£20k to invest, need some help!

ducky-fuzz

Hi everyone! :wave:

I've been subscribed to Martins Mutterings for several months now, and thanks to that I found the Alliance & Leicester's Directsaver account, at 5.65% after tax.

In this account I have £10k that was so very kindly given to me by my parents so that I can put it towards a house deposit later on. I also have 2 seperate savings accounts to the tune of £11k (with HSBC, some European Trust Thingamy Wotsit, never got the understanding of it fully...) that I want to consolidate with my parents donation.

I'm in the RAF at present (and will be for some time to come!), and I'm due to get roughly £4k as a 'loyalty' bonus at the end of Jan 2008.

In short, I'm looking for people with ideas of where I can put these funds in order to fully maximise the money invested. Naturally I'm intending on seeing an IFA or 3, because I'm looking for what I can do with my military pension after I leave.

So then peeps, the floor's all yours! :beer:

jamesd

When are you planning to buy the house? If it's within a few years, high interest savings accounts, cash ISA and regular saver accounts are the way to go because it's possible for the markets to fall significantly before you spend the money.

If it's for longer, particularly more than five years, or if you want to take a significant risk to possibly get a better return, unit trusts can work and you can put 7000 each tax year into a stocks and shares ISA tax wrapper to improve the gain, so that would let you put in 14,000 over the next month if you haven't used any of your allowance yet.

Keeping the remaining 7000 in high interest savings accounts would help to reduce the risk/volatility level over the next year or so, limiting your possible short term loss a bit.

Search here for "sector allocation" and "asset allocation" to read a bit more about how you can select investments of varying types and proportions to match your desired risk level.

ducky-fuzz

*scribblescribble*

Thanks for that! We're looking at a 10yr term or thereabouts, so it doesn't have to be an instant access plan.

jamesd

10 years is good for the use of the stocks and shares ISA. You can take the money out at any time, but if you do it just after a market drop without leaving time for it to recover, you might get significantly less than you put in. That's why it needs a long term - you need to allow time for a recovery. You also need to plan when you want to take the money out and start shifting to lower risk funds as that date approaches, otherwise a drop just before the end would hurt you because you don't have recovery time then.

"We're" suggest that you may be married, in which case you each have 7000 stocks and shares ISA allowance so you can put all the money in one by mid April. If you're cautious, corporate bonds and property funds that hold real property rather than property equities will then fill the role of cash in providing the stable risk-reducing base portion.

If you use a fund supermarket like Hargreaves Lansdown and their Vantage ISA you can put the money in as cash immediately and choose the funds you buy later. It's a handy way of getting this year's allowance, then investing once you've had time to learn more. Hargreaves Lansdown can do an online signup and take the money via your card details from an A&L current account in your name, so you can shift the money out of the Direct Saver on 1 April to avoid losing the March interest, then open the account on the 2nd. You won't have time to open the account and add money if you wait until then, though, so it would have to be all you want to put in for the 2006/7 tax year in one lump. You could open it this week with less and probably still have time to add more later in this tax year.

Don't just buy directly from a fund issuer, since that will prevent you from saving most of the initial fee, which you can do if you buy via a fund supermarket. Also don't put all of the money in one fund. Selecting a range picked to cover all sectors in varying proportions that match your risk tolerance - annual downward variation in value you'll accept - is key. Higher risk levels will show greater upward and downward variation and can expect to do better overall.

stphnstevey

Hi JamesD

Whats the difference between property funds that hold actual property and property equities?

Are their generally buying costs for buying funds through a Vantage ISA?

Also, how does there refund of charges work?

jamesd

Funds holding mostly real properties have a fairly steady future revenue stream, with some risk of vacancies longer term. Fairly stable, somewhere between corporate bonds and shares and also not so directly linked to the stock market movements.

Funds invested in property companies are invested in the shares of the companies and that's more volatile and may reflect building trends rather than anticipated future rental revenue stream. Some property shares in a mostly physical property fund is useful to provide liquidity when people sell units.

Refund of charges from who? If h-l, they charge less than full price when buying so you get more units per pound spent and rebate part of the annual charges, I think once a year.

stphnstevey

Can you simply trust that they are selling the funds at a discount?

Do they refund 100% of their annual management charges?

Are there any other charges I should be aware of?

dunstonh

Can you simply trust that they are selling the funds at a discount?

Its documented.

Do they refund 100% of their annual management charges?

No. Typical AMC is 1.5%. Typical HL rebate is 0.25%. HL (like other fund supermarkets) do not levy an annual management charge. Its the fund that does. HL are rebating some of the fund based trail commission. That fund based trail ranges from zero to 0.88%. Although most funds pay upto 0.5%.

When you think about it, the rebate is only around £17 a year on a £7000 ISA over an advised ISA. It's not a lot really.

EdInvestor

When you think about it, the rebate is only around £17 a year on a £7000 ISA over an advised ISA. It's not a lot really.

Of course HL also rebates the 5% initial charge, which is normally what pays the IFA's commission.

That is quite a lot.

jamesd

Here's a selection of property funds, two real property, one property shares, h-l links show how each compares to the FTSE all-share and this link shows them all together along with a junk bond fund which pays out instead of reinvesting and takes fees from capital, both parts of why it's comparatively flat. Look carefully at the last 12 and 6 months views rather than assuming the longer term trend will continue.

• Norwich Property Trust (h-l) from Property all regions BI - real property uk
• New Star Property (h-l) from Property all regions BI - real property uk, small REIT component
• Aberdeen Property Share Trust (h-l) from Property all regions nbi - property stocks uk

They tell you what the discounts are on the fund information screens. Hargreaves Lansdown don't charge an AMC but rebate part of that of the fund provider.

If you buy a fund with no renewal commission h-l may charge a small capped amount for that fund but this is very uncommon and disclosed in advance. There are some other charges that you're unlikely to encounter, see the details you get when you sign up. None are onerous or excessive.

It really is better than going direct and there are no real catches. About as close as you get to pure gain and h-l are popular with people who post here for good reason.

dunstonh

Of course HL also rebates the 5% initial charge, which is normally what pays the IFA's commission.

IFAs typically get a maximum of 3%. Not 5%. According to the FSA who monitor all applications every 6 months, the average amount taken is 1.8%.