Scared of S&S ISAs

ladysailor

I've used up my cash ISA allowance and have some money left over for a S&S ISA. Never had one of these before so have been reading on this forum and researching other sites. It all seems very complicated and scary.

Of course, I could seek the advice of an IFA but after I've paid fees to him/her and all the other fees that seem to be involved with S&S, I wonder whether it is worth the effort.

Seems to me I have two choices. I can either bite the bullet and do a DIY ISA hoping I haven't made a complete mess of things, or I could simply put the extra cash into cash savings outside of an ISA.

Any advice?

margaretclare

What's scary about it?

How much do you want to save/invest?

I have a S&S ISA with Hargreaves Lansdown and I choose the funds that I like. I transferred the contents of my cash ISA and also my National Savings certificates and put them all under the HL S&S ISA umbrella. https://www.hl.co.uk

You choose which funds you want according to your own preferences. One of the best ones that I have is the Kames Ethical Equity Class A Accumulation, which at this moment is gaining at 18.56%. I'd like to see any cash savings account top that. I choose ethical equity funds, but HL have what they call their 'Wealth 150', that's 150 funds that they recommend according to whether they think those funds will do better in the future.

dunstonh

It all seems very complicated and scary.

Its only complicated and scary as its new to you and you can have tens of thousands of investments held in an ISA (and an unlimited combination).

Of course, I could seek the advice of an IFA but after I've paid fees to him/her and all the other fees that seem to be involved with S&S, I wonder whether it is worth the effort.

If you are only investing the £5340 then its not really IFA territory. There may be the odd one that will do it on commission still but I would hope most would tell you that its not worth it. Although the cost of you getting it wrong could dwarf the cost of an IFA.

Cash saving and investing usually means you have different objectives. Cash is good for short term but useless for long term. Investing is useless for short term (caveat being you could be lucky but best to assume you wont be) but is much better suited for long term. What are the objectives for your savings (and investments)?

ladysailor

What is my objective?

I have an aversion to pension funds. I don't like having to give all my capital over never to see it again. I am hoping to keep my capital and live on interest from money invested or from rental income from property purchased.

I have made some progress towards this aim, the house I live in is too big for my needs so I can easily downsize when the time comes. For my rental income plan to work, I need enough money to buy two houses - one for me to live in, the other to rent out. At present my total net worth would not quite buy me the second house.

So I am looking for ways to save over the next five years so when the time comes, I have enough cash either to buy the second house OR to pool all the cash and invest in something that will pay me an income.

For the record, I will have the state pension and a small private pension.

Cash ISAs seem a good idea as the interest is tax free, and you get to keep the capital. The S&S ISA seemed like the logical next step, but as said in OP, I find the huge choice bewildering.

dunstonh

I have an aversion to pension funds.

Pensions and ISAs can share identical investments. So, that pretty much rules out investing in your case.

I don't like having to give all my capital over never to see it again.

When you are dead does it matter?

. I am hoping to keep my capital and live on interest from money invested or from rental income from property purchased.

Living on interest is a very poor and risky way to live. You will at some point likely suffer inflation risk and shortfall risk. The cost of provision will likely have to be much greater as well to compensate. You typically need multiple properties to make property to work. Probably around 5-6.

ladysailor

As I understand it, when you take an annuity the capital does not increase over time. If you buy a property, the value of the property has a chance of increasing.

When my mother retired, she sold her house and split the money into two equal shares. She bought a house with one share and invested the other half. Some years later she ran out of money so downsized again. Later still she ran out of money again and equity released. Now she is pretty much penniless. My view is if she had bought a second property instead she would not be in this position.

She also retired with a private pension. While that provided her with a useful supplement as the start, inflation has eroded the value to almost nothing.

Can't see why you would need so many properties.

I like the idea that the govt boosts the money paid into the pension, but I don't like the fact the money you take out is taxed or that the income you get from the annuity will shrink over the years due to inflation. At least the rent you charge on a property has the potential to increase in line with inflation.

I know that rental income would be taxed and I realise you need to maintain the property. I'm not averse to ditching the rental income idea and investing the money instead. If I decided to do this instead I would seek the advice of an IFA as the fund would be larger.

When I am dead, I would like to be able to pass on the capital to my son. With a pension, there would be nothing to pass on.

middlepuss

Setting up a S&S ISA is easy and takes 5 minutes, eg here. Assuming you know what you want to invest the money in within the ISA. Dipping your toe in the water with an index tracker unit trust (eg HSBC UK All Share Tracker - but the £2 monthly charge for this fund with H-L makes it relatively expensive for very small investments - though cheaper than seeing an IFA!) would show you how the process works and then you can invest in more sophisticated things as the mood takes you.

Living off interest from cash is not a good idea - living off dividends from unit trusts or investment trusts within an ISA and/or SIPP is - as is living off property rentals if you don't mind the hassle that goes with it. Shares are an investment, property is a business.

Have a look at what a SIPP is and any fear of "pensions" will disappear. Having some long term savings in S&S ISAs and some in S&S SIPPs is quite a good idea.

margaretclare

With a self-invested personal pension fund, which invests in identical funds to a s&s ISA, you do NOT have to take an annuity if you don't want to. You can leave it in the SIPP until you're 75, can go on investing in it until that age, can take 'drawdown' income if you want, but if you prefer not to, you can leave it alone to go on growing. You can even assign that policy to someone else on your death - your son, for example.

If you rely on interest alone then you're up against inflation. Inflation on its own will eat into anything you may want to leave to your son.

atush

I have an aversion to pension funds. I don't like having to give all my capital over never to see it again.

You do see it again- at retirement where you can take a 25% lump sum and income off the rest.

Tying up all your money in property isn't wise- it is all your eggs on one basket approach. You really should diversify.

Letting property comes with hugh headaches you may not be prepared for.

middlepuss

ladysailor wrote: »

Later still she ran out of money again and equity released. Now she is pretty much penniless. My view is if she had bought a second property instead she would not be in this position.

She also retired with a private pension. While that provided her with a useful supplement as the start, inflation has eroded the value to almost nothing.

Can't see why you would need so many properties.

I like the idea that the govt boosts the money paid into the pension, but I don't like the fact the money you take out is taxed or that the income you get from the annuity will shrink over the years due to inflation. At least the rent you charge on a property has the potential to increase in line with inflation.

I know that rental income would be taxed and I realise you need to maintain the property. I'm not averse to ditching the rental income idea and investing the money instead. If I decided to do this instead I would seek the advice of an IFA as the fund would be larger.

When I am dead, I would like to be able to pass on the capital to my son. With a pension, there would be nothing to pass on.

Oh dear, sounds like your Mum had her non-property money in cash?

Annuities are not a good idea unless you're very old maybe. These days "income drawdown" lets you live off the dividends from investments held in a SIPP - so hopefully the capital keeps up with inflation and your pension income rises each year.

atush

that the income you get from the annuity will shrink over the years due to inflation.

You dont have to go this route- if you want an annuity you can buy one that is index linked and rises with inflation over time. Something your mother didn't do obviously.

Second, I think you can't live off cash interest, and rental interest either (unless backed by other income) as you can have bad tenants, costly maintenance, squatters etc.

I think if you are scared of shares you need a group of really broad based investments such as general invenestment trusts- some have been going for more than 150 years.