£150 a month - ISA tracker or index tracker?

Raingold

I've just finished paying off a loan, so after 7 years, I've got £150 a month to save -I know that if I don't "channel" it soon, I'll end up frittering it away.
Would an index tracker or Tracker ISA be best? I don't want to pay lots of management charges which is why I'm thinking of trackers, I believe that with an ISA, I won't get dividends to reinvest, but I won't pay tax on any profits........... any suggestions or advice?
Thanks

Aegis

ISA wins hands down unless there are significant additional charges for investing in one. With a fund, though, the ISA wrapper is usually free, so investing in an index tracker within an ISA gives you identical performance but means you pay no tax on the dividends or capital gains.

thenudeone

You shouldn't normally choose any investment product purely because of the tax benefits.
For example if you are saving for a house deposit then (even if you were a higher rate tax payer) putting large sums into a pension wouldn't be a good idea even though the tax benefits are very generous, because that would not help you reach your goal of house ownership.

I presume that by ISA Tracker you mean a base rate tracker Cash ISA?

You need to decide your investment goals and timescales first, this will inform what sort of investment is right for you; then you can decide the most tax-efficient way of investing in that type of product. Cash ISAs are pretty secure and usually easy to cash in, but historically cash gives a poorer return than equities, which are more volatile and where the capital is not secure.

Raingold

I was thinking of a stocks and shares tracker ISA as I didn't know there was a base tracker ISA, any suggestions on best providers would be appreciated. Up until now, I've just been putting small amounts into a cash ISA, but the interest rate is very poor
Thanks for your your help

oldtoolie

Since you are just starting, why not keep you money in a bank ISA account until you learn a bit more. You could start here:

http://www.fool.co.uk/investing/guides/investing-terms-explained.aspx

Investing guides
10 steps to financial freedom
Getting started in investing

Linton

Raingold wrote: »

I've just finished paying off a loan, so after 7 years, I've got £150 a month to save -I know that if I don't "channel" it soon, I'll end up frittering it away.
Would an index tracker or Tracker ISA be best? I don't want to pay lots of management charges which is why I'm thinking of trackers, I believe that with an ISA, I won't get dividends to reinvest, but I won't pay tax on any profits........... any suggestions or advice?
Thanks

Standard rate tax payers dont pay tax on dividends and capital gains tax has an allowance of over £10K realised gains each year. So I guess that an ISA would not provide you with any immediate advantage, beyond avoiding the hassle arising from the possible need to inform the tax man each year. However after the next 30 years of investing having all your accumulated wealth under ISA protection could be very helpful.

There are discussions elsewhere on this forum and on the pensions forum on trackers. I will restrain my comments to suggesting that you first consider in what area you want to invest:
- purely in the UK or globally or in the emerging economies or wherever? Each area has different risks and opportunities for major gains.
- In dividend paying funds or those which focus more on maximum capital gain?
- In funds that focus on a prticular business sector or invest generally across sectors
-In share based funds, or those that balance between shares and less volatile investments so providing a less exciting ride though at the cost of some potential gains.

Personally if I was putting £150 monthly into a fund as my only investment I would go for for a global balanced fund. But each to his own.

Once you know in what sort of thing you want to invest you can then look for the fund that has the lowest fees, or a manager with an outstanding track record or whatever criteria you consider most important.

Raingold

Thanks for your advice, I'll follow up your suggestions