Advice for a newbie please

janeausten26

Hi all, I've been reading the MSE forum the past couple of weeks and have found it to be a wealth of information. I'm just starting to get into investing and would appreciate any advice/comments/suggestions. Many thanks in advance. (And apologies in advance for the exceedingly lengthy post -- am trying my best to paint the full picture!)

Having lived abroad in the US for the past few years (studying/working), I've just moved back to the UK and am looking to set up my S&S ISA for 2013/14 as well as a SIPP. I am in my early-mid 20s, and have a relatively high (six-figure) income. I'm looking into maxing out the £11k+ of my 2013/14 allowance through a lump sum contribution, then drip-feeding £1000 each month for the 2014/15 ISA. As to the SIPP, I am thinking of putting in a lump sum of around £6k for the 2013/14 tax year, then again drip-feeding £1000 each month.

Whilst in the US, I experimented with some stock trading and have an account with OptionsHouse and also more recently have an account with Vanguard U.S. (My only substantial holding in the OH account is KORS -- around US$3.8k.) As I am paid in USD I plan to continue investing/saving in the US through OptionsHouse (for US stocks, ETFs) and Vanguard (for the Vanguard funds). I plan to set aside about US$1.5k - US$2k each month for my US trades. Starting 2014, I will be classed a non-resident alien of the US and not subject to CGT.

The total monthly investments of £1k (ISA), £1k (SIPP) and US$2k (US investments) would still leave me with sufficient income to save in cash and for expenses.

On top of that, I have about US$30k and £10k spare available for investing (having already set aside an emergency fund of ~6 months of expenses and already accounting for the lump sum £11k ISA and £6k SIPP for tax year 2013/14).

Roughly speaking, my UK investments at the end of calendar year 2014 will be -- ~£20k (ISA), £15k (SIPP), £10k (regular) -- a total of £45k. US investments will be initial investment of US$30k + ~US$21k (assuming mid-point of US$1.75k pm investment) = ~$51k.

I am still looking into defining my portfolio allocation and am focused on a mid- to long-term strategy. I am young, have zero debt, steady income and also have a deposit (separate from those above sums) for a house payment ready as I plan to buy my first property this year (hopefully!). Given this profile, I can take a fair amount of risk and my aim is growth and income -- probably will looking at an asset allocation that is more equity-focused. The nature of my job places restrictions on buying/selling individual shares and requires approval for each individual share that I wish to trade, and often the execution of the trade will need to be done within a certain period after such approval is granted. As such, I will mostly be looking at ETFs and funds for my monthly regular investments. (I will also be buying individual shares, but this will be just a small portion of my portfolio -- see item 3 below.)

The questions I have:

1) To split up or not -- What is the popular wisdom as to whether one should split up one's ISA/SIPP/regular dealing across different platforms? I have seen some posters in favour of splitting across 2 or 3 platforms, presumably to take advantage of the FSCS protection. I would of course prefer a one-stop where I can manage all my accounts, but understand from my research that splitting up my ISA/SIPP/regular dealing account could result in savings from the platform charges/dealing fees etc.

2) Broker platforms -- I have done substantial research on the various broker platforms in the UK and have mainly narrowed it down to Charles Stanley Direct, Interactive Investor, TD, YouInvest. I am still tweaking with the allocations and trying to figure out the most cost-effective platform or combination of platforms. CSD seems to have great reviews for customer service, and I do like their £0 fund dealing fee and the monthly investment feature. The £10 ETFs/shares dealing fee is also reasonable and if I get in now can take advantage of the £7.50 discounted dealing fee. However, given the sums I am looking to put in, their 0.25% annual charge on all holdings is slightly off-putting (unless I split my holdings). iii could be the cheapest one-stop shop for me -- their £10 dealing fee (for shares/ETFs/funds) is on par with CSD, and there is no annual charge. The £1.50 monthly investment fee is also attractive (I'm guessing I would make ~4-6 investments per month with my total £2k contribution per month?). TD is a well-established platform and I like their first and third Wednesdays of the month investment feature (£1.50; same as iii). There's also no charge for fund dealing but a 0.35% fee on the overall holdings. I am looking at YouInvest only for their SIPP account which I think is one of the lowest costs around? Any advice or recommendations on broker platforms or thoughts as to which might be best for my situation are most appreciated.

3) Investment strategy -- As mentioned above, I am looking at more of a buy-and-hold mid- to long-term strategy. I don't have any need for cash in the near term (no debts, no kids) except for the home purchase, but I have set aside money for that (and will also, very luckily, be receiving a small sum from my mom as a gift to fund the home). As I am quite green to investing (though I am decently familiar with the world of finance from my job), I am thinking of starting with the Vanguard funds and other managed funds, then branching off into ETFs. I also would look at individual shares occasionally, mostly as a "fun" fund earmarked for "learning and making mistakes." The individual shares will represent only a small portion of my portfolio (~5%?). I'm still researching portfolio allocations for my initial investments. How many funds should I get into or can reasonably get into (bearing in my my initial investment sums)? In the US, I am looking at VTSMX (Vanguard Total Stock Market Index Fund), VGTSX (Vanguard Total International Stock Index Fund), VBMFX (Vanguard Total Bond Market) -- still working out percentages of each and this shortlist is by no means set in stone. How many/which funds should I look at for my UK investments in order to avoid a replication? From my very cursory research, I might be interested in UK small cap companies (Cazenove UK Smaller Cos, Marlborough Special Situation?), EM funds, resources funds... (Well aware I need to do more research into my allocation.)

4) US/UK -- Given that I intend to invest simultaneously in the US and the UK, is there anything I should pay particular attention to (notwithstanding any tax concerns) -- e.g. overlap of investments, over-diversification, etc.?


5) ETFs, shares funds, etc. -- Is there any conventional wisdom as to whether SIPP and/or ISA is more traditionally suited for holding a particular type of investment, e.g. shares and not funds or vice versa.



Thank you very much in advance and I am sure I will have more questions as I work out my shortlist of funds for my initial portfolio investment. Much appreciated!!!

atush

For a start you mention a SIPP but does your employer pay into a pension for you either here or in the USA? An employers contribution will help, but if you are a 40% taxpayer that alone is good news for your pension.


As for Sipp, will you buy single shares and commercial property of just funds? have you thought of a cheaper PP and using your share trading acct or ISA for buying single shares instead?


Are you still liable for US tax or just UK tax now?

dunstonh

Are you a US citizen? You need to be wary of US taxation if you are. For example, the US doesnt recognise our tax wrappers.

janeausten26

dunstonh wrote: »

Are you a US citizen? You need to be wary of US taxation if you are. For example, the US doesnt recognise our tax wrappers.

Not a US citizen. I was previously a resident (and hence taxed like a US citizen) but starting US tax year 2014 am considered a non-resident alien.

janeausten26

atush wrote: »

For a start you mention a SIPP but does your employer pay into a pension for you either here or in the USA? An employers contribution will help, but if you are a 40% taxpayer that alone is good news for your pension.


As for Sipp, will you buy single shares and commercial property of just funds? have you thought of a cheaper PP and using your share trading acct or ISA for buying single shares instead?


Are you still liable for US tax or just UK tax now?

My employer doesn't pay into a pension so it'll just be my own contributions.I think I will be buying both shares and funds but am happy to hear thoughts on this approach. Also I haven't considered a PP -- will look into it. Thanks for the suggestion!

janeausten26

Sorry to bump my own thread, but I looked into personal pension schemes as atush suggested, and think this might be most suitable for my pension situation. Apart from Cavendish, are there any personal pension providers anyone can recommend?

With the SIPP out of the way, it seems like Interactive Investor is the best option for me for the ISA/regular portfolio. Would appreciate any comments on iii vs. Charles Stanley Direct. I've done a search of the forum, but there doesn't seem to be many reviews of iii (apart from the furore over the £20 quarterly fee which actually seems quite reasonable now?).

Many thanks!

dunstonh

Apart from Cavendish, are there any personal pension providers anyone can recommend?

Cavendish is not a personal pension provider. It retails a limited panel of providers on a low cost basis.

Linton

I have a reasonably large ISA investing in both shares and funds with iii and am happy with their service.

Some comments on your other questions.

To split up or not

Splitting a SIPP from an ISA seems like a sensible idea (were you to use a SIPP), but splitting within an ISA needs a little thought. It could be sensible if you have two logically separate ISAs. The problem is that it can make rebalancing a hassle so if you want to sell one fund to buy more of another which happens to be in the other ISA what do you do? It could get rather messy with random holdings of the same things in both ISAs.

I dont see the FSCS as being particularly relevant factor if you are using a mainstream supplier in that it is difficult to come up with non-paranoid scenarios where it may apply. All of your investments are in any case held completely separately from the assets of the platform company.

Investment strategy

My understanding is that in the US a sensible investment portfolio is considered to be predominantly US with a bit of "International" ie everybody else, thrown in for added spice.

In my view this is less applicable to the UK where the domestic market does not provide the same diversification, particularly as regards large companies. So I would look to putting together a broad global portfolio with the UK perhaps 30%. For example, if investing in Smaller Companies EU, Far East, EM (and though perhaps not applicable to your situation US) are well worth considering as well as UK.

ETFs, shares funds, etc

Pensions can invest in anything that an ISA can, and a bit more, in much the same environment. So there is no reason to focus on one particular type of investment for either. One thing you will have to check in choosing your supplier is whether it allows you to buy the things you want to. Anything mainstream should be OK though, for example, access to Vanguard funds was a problem in the past. Going for a Personal Pension rather than a SIPP will reduce your options further, I think purely to a possibly limited set of funds.

janeausten26

dunstonh wrote: »

Cavendish is not a personal pension provider. It retails a limited panel of providers on a low cost basis.

Thanks for the clarification! I've actually checked out the pensions forum of which you're a frequent contributor and am particularly interested in the Skandia CRA. Am I correct that at the level I'm contributing now (~£15k - £20k after a year) it might not be as cost efficient vis-a-vis other personal pensions (e.g. using an Aviva PP from Cavendish) after factoring in the initial cost of setting up through an IFA (circa £500?)? However, after 2-3 years the IFA fee will probably be offset by the savings from the low investor charge and low AMCs from the funds available.

Apologies if this is in the wrong forum.

janeausten26

Linton,

Thanks very much for your responses. I'm quite positive I will go ahead with iii -- apart from the regular investment feature which I like, I've spoken to them a few times on the phone and find their customer service to be pretty good. I also like the option of a mobile app.

Given I'm splitting off my pensions into a PP (probably), I don't think it's necessary to split my ISA accounts given I'm just starting out and I certainly prefer the option of having all my tax-wrapped investments in one account.

Thanks also for your thoughts re the allocation between US/UK investments.

One further question re iii -- if I set up a regular investment feature, say I would like to buy X holding, do I already need to have purchased X through the normal dealing route (and have paid the £10 dealing fee)? In other words, are regular investments restricted to only existing holdings, or can my first acquisition of a particular holding be through the £1.50 regular investment feature?

Thanks again!