ISA funds instead of Premium Bonds?

someone

I was logging off nationwide internet banking and they were advertising £7000 ISA. As I thought you could only put £3000 into an ISA I had a look and realised there was two types of ISA's. Now after having a quick look I thought that maybe i would put a small amount into the £4000 stock ISA so i can still use my £3000 cash ISA.

I have premium bonds (£500) which have been in the draw for 6 months and I have not won a penny. In effect I have "lost" £5 in value because of inflation (used martins 2% a year from one of his article). If I had just left the £500 in my e-savings account then I would have made £13.25 in interest.

Now if I had put £500 in a tracker for that time I would have £542.77 (9.1% - £2.73 for the management fee of 6 months)

I have used the NATIONWIDE TRACKER ACC for my ISA fund http://www.trustnet.com/ut/funds/chart.asp?unit=ZLBTF

                     PB              ISA           Bank
Start                 £ 500.00        £ 500.00      £ 500.00
End                   £ 500.00        £ 542.77      £ 513.25
Gain                  £   0.00        £  42.77      £  13.25
                            0 %           8.55 %        2.65 %
 
After Inflation      £ (  5.00)        £   37.34     £   8.12
                       (     1)%            7.47 %       1.62 %

Now you look at the premium bonds as they take inflation away for the chance to win some money.

With a stocks and shares ISA your investment is not safe but you can get much better rewards.

Have I got the right idea about these funds? Is it wise just to put a small amount (£500) in or do you need to put in a lot of money to make it work?

Gordon_the_Moron

Not sure if it is worth using a stocks and shares ISA for such a small sum, there is a risk involved and even if they are succesful the reward won't be huge. A cash ISA would be a better option than premium bonds in my opinion.

Da Moron

someone

Gordon_the_Moron wrote: »

Not sure if it is worth using a stocks and shares ISA for such a small sum, there is a risk involved and even if they are succesful the reward won't be huge.

Wont the risks/rewards be in % and therefore not matter how much invested, or have I missed something?

Gordon_the_Moron wrote: »

A cash ISA would be a better option than premium bonds in my opinion.

Already got my Cash ISA sorted for 07/08

SeanW

Charges and returns on the funds are % yes.

Some providers charge you a fixed fee, usually annual, for managing your ISA. This is typically the stock brokers though, such as Selftrade, Hoodless Brennan etc... As this can be £50, it wouldn't be worth holding a £500 amount, as it's unlikely to give a return large enough to start attracting tax or saving on the dividends.

Some providers, such as Hargreaves Lansdown wouldn't charge an annual fee for the ISA, and may take £500 through a postal or phone deal.

Obviously that tracker could have lost 10%, or even 100% in that time period too, and you would have lost the same amount of your investment.

dunstonh

Inflation is currently 4.6%. Quite a bit higher than the 2%.

You may only be using the Nwide Tracker as an example but dont get any ideas about using it in real life.

someone

dunstonh wrote: »

Inflation is currently 4.6%. Quite a bit higher than the 2%.

So the £500 in Premium Bonds have lost me £11.50 in them 6 months

dunstonh wrote: »

You may only be using the Nwide Tracker as an example but dont get any ideas about using it in real life.

Is there any reason about not using the Nationwide tracker?

Gordon_the_Moron

someone wrote: »

Wont the risks/rewards be in % and therefore not matter how much invested, or have I missed something?

Yes you are right BUT think about it like this, you are taking a risk you could lose money rather than gain it. So you could end up with £400 instead of £500 (thats just an example). Even if you profit you aren't going to make a huge profit so is it worth bothering? I'd use your ISA then if you fill it and have more money left over pay as much as you can into a regular saver (if it is a fixed monthly payment be careful not to set it to more than you can afford)

Premium bonds for non-tax payers are a pathetic investment, even for basic rate tax payers they are poor, if you are a top rate 40% tax payer they can just about match the average return on a savings account (that is an average, some will get more, some less)

Ian_W

someone wrote:

Is there any reason about not using the Nationwide tracker?

Because if you look at the trustnet link you posted the all share tracker was below zero for 2.5yrs. Even a modest cautious managed fund beat it by a country mile.
https://www.h-l.co.uk/fund_research/fund_performance.hl?x=44&y=10&sedol=3107481&timescale=4&timespan=60&chart_scale=R&tr=&compare_index=ASX&store_compare_indices=&compare_provider=none&store_compare_funds=&compare_fund=none&compare_share=Add+shares+by+EPIC

dunstonh

All share trackers will only provide sector average performance. They are also medium/high risk. So, whilst a direct comparison to premium bonds isnt possible, it would be better to use lower risk funds.

Back in the dot.com boom, the Mail used a chart to compare tech funds with corporate bond funds. A lot of people lost money because of that article as it failed to cover the risk differences.

jamesd

You have the right idea but you do need to remember that the tracker could fall in value by 40% on any day. That's why people say that these are long term investments: you may need to wait several years before you're up if you are unlucky with the timing.

You might usefully consider a UK Equity Income fund with money reinvested (A or ACC after the name) instead of a FTSE All-share tracker. Many of these will accept a 500 investment.

If you wanted to reduce the overall volatility level and have 50 a month available you might consider adding a regular contribution to a property fund like Norwich Property Trust.

It's easy to look at the up times but mixing in different sectors with different properties is how you reduce the size of the temporary falls that you'll see with investing instead of saving.