Stocks & Shares ISA top tips

MetManMark

All
I am considering saving into a stocks & shares ISA. I have done this in the early and then late 90s with mixed results. This was largely because I am not great at spotting the bottom of the market in order to buy when cheap. I am now considering investing again. A few questions:

1) Should I put away £450 a month to smooth out the share price or should I put in a lump sum and hope for the best.

2) Previously I invested in Threadneedle Unit Trusts. What are the top funds to consider?

3) Do all funds allow you to drip fee money in monthly?

4) I currently have ISAs in UK, US, Japan and Europe. Which area is best to invest in?

Any top tips would be appreciated. It is just that I have read lots of money sections in weekend papers and they are always telling you to invest in shares. Clearly they have an alterior interest as this is essentially their business. The other option would be to stash some cash to consider a buy-to-let in years to come.

I should say that I am not looking to touch the money for the next 10 years.

Thanks in advance.
M

jamiex

I can answer a couple of your questions, but not all of them unfortunately.

1) I'm drip-feeding rather than putting in a lump sum, mainly because I don't know where the bottom of the market is. If you can time it right, then a lump sum would be best, but if you're not confident in predicting where the market is going, then drip-feeding is probably the right choice.
My strategy is to drip feed, and if there's a complete crash like 2008, then put a lump sum in at that point (when the market's at 4000!)

2) I can't recommend any specific funds, but taking a look at Hargreaves Lansdown's "Wealth 150" would probably be a good start. You need to decide where to best invest (Europe?, Technology?, Japan?, etc.) and then choose the specific funds in those categories that look the best to you.
http://www.hl.co.uk/funds/wealth-150

3) All funds that I've come across on Hargreaves Lansdown allow drip-feeding. You can put anything from £50/month into most funds. If you want to put a lump sum in, then it's £1000 minimum, and if you want to top-up a fund it's £250 minimum.

4) I have no idea which ISA is best for you to invest in. Do you mean you have separate ISAs for investing in each country, or do you have ISAs located in those countries? (I thought ISAs were just a UK thing).
If you're asking which country is best to invest in, then it's an impossible question and I wouldn't really take advice from anyone. You have to do your own research, and make your own decision on that. UK is probably less risky than Japan for example, but potential returns (and losses) are also lower.

Hope this helps

Regards,
Jamie

Linton

MetManMark wrote: »

All
I am considering saving into a stocks & shares ISA. I have done this in the early and then late 90s with mixed results. This was largely because I am not great at spotting the bottom of the market in order to buy when cheap. I am now considering investing again. A few questions:

1) Should I put away £450 a month to smooth out the share price or should I put in a lump sum and hope for the best.

2) Previously I invested in Threadneedle Unit Trusts. What are the top funds to consider?

3) Do all funds allow you to drip fee money in monthly?

4) I currently have ISAs in UK, US, Japan and Europe. Which area is best to invest in?

Any top tips would be appreciated. It is just that I have read lots of money sections in weekend papers and they are always telling you to invest in shares. Clearly they have an alterior interest as this is essentially their business. The other option would be to stash some cash to consider a buy-to-let in years to come.

I should say that I am not looking to touch the money for the next 10 years.

Thanks in advance.
M

1) Drip feeding is fine if that ties in with the availability of the money. I would possibly wait 2 or 3 months and then buy one fund.

2)Threadneedle is just one of many fund managers who provide a very wide variety of funds. You need to decide what geographies and areas of economic activitity you wish to invest in before picking a fund manager.

Sorry jamiex - dont go by the H&L wealth 150, its a marketing list of funds that benefit H&L.

You can decide suitable areas of interest - eg Far East if thats what you believe will grow well. Or if you believe that the UK has a great future, you can put your money there. Or you can go for something like the finance industry world wide.

If you have no specific ideas then there are general funds - perhaps a Global Growth fund which could invest anywhere in anything, but does invest widely so if one specific area or industry crashes you wont lose a very high percentage of your savings.

Have a look on www.trustnet.com.

3) Dont know - I dont drip feed myself.

4) What do you thnk? Read the newspapers and follow the news.

Shares of some form are considered to provide the best returns of all major investment areas BUT they are volatile. So you must be investing for the long term - say 5 years as a minimum, more sensibly 10+ years.

dunstonh

Regular contributions typically need much longer periods than single contributions to turn a decent profit. Typically a minimum of 15 years. The shorter the term, the more likely you are to suffer a loss.

westy22

Regular contributions typically need much longer periods than single contributions to turn a decent profit. Typically a minimum of 15 years

I would be very interested to read the statistical evidence supporting that statement as it goes against the traditional belief in the power of pound cost averaging.

dunstonh

westy22 wrote: »

I would be very interested to read the statistical evidence supporting that statement as it goes against the traditional belief in the power of pound cost averaging.

Run it through excel.

Stick a 30% drop after year 2 and it will have little impact on the final return. Stick a 30% drop in year 10 and it can wipe out every penny of growth you have had as its applied to the full value.

jamesd

The lump sum payment is more vulnerable to that risk than regular payments, not less.

With the lump sum the timing of investment is critical. Be right or fortunate and it'll be bought at a price below the year ten drop. Wrong or unlucky and it won't.

With the regular payments you're going to be buying at a blend of prices over the ten years and some of those will be below the price it drops to. Others will be less above it than the lump sum purchase.

For the lump sum if it's bigger than the ongoing payments then you'll get the benefit of more years of compounding if the drop is long after the investment, not if it isn't. That makes the timing of the drop particularly critical for the lump sum compared to the regular investing.

For both a drop near to the time when the money is to be taken out can have a massive effect and is perhaps the single largest factor in your eventual return. If you have a set final date it's vital to start gradually reducing risk level as that date approaches so you reduce your vulnerability to this.

jamesd

MetManMark wrote: »

1) Should I put away £450 a month to smooth out the share price or should I put in a lump sum and hope for the best.

Stock market theorists correctly say that you get the best return by putting in the whole amount as a lump sum at the start.

But there's a catch added by behavioral economists. That also leaves you vulnerable to a drop just after putting it in that can cause you to give up and take the money out again with a loss. So for most people, particularly those inexperienced with investing, it is better to spread the investing out over some time.

How long varies. Given current market conditions I'd perhaps use a year. That's because prices aren't particularly high compared to other times. If I though that prices were high I'd suggest a longer period. If I thought that they were particularly low I'd suggest a shorter one. This is a market timing exercise and in theory can't work because I can't know the future. That's correct but I can know the apst and compare the present to the past and assume that past patterns will generally repeat. They may not but the odds favour it.

MetManMark wrote: »

2) Previously I invested in Threadneedle Unit Trusts. What are the top funds to consider?

Way too many options. Depends what you want to cover and how much you have to invest. Also your view of managed and unmanaged funds.

MetManMark wrote: »

3) Do all funds allow you to drip fee money in monthly?

With some minimum value yes. Fund supermarkets are likely to reduce this minimum.

MetManMark wrote: »

4) I currently have ISAs in UK, US, Japan and Europe. Which area is best to invest in?

I like the idea of starting with an MSCI or FTSE World ex UK tracker investment as a core holding. ex UK means excluding UK. You can then add managed funds and others to concentrate in areas that interest you. I'd add a large emerging market component, perhaps with the Aberdeen Emerging Markets fund.

For the UK I'd use a combination of smaller companies and perhaps leveraged ETF investing. Might use a leveraged fund for some global or other cover as well. Now may well not be a good time to use leverage, which magnifies gains and losses. There are quite substantial downside risks at the moment. There are also various issues with leveraged ETFs that you need to very carefully look at before using them, notably that they may not track accurately over more than short periods - even intraday or a few days as the limit. An alternative to a leveraged ETF can be an investment trust that has a policy of using leverage when the managers believe it's appropriate.

sabretoothtigger

I'd never recommend leverage to anyone who doesnt trade for a job, unless they are really high income maybe
The people who I read on, spend all day and night studying just markets. They dont do anything else and in some cases have degrees in statistical mathematics or something relevant. My take on risk vs reward in todays markets using leverage is it creates all or nothing ,like Russian roulette

If you have a set final date it's vital to start gradually reducing risk level as that date approaches so you reduce your vulnerability to this.

Averaging on the other hand is an easy way to spread risk especially as it helps saving. Scaling out of a 15 year investment is something I recently recommended to someone selling a tech fund, I do think stocks like Google could gain much more in line with global growth but theres no doubt taking profit and spreading risk over time and sectors is a good idea for money that cant be lost.
Leverage is close to the opposite of that

ruperts

dunstonh wrote: »

Run it through excel.

Stick a 30% drop after year 2 and it will have little impact on the final return. Stick a 30% drop in year 10 and it can wipe out every penny of growth you have had as its applied to the full value.

That's just because you've averaged up in a rising market though, isn't it?

If you'd have invested in a lump sum which had grown 50% in 10 years and then it dropped 30% you would have also lost almost every penny of growth.

With PCA maybe you'd lose a bit more because potentially you would be in at a higher average price. But then at the same time, you may have averaged down at some point in a falling market and end up with a similar price, or in a very volatile market you may even be in at a better average price than your lump sum. Who's to say?

I don't believe there is any inherent mathematical safeguard with investing in a lump sum beyond that which states in a generally rising market you're better of going all in as early as possible. But as we've seen with the FTSE, a simple case of poor timing could be the difference between a nice profit and still sitting on a loss after ten years or more.

For that reason I can't really see how your excel calculation works unless you are assuming a perfectly timed lump sum investment and a perfectly linear rise in the market, neither of which I'd imagine someone with your wisdom would do, so i imagine i must be wrong somewhere.

jamesd

sabretoothtigger wrote: »

I'd never recommend leverage to anyone who doesnt trade for a job, unless they are really high income maybe

One problem with that view is that it's very frequently used by investment trusts and is ubiquitously used by normal businesses. If you eliminate based on leverage use you eliminate things like Anthony Bolton's China investment trust because that uses leverage routinely.

sabretoothtigger wrote: »

Averaging on the other hand is an easy way to spread risk especially as it helps saving.

So buy an investment trust with regular purchases. Or some other leveraged investment with regular purchases. The two aren't opposites, they are both just tools to use or not as appropriate.

What leverage does is buy you more of the longer term returns which tend to be upwards. But the price is the cost of the leverage within the product and the increased volatility. That's definitely not for everyone and in the case of leveraged ETFs not for most people because they use quite a lot of leverage compared to some other options. For most people the unleveraged methods are the way to go.