First time investing in S&S

mealies

Hi All,

I am wanting to start a long term investment in Stocks & Shares as a backup pension. I have £3000 initial capital + approx £300 pm to invest.

At this point a S&S ISA seems like a good idea to me but i am struggling to get my head around the various charges that the investment platforms levy, so consequently I have no idea which platform is best.

For example iii charge £10 per trade, does that mean I pay £10 per deposit into the ISA or £10 per fund i am investing in? If its the latter that would add up really quickly as i have identified 7 funds to invest in.

Any advice would be much appreciated

Andrew

Archi_Bald

Trading is buying or selling funds, not depositing cash. You are right to be concerned about the charges and that you should aim to keep charges (incl. regular platform as well as fund charges) to an absolute minimum. One option open to you is to reduce the number of funds you have - 7 sounds a lot. You should be able to get a balanced portfolio with far fewer funds. Some investors, specifically newbie ones, start with just 1 Vanguard LifeStrategy fund.

There is a useful spreadsheet by snowman, mentioned in this thread: http://forums.moneysavingexpert.com/showpost.php?p=42576114&postcount=1

mealies

Thanks very much - that spreadsheet looks extremely helpful.
I had got to 7 as I had pared down a investment portfolio template from Tim Hale's: Smarter Investing book. I think the original template had 10!

dunstonh

If its the latter that would add up really quickly as i have identified 7 funds to invest in.

7 funds on just £3000 and £300pm? Thats pretty overkill. Why are doing that?

I had got to 7 as I had pared down a investment portfolio template from Tim Hale's: Smarter Investing book. I think the original template had 10!

How about forgetting that book and doing something a bit more sensible such as using multi-asset funds until you have a much higher value and then look to build yourself a bespoke portfolio.

ozzage

I don't agree with "forgetting that book" AT ALL. However it might be valid to find a simpler approach which approximates the same end result.

HOWEVER don't forget that regular monthly investments through III only cost £1.50 per trade not the normal £10 so it's not quite as bad as you think. Still a fair whack if you're doing 7 buys a month though...

masonic

ozzage wrote: »

HOWEVER don't forget that regular monthly investments through III only cost £1.50 per trade not the normal £10 so it's not quite as bad as you think. Still a fair whack if you're doing 7 buys a month though...

One can also vary the funds bought from one month to the next, so even with 7 funds it would be relatively straightforward to invest monthly in half of them for a few months and then switch to funding the others.

BLB53

It will be important to decide whether you want to hold mainly funds or whether you may want to hold shares, investment trusts or ETFs - some platforms are better for the former and some better for the latter.

Here's a couple of links which may help - one from diy investor http://www.diyinvestoruk.blogspot.co.uk/2013/05/compare-fund-platforms-brokers.html and the other from Monevator http://monevator.com/compare-uk-cheapest-online-brokers/

bowlhead99

ozzage wrote: »

I don't agree with "forgetting that book" AT ALL. However it might be valid to find a simpler approach which approximates the same end result.

...like just buying a multi-asset fund or two as Dunstonh advocates, and not trying to manually create a bespoke portfolio out of 7-10 components when you don't have a substantial amount of cash.

Basically you should just aim for exposure to the major asset classes without spending too much on fees. Having a portfolio that doesn't cover all the classes may change your returns substantially. Having a multi asset fund where the manager decides the mix, versus deciding the mix yourself, from some book you read, will probably not make the same amount of difference. And a percent here and there of a £3-5k portfolio is only £30-£50. On a £30k-50k portfolio it is a bigger number and by that point you can take a bigger interest.

So, I would be very much in favour of buying fewer funds if I was investing <£10k.

It is fine to read a book and hear about a 10-fund portfolio which may or may not outperform a single, multi-asset fund in a given set of economic conditions. Actually implementing the 10-fund solution when you don't even have a thousand pounds to kick off each fund, and are just going to drip £30 into each of them each month, seems like a headache with no realistic expectation of material outperformance. Particularly as the book will advocate rebalancing the portfolio from time to time as the individual holdings go up and down, and then you have 10 lots of transaction fees to pay every year or so if your platform's fee structure has them.

As you've seen, 10 funds seems overkill for small money so you have already discarded 3 of the recommendations to get down to 7 (presumably adjusting one of the remaining 7 to ensure you still have exposure to the same geographies/ sectors/ asset types). If you were comfortable doing that, the next logical thing is to look at what are the next 4 or 5 or 6 funds you can discard and adjust the remaining one or two to keep a sensible asset mix.

HOWEVER don't forget that regular monthly investments through III only cost £1.50 per trade not the normal £10 so it's not quite as bad as you think. Still a fair whack if you're doing 7 buys a month though...

Even if you only do two trades a month on that fee structure, you are giving the platform £3 of your £300 subscription each month. That is a 1% entry fee. If you're paying it on four trades a month, that's a 2% entry fee.

While the absolute amount of cash is not massive, (because it's 1-2% of not a lot of money), it seems odd to construct a portfolio that costs so much to get into. If your bespoke handcrafted portfolio gives you a half percent per year performance edge, but requires 10 purchases a month (5% entrance fee) - it would take you 10 years of the half percent outperformance to break even. And that ignores the transaction costs of buys and sells every so often to try to maintain your balance between asset classes as some rise and some fall.

As Masonic suggests, it doesn't make much difference if you buy each of your many funds monthly or bimonthly or even quarterly, so you can still have a wide portfolio while keeping costs down, rotating which ones you're buying with each contribution. But it isn't a set-and-forget solution, so I firmly believe the idea of having lots of funds in a small portfolio is just a headache.

It might of course be a headache that you want, because if you are trying to learn about investments then buying and monitoring and selling lots of them is one way to get comfortable with funds and get an education. But most people are just looking for efficient returns and would follow Dunstonh's advice even if it is not the same as what Tim Hale's bible suggests. If you were able to ask TH outright he would probably not tell you to micromanage a £300pm portfolio with 10 holdings.

Personally I have over 30 holdings in my SIPP which includes a bunch of individual shares and other instruments as well as funds and ITs. But I enjoy researching and selecting and monitoring and am not trying to do it with a very small portfolio. Also, I accept that I won't necessarily equal or beat 'the market' (which can be defined in a myriad of ways anyway), in the same way that a portfolio of 7-10 trackers will not necessarily equal or beat a single well-run multi-asset fund, especially when you're only dealing with small money and transaction costs are more material.

mealies

Wow - I am glad i asked the question here before diving in head first. First of all, thank you to all who took the time to reply and help a complete beginner.

@bowlhead99 - I think you have summed everything up nicely. I am trying to learn about this whole process and managing the portfolio is something i would like to do. Hence the complicated portfolio design without thinking about the cost implications.

Before starting the thread, i didn't want to use a multi-asset fund like Vanguard lifestrategy as i wanted to teach myself what to do. Now reading what you have said - it makes sense to use them whilst I build the ISA up and give myself more time to get comfortable with what to do.

Thanks

Andrew

C_Mababejive

As others have suggested, the sums are way too small to dabble in shares. Its a risky place to be and at that level, could be a rather painful experience. My advice is to find a low cost fund platform and just buy into well rated low volatility funds eg Investment grade bonds and mixed equity/bond funds UK domiciled and investing largely in the UK, Europe,US..no risky stuff like BRIC economies and all that malarky..