Considering dipping into S&S ISAs for the first time. Advice please.

Nine_Lives

This is on the back of seeing an IFA today. I've not decided anything concrete yet. I'm currently waiting on those in the know giving their views on my meeting which i posted: http://forums.moneysavingexpert.com/showpost.php?p=49505115&postcount=37

So as this IFA advised to concentrate on my house deposit & then mortgage & other bills etc, with saving into a S&S ISA until the NEST plan comes into action, i hopped on to google for "S&S ISA" as i don't have a clue.

I found this website:

http://www.moneysupermarket.com/investments/stocks-shares-isas/popular/

Makes things seem pretty simple, but at the same time, i'm cautious about complex things being made to seem simple.

Based on my attitude to risk & looking at the popular funds (i (probably wrongly) assume popular = people in the know picking these & making them popular) i noticed:
* Invesco Perp Global SM Cos
* L&G UK Alpha

I immediately wrote off anything defined as outright high risk.

Now if i was being silly i'd just close my eyes, select one of these 2 & start depositing money, but i'm not like that.

It's ok sourcing advice/information, but it doesn't make it good advice, or even current advice.


So what are your views on this website, the funds listed & me being a beginner & picking them based on this table? Any other advice?

I select my savings accounts in much a similar way - i come onto MSE, see what is ranking top of the savings list for my approach (be it instant access, 1yr fixed etc) & select away.

EDIT:

dunstonh raised a point in the pensions thread - i'd like:

Or alternatively, use S&S ISAs to ensure something is put aside but allows flexibility of movement if something different occurs or comes along

I'd also need the ability to stop payments/increase/decrease payments (would be a tricky situation if i ever got laid off work or had other commitments which took priority).

jem16

K_P83 wrote: »

I select my savings accounts in much a similar way - i come onto MSE, see what is ranking top of the savings list for my approach (be it instant access, 1yr fixed etc) & select away.

S&S ISAs are more like pensions rather than savings accounts. What is best depends on your attitude to risk, your goals etc. The exact same investments are available in pensions and ISAs - the pension and the ISA are merely tax wrappers.

I'd also need the ability to stop payments/increase/decrease payments (would be a tricky situation if i ever got laid off work or had other commitments which took priority).

Not really a problem with ISAs with regards stopping payment. Some providers require a minimum of £50, others £20 if you wanted to decrease the payment.

Nine_Lives

Thanks jem.

As i say, my attitude to risk is medium-to-high. On a scale of 1-10 i'm a 7.5.

I've just discussed with my partner who is low-medium. I showed her paperwork i got from the IFA i saw which had a scale of 1-7. She said she's a 3.

Anyway, based on me being medium-high, i would simply go on that 2nd link i posted, find something that says "hello investor, we're medium-high, come and pick us" and say "well hello you, i'll give you my money". The thing is, there are various medium-high, so which ONE do you select?


That's my first question.

My 2nd question is:

As said in the pensions thread, the IFA today suggested i DON'T select pensions at the moment & instead opt for S&S ISAs.
You tell me they're just wrappers, but the actual investment can be in the same thing (i.e. the returns will be the same (forget tax relief for this second)).
I post up the advice i was given & numerous MSE members agree with this advice.

So onto my question --- why am i being recommended this advice when the approach (pensions vs ISAs) is the same, yet one (pensions) will have tax relief & therefore be better?

I'm aware you can have your ISA money today, pensions you can't.
I'm aware you get taxed on your pension, on ISAs you don't.
I'm aware you get tax relief on pensions, on ISAs you don't.

But i don't want to 'draw' my money today, or tomorrow, or next year. I want to invest my money & not touch it for the next 40 years.


So surely pensions would be a better approach? Yet the professional says no & the more knowledgeable people of MSE say no. I know ATEOTD it's my decision, but my decision can also be wrong if i don't understand why i'm making the decision.

jimjames

As well as the risk scale also think about how much you are prepared to lose on a fund/share. Some high risk ones may drop 80% plus whereas the FTSE dropped approx 50% in 2008/9 although it then recovered.

If you are comfortable with that (not that it is ever nice to see your portfolio drop in value) then consider investing in funds or shares.

Nine_Lives

Isn't that what "stocks & shares" is though? Shares being in the title? Or am i missing the point?

It's all relative. 50% is 50%, be it 50% of £100 or 50% of £10,000, you've still lost 50% of your savings. I know £50 is hardly £5000, but if you're in it for the long haul, when it recovers xyz%, it'll be the same for your £50 as it is for your £5000.

jem16

K_P83 wrote: »

Anyway, based on me being medium-high, i would simply go on that 2nd link i posted, find something that says "hello investor, we're medium-high, come and pick us" and say "well hello you, i'll give you my money". The thing is, there are various medium-high, so which ONE do you select?

Wouldn't really use that link as anything useful. You would be far better using Trustnet, Morningstar and Hargreaves Lansdown for your research.

So surely pensions would be a better approach? Yet the professional says no & the more knowledgeable people of MSE say no. I know ATEOTD it's my decision, but my decision can also be wrong if i don't understand why i'm making the decision.

Pensions gain tax relief on the way in but are taxable on the way out so it's more like deferred tax apart from the tax-free lump sum and anything still within your personal allowance of approximately £10k for over 65s.

Where pensions win is if you have 40% tax relief on the way in but only 20% tax on the way out. There are other advantages that at the moment don't apply to you.

K_P83 wrote: »

Isn't that what "stocks & shares" is though? Shares being in the title? Or am i missing the point?

You are missing the point.

Shares are direct investments in a company's shares and can be riskier on their own as if the company goes down, your shares go down. Funds are a collection fo shares which is bought with a pool of money ( yours and others) and looked after by a fund manager. The risk is generally less.

This might give you an idea.

http://www.guardian.co.uk/money/2007/oct/25/investmentfunds

It's all relative. 50% is 50%, be it 50% of £100 or 50% of £10,000, you've still lost 50% of your savings. I know £50 is hardly £5000, but if you're in it for the long haul, when it recovers xyz%, it'll be the same for your £50 as it is for your £5000.

Yes but that's not what defines risk. Some people will not be happy to lose anything but others will be happy to see it go down by 20%50% or more in the knowledge that it will(or should) go back up again.

It's how much you would be prepared to see your investments go down before you begin to panic and want to pull out.

Nine_Lives

jem16 wrote: »

It's how much you would be prepared to see your investments go down before you begin to panic and want to pull out.

I know technically you (none of you) can answer this question, but i'll ask it anyway & hopefully someone will give their opinion.

I understand the idea of reducing exposure to risk as you near retirement. So to me, you would likely be more exposed as you start out in your 20s (i.e. me - i know i'm at the back end of my 20s, but i'm clinging on for now).

If i was to say that i would have a heart attack if i lost 1%, most of you would see that as rediculous. As would i.
So for my age, the fact i've not begun yet, what would you consider a reasonable approach? A figure that wouldn't concern you greatly if you lost it, and a figure that would (without anything obvious like 100%).

At this moment in time, i'd accept a 30% drop. Getting on towards 45% would concern me though. Somewhere in between would be a "i can't decide" area.

Come on now, no fence sitting I want to know what other folks opinions are.

jem16 wrote: »

Where pensions win is if you have 40% tax relief on the way in but only 20% tax on the way out.

Very good point.
Unfortunately, something that is unlikely to ever change for me unless i go to school & train up, but this is unlikely, as taking time out to train up means making little/no money in the early years, yet you need to get by. Sadly, i know i'm not the only one in this situation.

jem16

K_P83 wrote: »

I understand the idea of reducing exposure to risk as you near retirement. So to me, you would likely be more exposed as you start out in your 20s (i.e. me - i know i'm at the back end of my 20s, but i'm clinging on for now).

You have the correct idea as you have time on your side. However you still have to be able to sleep at night and not sit worrying.

Come on now, no fence sitting I want to know what other folks opinions are.

I would start off as you are suggesting but you are not me.

Unfortunately, something that is unlikely to ever change for me unless i go to school & train up, but this is unlikely, as taking time out to train up means making little/no money in the early years, yet you need to get by

In the absence of higher rate tax relief, you are looking to either have employer contributions (not available as yet), salary sacrifice agreement or at least enough pension to cover around £3kpa. This is taking the view that you would have around £7k state pension ( basic plus S2P).

Nine_Lives

Aye, my employer will only contribute if they get forced unfortunately. This man is a multi-millionaire with his finger in all the pies going in the town. The turnover is a good few million a year. They claim they can't afford to give a pay rise, yet they forget employees talk and the "favoured" departments have been given numerous pay rises. A relative of mine works for the company & has had 2 pay rises within the past 12 months. It's been 4 years since i've had one & was about 3-4 years before that. Not even £5 Xmas bonus each.

That's the end of my little moan though. For anyone quick to jump in, YES i am grateful i have a job, but to be lied to that it can't be afforded is the annoying part.

I looked into that salary sacrifice & i more than likely didn't understand it properly.
The person who deals with our wages struggles to get them right from week-to-week so i'd be reluctant for them to be handling any complex deal.
Not only that, i don't trust my employer - i would suspect that they'd use such a thing to 'screw me over' & they'd be in pocket, yet i'd be totally out of pocket.

jem16

So go for S&S ISA and use NEST to build up the pension to give you around £3kpa income.

Where are you going to buy your funds/shares from for your ISA?

Nine_Lives

jem16 wrote: »

Where are you going to buy your funds/shares from for your ISA?

Ahh you've spoiled the surprise!! That was my next question. I'm not there yet though.

I've just formatted my SSD so i'm putting that back together today. I then need to read the links you've provided me with. I then need to have a think & more than likely come back with the question.

I'm hoping to be able to do it all online though (subscribing, payments etc) as i'm running out of time to see any other IFAs. I'm still on crutches, but i'll be back at work in the new year.