFAs normally come into play?

DiggerUK wrote: »

You have shown from the way you have worded your post, that if it ain't rocket science, you can figure it out.

I'm sure I could but I'm not sure I've got the time or patience to pour over graphs and ensure my investment choices are wise.

DiggerUK wrote: »

So for what it is worth here's my opinion.
Grab some NSI Index Linked, you need to hold for minimum of one year to benefit.

I think this and ISAs would be my best option but to be frank I'm really not sure I can be arsed. For the little gain in interest from either of these tax free options I just don't see the point. A few hundred quid just doesn't seem worth it. Persuade me otherwise if you can...

DiggerUK wrote: »

Put the 500 a month in Premium Bonds

With each bonds' chance of winning a million at 40 billion to 1 I'm hesitant - a 'fun' option at the very least I suppose!

gadgetmind

DiggerUK wrote: »

I do not recommend you go with equity style investments

With just a five year investment window, I'd tend to agree. I'm rolling as much of my fixed interest into selected equities as I can (vodafone top-up last week, smug smile) but I'm happy to let a few decades click past while positions play out.

dunstonh

long term is 15 years plus. Not 5 years. 5 years is closer to short term and the absolute minimum you should consider for single premiums (regular should be closer to 15 years is minimum).

xrjtg

Deleted_User wrote: »

A few hundred quid just doesn't seem worth it. Persuade me otherwise if you can.

How much do you earn per hour? How long do you expect it to take for you to open the accounts?

Porcupine

Deleted_User wrote: »

At what level do IFAs normally come into play?

I'm sure I could but I'm not sure I've got the time or patience to pour over graphs and ensure my investment choices are wise.

I think this and ISAs would be my best option but to be frank I'm really not sure I can be arsed. For the little gain in interest from either of these tax free options I just don't see the point. A few hundred quid just doesn't seem worth it. Persuade me otherwise if you can...

I think you underestimate the power of both compound interest and lethargy. Let's say you put £5000 in a cash ISA this year at 4%. The tax saving (assuming 20% tax) is £40. Big deal. Now consider if you leave it there for 40 years, assuming rates and taxes stay the same. It would be worth £24000 in the ISA and £17626 in a taxed savings account at the same gross rate. A somewhat bigger deal, I hope you'll agree. Then consider if you'd been paying in the same amount to your ISA every year, and so your contributions (neglecting any interest at all) were £200,000...

Furthermore if you ever end up being a higher rate taxpayer, this tax shelter becomes all the more important because you start losing 40% of your interest which will really hit your compounding. So use the tax shelters that are provided for you.

Second: lethargy. You don't have any use for the money, so you stick it in an account and get on with your life. One year becomes two, two years become three, and all of a sudden you're five or more years down the line. This is why I like products which have a bonus for sticking with them, but not a huge penalty for pulling out early. For example, some fixed rate deals have an 'early exit with XX days loss of interest': I did the sums for one and worked out that it'd still beat an instant access account unless I took out the money within 9 months. At the moment we're 2 years in and I've been getting 5%. I was intending to have spent the money by now, but the purposes I wanted to use it for have been delayed. I thought about this as a risk calculation: I knew I'd want to access it sooner or later, but weighed up that would be likely to be longer than 9 months. If it was shorter, I'd have lost a few percent of my capital. So I've now won that bet.

Next: education. Investment is a practical skill. It's the sort of thing you learn by making mistakes. It's also not the sort of skill that you can cram for like an exam: what works in the short term may be utterly wrong for the long term (see the credit crunch for examples). However it's a skill that will come in useful in later life, like when buying a house (what sort of mortgage to get, what are the risks?), running a pension, managing your money in retirement, etc. So start small (£100/month perhaps), learn how things work, so when you have bigger sums of money to play with later you know what you're doing.

But also if you lose big time then you haven't lost a great deal: think of it as the cost of a few lessons. And remember that once you've fallen off your horse the first time, you learn why you fell off and get back on, you don't run away and never see a horse again. Plus starting on Shetland ponies means there's less far to fall, and they're less likely to throw you than stallions.

jamesd

For £5,000 initial and £6,000 a year you might pay an IFA 3% initially plus 0.5% of the fund value each year for selecting and adjusting the investments within a stocks and shares ISA. That would be:

Start: £150
Year 1: £55
Year 2: £85
Year 3: £115
Year 10: £326 on £65,000 invested

That ignores investment growth and increasing contribution levels. Even medium risk investments should be making 7% plus inflation. You wouldn't necessarily expect much other than rebalancing initially from the IFA after the initial setup work because the amounts are low enough for it not to be worthwhile for you or the IFA. That would (should) change over time. Or you could pay a fee instead of commission and get it done whenever you like.

If you got 7% less 0.5% fees in investment returns you'd have £96,064 after ten years instead of £65,000. 7.5% is conservative, 7-9% plus inflation is more like it. At 9% minus 0.5% fees, ignoring inflation, at ten years you'd have £108,379 and you'd have paid £2,749 in annual IFA commission over the ten years.

If you got 3% in savings with no fee you'd have £77,566 after ten years.

The ongoing 0.5% is what HL takes without providing any advice for the money.

Jegersmart

gadgetmind wrote: »

With just a five year investment window, I'd tend to agree. I'm rolling as much of my fixed interest into selected equities as I can (vodafone top-up last week, smug smile) but I'm happy to let a few decades click past while positions play out.

This site seems to bang on about equities not being a medium term investment - and I don't know why that is. Perhaps it is a "herd" mentality?

The problem with equities and a lot of other investments is that the value can go up or down - i.e. there is volatility. With this volatility comes risk - and of course rewards.

Equities is *not* necessarily a long term investment depending on how you go about investing in them. For example (as has even been shwon on this site) if you had invested your cash in a FTSE Tracker in the late 90's you would even now not be break even. 12-14 years is a long term investment and in this case - a bunch of crap.

My recommendation for investing in equities is to engage your brain and do a lot of work researching the market to make sure you understand basic trends and keep an eye on the macro-economic climate for clues. To say that equities is a long-term play only is a fallacy - it doesn't have to be, and in some cases definitely shouldn't be.

"I am happy to let a few decades click past"? Well I am not, I want to make sure that every month let alone every year is as profitable and full in life experience as I can make it. Do I get it right every time? Of course not. Do I do a lot of work to be informed and understand what I am doing - you betcha! And I understand that equities funds need to be managed every bit as closely as anything else. Anyone that just puts 100k in a tracker fund or similar for 20 years could be very well off or in some cases barely breaking even!