Going solo & funds selected. What do you think before it's put through?

Nine_Lives

So i've gone through an IFA as has the gf.

My brother is 19 & to give you an idea ... when you hear the term "youth of today", it's likely that the picture you get will be him, except he's not a total deadbeat as he's conscious enough to express an interest in retirement planning.

He only gets Sunday's off work during the week so it's extremely difficult to see an IFA himself. Even if he did get to see one, he says he wouldn't have a clue what to even ask. I mentioned bits & bats of what i've picked up on here & going through Hargreaves Lansdown.
He said that if i select funds (god knows why he wants to go on my recommendation) then he'll sign up himself through HL.


He doesn't get paid a great deal. I think he could afford £100pm like myself, but my mum has been in his ear, so he's now looking at contributing £50pm (at least until his current car problems are sorted) with a view to then increasing to £100pm as soon as is possible/comfortable.

This will be long-long term (40-50yrs). He's 19 & living at home, no debt, just low pay.

SO, that's the background done with...swiftly moving on...

From reading this past week or so, i've read/been told/been recommended in the direction of Index Tracker Funds. Based on this i've lumped with:

http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/h/hsbc-uk-gilt-index-accumulation
http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/v/vanguard-ftse-developed-world-ex-uk-equity-index-accumulation
http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/l/legal-and-general-pacific-index-class-r-accumulation

Why?

I figured i'd select 3 from the scattered table here: http://www.hl.co.uk/funds/index-tracker-funds/view-index-tracker-funds

Looking at the graph, all bar the gilt would've made a loss over the past 12 months if i've understood correct.

Anyway, this isn't a short term investment at all. Plus he's just looking to get started out.

Any views on what i've selected? Anything in that final link that would be a better selection?

He's wanting to put payment through tonight, so views are welcome. I'm not expecting everyone to agree btw.


Also, once putting payment through on HL, i don't know what the procedure is .... i've linked up 3 there. Once you get past the first page (entering NI & payment info) do you select a percentage to go into each tracker or something? Do you only select one tracker?


You can all poo-poo my random selection now :rotfl:

Lokolo

You are being charged £5 a month for those funds. At the beginning, with £100 a month, it's not worth it.

Derivative

As stated in your other thread - I really don't think it's worth investing in anything other than cash savings accounts until you can make up the fees.

£50 per month is £600 in a year. As Lokolo has said, you'll be charged £5 a month for holding them.

So at the end of Year 1, if the investments don't change in value, you'll hold £550. By stuffing under the mattress, you'd hold £600.
8.5% percent of the capital - gone. This is excluding the TER of the funds themselves.

If at the beginning of Year 2, you start to invest £100pm, you'd have £1700 at year end, for a total investment of £1800. 5.5% capital loss, again excluding TER.

I understand that you want to learn about these things, but I really think you need to consider the impact of these frictional costs.

I would recommend you/he/whoever sticks with cash until the amounts are high enough. I don't think that investing in equities and bonds is a bad idea for small investors, but you need to make sure that you're not losing huge proportions to fees.

Nine_Lives

To switch it back on to myself then - are you saying £100pm (that i'm paying in) is still not enough?

What is "enough" in your view & how do you define this?

He's already lumping £320pm into a cash ISA which is for things such as extortionate car insurance fees, and (largely car related) other costly things.

Maybe it'll be better then that he hangs on until he qualifies from his next level & when he receives the pay rise from this, he can start paying in. Depends on what is "enough" though.

Derivative

K_P83 wrote: »

To switch it back on to myself then - are you saying £100pm (that i'm paying in) is still not enough?

What is "enough" in your view & how do you define this?

He's already lumping £320pm into a cash ISA which is for things such as extortionate car insurance fees, and (largely car related) other costly things.

Maybe it'll be better then that he hangs on until he qualifies from his next level & when he receives the pay rise from this, he can start paying in. Depends on what is "enough" though.

The monthly amount is not really relevant unless there is a dealing charge that I haven't noticed. Those funds have identical bid/ask (buy/sell) prices.

What matters is how much capital is actually invested. Let's ignore TER for now, as on index funds it's generally in the 0.25% range, not too significant for the purposes of this analysis. It's important, to be sure, but we will be looking at losses around ten times that.

An example. If you have £1000 in a fund charging £2 per month holding fee, then if the investment doesn't change, you should end up with about £976 at the end of the year. A loss of 2.4%

The 'mattress' I keep bring up is a contrived example meant to illustrate just how much you're losing. If you went for a 3% cash ISA, you'd have £1030. A gain of 3%.

The investment would have to gain in value by 5.4% to put you on the same standing as a sure bet savings account. Possible - but not advisable to count on it, IMO.

Run the same figures with £2000, £2 per month, you come out with £1976. A 1.2% loss. Not too bad. Now you need a 4.2% gain to beat the savings account.

How much loss you're comfortable with having to make up is down to you. The point is not that £100pm is too little to invest - it's that you need a lump sum to start with, to stop frictional costs eating any return. Stick £100pm in a Cash ISA for a few years, is my advice, and look at funds when you have more.

Nine_Lives

In that case you can probably predict my follow up question:

What lump sum is "enough" to begin with when looking at doing this (investing in S&S ISAs)? As you say, cash ISAs hover around the 3% marker & have done for a good while now. I know that i picked my ISA when it was 3.50% (instant access) but this got removed quickly & nothing (instant access) really touches it. So to call a round figure, we're looking at the 3% you mentioned.

Based on this, what lump sum is going to make S&S ISAs "worth it"?

I'm asking this for my brother, but also for myself & my gf - as we're starting from scratch with £100pm. If i throw a lump sum in (depending on the amount) it may make things 'worth it'

Derivative

K_P83 wrote: »

In that case you can probably predict my follow up question:

What lump sum is "enough" to begin with when looking at doing this (investing in S&S ISAs)? As you say, cash ISAs hover around the 3% marker & have done for a good while now. I know that i picked my ISA when it was 3.50% (instant access) but this got removed quickly & nothing (instant access) really touches it. So to call a round figure, we're looking at the 3% you mentioned.

Based on this, what lump sum is going to make S&S ISAs "worth it"?

I'm asking this for my brother, but also for myself & my gf - as we're starting from scratch with £100pm. If i throw a lump sum in (depending on the amount) it may make things 'worth it'

Now that one's a tough question.
What you need to do is figure out how much you expect your investments to return, which isn't always easy.

The main figure to look at is that £24pa (or £12pa) charge. On £2000 it's 1.2%. If you expect your investments to outperform cash by at least 1.2%, then £2000 is 'enough'.

My personal lower limit is £4000 per fund. Much higher and I would have to only buy one fund. Much lower and a lot of your return is eaten up by fees.

JoeCrystal

Well, I just want to say well done to him. He will gain greatly by the fact he decided to start early. But I would like to ask if his employer have a pension scheme he can contribute to? And more importantly, does his employer also contribute to it? It may be worth getting your brother to chase his employer about it if only to get more information.

I remembered when I asked for mine and it was a stakeholder pension scheme with very limited fund choice in which they pay no contribution so I moved onto better pension scheme instead. But his employer *might* have something better or got better deals.

Speaking of which, he can always come onto this forum himself and there are always people quite happy answer any questions he may have.

Cheers

Joe

Nine_Lives

Unfortunately Joe, no. We have the same employer, so the only time we'll ever see any help is when our employer has no choice. If our employer has any chance whatsoever to get out of paying (anything!) then he will. He's not interested in money going out, only money coming in. The news of NEST will probably have had him up at night for months in cold sweats!!

I've told him about MSE, but he says he wouldn't even know what to ask. His whole post would be "i think i need a pension, what do i do". Then he'll have questions thrown at him & his only reply would be "what"? I'm not being harsh, but he's not the most switched on of people. I don't elude to be the most intelligent of people, but i can try & understand & eventually it often sinks in. I was an A, B, C student at school. My brother on the other hand would be better off running head first into a brick wall. He was a turn up when you feel like it student at school with only 1 GCSE - maths. That was back when he was young & silly. Now he's just young & not quite as silly. He had me gobsmacked when he said he'd like to pay into a pension though. As a live for the moment type of lad that he is, i wasn't expecting it.

Dave.Y

Given the relatively low amounts you'll have in the fund to start with, you would probably be better looking for index tracker funds with no monthly platform fee at HL, because that £1 or £2 per month will end up being a very high % charge.

You can see which funds have no monthly fee on the list here : http://www.hl.co.uk/funds/index-tracker-funds/view-index-tracker-funds

Many of the Blackrock funds seem to have no monthly free (though they do have higher TER than the ones with monthly fees), so you could pick eg :

http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/b/blackrock-uk-equity-tracker-accumulation for tracking a UK index.

Once the amount invested reaches a certain level, you would probably be better of switching to one of the other trackers with a monthly fee but lower TER.

Nine_Lives

Dave.Y wrote: »

Given the relatively low amounts you'll have in the fund to start with, you would probably be better looking for index tracker funds with no monthly platform fee at HL, because that £1 or £2 per month will end up being a very high % charge.

You can see which funds have no monthly fee on the list here : http://www.hl.co.uk/funds/index-tracker-funds/view-index-tracker-funds

Many of the Blackrock funds seem to have no monthly free (though they do have higher TER than the ones with monthly fees), so you could pick eg :

http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/b/blackrock-uk-equity-tracker-accumulation for tracking a UK index.

Once the amount invested reaches a certain level, you would probably be better of switching to one of the other trackers with a monthly fee but lower TER.

Aye i was purposely picking low TER selections - although these incurred a monthly fee. Reason for this was i found a link the other day saying you should pick low TER.
I could've selected free (for the nonthly) but the TER was higher.

I didn't know how this could convert in real-money-terms, so just thought back to the website i read that said go for low TER.