S&S ISA Dilema

sorcerer

At the moment I have £21,000 investested in a Stock and Shares ISA under a pretty high risk fund portfolio. But even though I am using Pound Cost Averaging every month. I feel like stocks just don't seem to going anywhere. My dilema is do I continue with my high risk stragegy (I have about 15 years left before I want to be mainly in cash). Or do I change tact and start moveing into Income generating funds, to try to at least get some money, and hope I can at least breakeven with my investments in 15 years. In 15 years I could make a lot of money from income, tax free!

My concern is that in 15 years time, the euro crisis is still going on and stock price are pretty much stuck at where they are today.

What do you guys think?

srcandas

sorcerer a very interesting question. If we look at graphs of performance over the last few years we often see limited growth and that it is very easy to get caught in a fund that does nothing but lose.

I'm beginning to think that to make real plus inflation progress at the moment you need a nimble strategy switching into cash and taking profits as and when. Of course that strategy is far from how most people look at S&S ISAs.

Over the last few months I have been playing the share game outside ISAs ** and have done quite well. Sometimes holding for only a few days and if the target 5% is there I take it.

However like you my funds have been sad making 2.2% in the last 9 months. The funds that have done well have been emerging market bonds and UK bonds (up 3.5% to 7% in 9 months). But equities are really treading water.

So I've decided to go 60% in "vanguard lifestrategy 20% eq" for stability, 25% high risk funds but bonds as opposed to equity, and 15% on quick in and out share trading.

I might get it all wrong but I feel one must at least try.

I'd love to be in a spread of equity funds and watch a recovery but like you I get the feeling we will be in sad times for a few years yet.

But good luck :beer:

** There do seem a lot of people looking to S&S ISAs to protect their massive gains from tax. I wonder how many will actually get any benefit

dunstonh

I feel like stocks just don't seem to going anywhere.

How many decades have you been doing it? (typically regular contributions need at least 15 years to be viable)

srcandas

dunstonh wrote: »

How many decades have you been doing it? (typically regular contributions need at least 15 years to be viable)

Dunston when you say viable do you mean a stable portfolio, balanced over 15 years, should show a good return, and certainly well above cash ?

I noticed the other day you said (I believe) that active managed funds could be good but you need to be prepared to move funds as required. If I got that right do you think Sorcerer for example should expect to be more active, as he is thinking of becoming, or that a long-term hold (including equities) over 15 years is still a good strategy?

I imagine from his holding that Sorcerer has been going at least two years. At what point in the fifteen year cycle should he start to be concerned might be a good question.

:beer:

dunstonh

Dunston when you say viable do you mean a stable portfolio, balanced over 15 years, should show a good return, and certainly well above cash ?

You would hope the chances are greater over timescale. What the main problem with regular payments is that that you are not invested for the full term in full. Only the first payment is. The second one is one month less and so on.

You cant look at returns in the same way you would a single premium as half the value probably hasnt been invested for half the timescale since you started. After 10 years, much of the value would have been invested for less than 5 years which is too short term for investing. You may get lucky but probably you wont. You need time to allow the money to build up and have long enough to be invested. An economic cycle is longer than it used to be. Typically 8-12 years now. If you are only looking at one part of it then you could be only looking at the bad, the good or indifferent.

I noticed the other day you said (I believe) that active managed funds could be good but you need to be prepared to move funds as required. If I got that right do you think Sorcerer for example should expect to be more active, as he is thinking of becoming, or that a long-term hold (including equities) over 15 years is still a good strategy?

A lazier investor should stick with passives or portfolio funds (which could be made up of passives). The use of managed funds needs you to be keeping an eye on it. A change of manager can see a top fund hit bottom. The investment strategy may be ideal for one part of the economic cycle but not the next. So, you need to adapt. A lazy investor tends to sit back and do nothing.

sorcerer

Actually it's been three years since I started doing this. But I have invested in shares for over 20 years. But in my example I am really going buy what has happended on the FTSE (for example) over the last 15 years. If we look at the FTSE, it was at 5400 in Jan 1998 and 15 years on it's still their. So perhaps in another 15 years we will still be at 5400. Which is why I was thinking about income, because at least I could make some money in between.

sorcerer

My only good thing about my strategy is because I use Pound Cost Averaging, if we do end up at the same point in 15 years, I might have actually made money, because of the highs and lows over time in the market. Hopefully!

srcandas

sorcerer wrote: »

Actually it's been three years since I started doing this. But I have invested in shares for over 20 years. But in my example I am really going buy what has happended on the FTSE (for example) over the last 15 years. If we look at the FTSE, it was at 5400 in Jan 1998 and 15 years on it's still their. So perhaps in another 15 years we will still be at 5400. Which is why I was thinking about income, because at least I could make some money in between.

But presumably your 'high risk' is way off an index like the FT? And therefore I'd guess difficult to explore historically?

When you say income are you thinking of dividends or bonds, or a combo?

Sorry sorcerer for so many questions but I'm glad you started this thread. I think many are facing this type of dilemma :beer:

dunstonh

You cant predict the unpredictable. You could be at 5400 in 15 years or it could be 10400 or 4400. You dont know. However, you must not forget dividends and if it is a bad period then as you say, the monthly should benefit from this. If we do get a growth spurt then it may make sense to move some out.

Also, remember there is more to life than the FTSE100. Use multiple asset classes and investment areas and rebalance.

gadgetmind

sorcerer wrote: »

So perhaps in another 15 years we will still be at 5400.

Maybe, but ...
1) The FTSE 100 is currently on a 3.6% dividend yield.
2) You should also be invested in other territories and into companies with smaller cap sizes.
3) You should also have some bonds, and then use the power of rebalancing to make volatility work for you rather than against you.
4) You also need to keep fees very low.

sorcerer

srcandas wrote: »

But presumably your 'high risk' is way off an index like the FT? And therefore I'd guess difficult to explore historically?

When you say income are you thinking of dividends or bonds, or a combo?

Sorry sorcerer for so many questions but I'm glad you started this thread. I think many are facing this type of dilemma :beer:

I was thinking of changing it to be a mix of High Yield , corporate/startagic bonds, emerging markets income and maybe property.

I alread do a bit of High Yield and Emerging Markets Income in my SIPP. The High Yield gives me a nice little extra each month, which are the end of year I reinvest back into it.