New to stocks & shares ISA - help & advice pls

waterwatereverywhere

Hello

I am thinking about investing in a stocks and shares ISA for the first time. I have never been a fan of investments where you can risk/lose your capital as I am super cautious, but this has meant that most of my savings are in cash savings accounts which are not doing well with the bad interest rates.

I am also wary of the charges you have to pay for a stocks and shares ISA, but I have no knowledge of this field so would not be able to select investments myself.

Please can anyone offer any general advice for someone new to this area, especially on how to go about choosing a good fund to invest in? Ideally I would like to choose one which has had good performance for a number of years, and either hasn't lost money at all or if there have been losses, these have been offset by the gains.

I would not want any hands on management as I haven't a clue what I'm doing...!

I am undecided about the level of investment but think I would probably start small, say £5k.

Or would anyone suggest another type of investment (bonds or gilts) outside of a "stocks and shares ISA"?

Any general or specific advice very gratefully received. Thx in advance.

waterwatereverywhere

Sorry, meant to ask also what might be the sort of "returns" or gains one might expect in a year on an investment of £5K in a stocks and shares ISA - would it definitely be better than I could earn just leaving the money in a savings account (or high interest current account such as Lloyds/Santander etc)?

Archi_Bald

Well done for making that plan - - for any longer timescale, investing is the way to go as it historically consistently outperforms cash over longer periods. Whether you select your investments entirely yourself, or take some lead from random strangers (rather dangerous!), or take professional advice (appears appropriate in your case), you really do need to have some basic grasp about investments before you start.

There is lots to of useful reading about - books such as Smarter investing by Tim Hale, websites such as monevator, the finance pages of the broadsheets etc etc.

xylophone

http://monevator.com/compare-uk-cheapest-online-brokers/

would it definitely be better than I could earn just leaving the money in a savings account (or high interest current account such as Lloyds/Santander etc)?

Definite? Not a word to use in conjunction with investments unless as in "You'll definitely never know........"

Some reading...

http://www.moneywise.co.uk/investing/first-time-investor/how-should-i-invest-50-month

http://monevator.com/how-should-you-invest-for-your-age/

bowlhead99

waterwatereverywhere wrote: »

Sorry, meant to ask also what might be the sort of "returns" or gains one might expect in a year on an investment of £5K in a stocks and shares ISA - would it definitely be better than I could earn just leaving the money in a savings account (or high interest current account such as Lloyds/Santander etc)?

The levels of returns are broadly linked to the level of risk you take.

If you invest in shares over the long term, it wouldn't be unreasonable to get a return that evens out to 7% a year annualised return. I am just picking that figure to make the maths easy; basically if you earn 7% on 7% on 7% and so on for ten years, you end up pretty much doubling what you started with (e.g. £5000 turns into over £9800).

By contrast if you put your cash in Santander at 3% and are a 20% taxpayer (so are getting 2.4% net), your money doesn't double after 10 years, it only goes up by about a quarter (e.g. £5000 turns into just over £6300). So you made 1300 at Santander (much less if you're a higher rate taxpayer) against £4800 with shares.

If you keep going into the future, the shares are doubling every 10 years and the cash is going up by a quarter every 10 years; well after 30 years the shares route will leave you with eight times your original money, while the cash route leaves you with two times your original money.

However, your question said "would it definitely be better?" No it would not, because these are averages. After 30 years you are almost certainly going to be ahead. This is why pensions use stocks and shares investments rather than high street current accounts. But after only 1 year, perhaps the investment would be down 30% and cash up 2.4%. It is expected that the shares would very easily lose value from day to day, month to month or year to year because that is what investment risk is about.

If you don't take any risk, and just give the money to Santander and demand that they give it you back all in one piece with a little bit of interest on top, they can't take any risks, make serious returns, give you a good interest rate. Whereas if you invest in a share, or a corporate bond, or a fund of shares or bonds, the companies invest the money to grow and can afford to give you a good return if they're successful. As the economy grows over time, the return from investing in companies should on average be very much better than not taking any investment risks at all.

There are a whole load of different types of funds out there with different levels of volatility (i.e. how much might they go up or down by compared to their average). A typical 'FTSE 100 index fund' could lose 50% in a year or two. In other years it could make 50% or more. Generally you can reduce your risks by having a fund that holds a mixture of assets - e.g. not just UK shares but international shares and corporate bonds etc etc, because these asset types do not all go up and down at the same time.

You would be lucky to find one that 'has not lost money at all'. If it never has a down year, it is likely to work much like a bank account, very low risk, very low return. Sooner or later they all lose money. But you are closer to the mark when you say 'or if there have been losses, they are offset by the gains'.

The fund might be less valuable in September (say £4500) than it was in July (£5000). But you don't 'lose' if you can carry on holding until the funds recover and are worth more a couple of months later. How you lose is by selling out in September at £4500 because you fear the fund will be worth even less in October and you need the money back to buy Christmas presents and no longer want to take the risk. But in actual fact it might be worth £5200 in November, and you only lost because you couldn't wait long enough for the inevitable recovery.

The risk with investments is not that somehow all the companies that the fund invests in will become worthless at the same time - that's very unlikely. It is that they go down in value and you need to sell out to use the money for something else because you didn't really have the investment money 'spare' for as long as you had first thought when buying the investment and feeling greedy about the great returns you were going to make.

So, if you only have £4000 that you can genuinely afford to do without for the next five to ten years, don't put £5000 in an investment because you like the sound of getting a better return than cash. And if you see a fund that is top of the list for performance in the last 5 years, it will probably not be top of the list for performance for the next 5 years because you only top the charts by being in the right place at the right time, and that place is not the best place for a different set of economic circumstances.

Eco_Miser

waterwatereverywhere wrote: »

Or would anyone suggest another type of investment (bonds or gilts) outside of a "stocks and shares ISA"?

You've had some excellent advice so far, but no-one has picked up on this bit.

Despite the name, a "stocks and shares ISA" is not restricted to stocks and shares. It can also hold bonds and gilts (fixed interest investments), and funds holding them.
If you were to buy a gilt, and hold it to maturity, you would know in advance exactly how much you would get back. Unfortunately the current rates are rather poor.

waterwatereverywhere

Hello all

Thank you very much for all the helpful and detailed replies and links thus far. I haven't read through the info in the links yet, but will do so.

Pls does anyone have any suggestions for how/where to go about choosing a fund to begin with? Probably something with moderate/middling risk levels and with a good past management and returns track record/history?

Totton

Some of the decent sites for data on funds would include -

http://www.trustnet.com
http://www.morningstar.co.uk/uk/default.aspx?lang=en-GB
http://www.theaic.co.uk

All of these sites carry information on risk factors, costs and past performance etc. With the Trustnet and Morningstar sites you can create portfolios to test how your funds have done in the past (but not the future :-))

If you want a low risk/moderate fund then you will have to accept the likelihood of lower returns, it is a case of how much risk you take will generally determine how much you lose in a downturn and gain when things are more positive.

For a long term buy and hold then you may want to look at something like the Vanguard Life Strategy range which offers a variety of equity to bond mixes. If you are looking at Investment Trusts then perhaps Ruffer, Personal Assets or Capital Gearing may be of interest, note that none of these has done that well more recently but they do have better long term histories. (I don't hold any of these at present)

When I read your first post my immediate thought was that you might be better looking at higher interest paying current accounts etc rather than taking on the risk of the markets where it is not guaranteed that you will still have the 5k in five years.

If willing to take the risk, then stick the lot into something like Scottish Mortgage Investment Trust or similar.