Investing over long term - Why?

dunstonh

Do S&S ISAs behave the same as cash ISAs (i.e. you buy £5k of a fund, sell for £6k and withdraw your £5k, but you'd now be limited to £10k further investment for the year?)

Yes. If you withdraw the money from the ISA (so it is outside of the wrapper) then you do not get the ISA allowance back. However, if you sell the investment and keep the money inside of the ISA, you can buy a new investment without using any ISA allowance.

edinburgher

Thanks for confirming dunstonh

guymo

jamesd wrote: »

Markets go up and down. One purpose of a five year time horizon is to give time for a market recovery after a drop. It's a moving five year time window. This also helps to indicate that it is not generally suitable for those who might need access within five years, who may not be able to handle the loss if they happen to need to sell during a down time.

What are you supposed to do when you get to within five years of wanting (some of) the money?

The advice "minimum five year commitment" doesn't make sense once you think about it. What do you do on day two of your five year plan?

Linton

guymo wrote: »

What are you supposed to do when you get to within five years of wanting (some of) the money?

The advice "minimum five year commitment" doesn't make sense once you think about it. What do you do on day two of your five year plan?

Think about transferring some or all of your investment into cash. How much depends on how flexible the future requirement is.

jamesd

It's a five year rolling commitment. Five more years from day two and year two. Has to be rolling because markets could drop on the last day of the fifth year after you put the money in.

Beyond that, historically a five year term gives a high chance of beating cash savings.

Ryan_Futuristics

Well you can't always rely on a 5-year horizon ... Almost every market's experienced 20-30 year downturns before (where you'd be waiting a long time to make your investment back)

This is partly why I'm against the current advice coming from places like Vanguard (passive, lump-sum investing)

If you take a 'value' approach instead, and only buy assets when they can't get much cheaper, you're much more immune to bad news (in fact you're buying the bad news)

jamesd

Fortunately the Great Depression is an uncommon event. It's the contingency case for say retirement planing. Aside from actually in retirement, most of the 20 year period represented a buying opportunity for those making regular investments.

Amarone

PenguinJim wrote: »

Is it Acc or Inc?

Hi PenguinJim , It's an ACC.

Amarone

Ryan_Futuristics wrote: »

1) You don't have to hold long-term ... Plenty of people do trade much more actively - for example you could buy a FTSE 100 tracker and make profit when the market's rising; then switch it into a FTSE 100 Short (which gives inverse returns to the market) when the market falls, and keep your profits rising and rising

The problem is this involves 'market timing' - working out when the market is going to do something slightly before it does it, and sometimes simply working out what the market is currently doing (which is very difficult without hindsight) - which most people aren't very good at

The problem with your example of selling when you've made a profit is that then you're 'out of the market' ... You might have made 50% on your investment, but selling might mean you miss out on another 50% rise ... You can never really tell what kind of market you're currently in because you can look at it from so many different time perspectives

Then it's: when do I re-enter the market?

Generally, people who try and time the market like this don't do very well ... People who have systems which work, however, can do extremely well

Your friend for long-term investment is 'compound interest'


2) Investments pay two ways: capital growth (the value of your shares rising as the companies you invest in evolve) and income (your dividends - a share of ongoing company profits)

If you have £10,000 in a tracker, its capital value will go up and down and all over the place (and you'd hope, long-term, it will have a general upward trend) ... But this value is all academic until you sell

At the same time, however, you're getting paid dividends - maybe 3 or 4% - as income ... If you use these dividend payments to buy more shares, then over a long time you get a compounding effect, as you own more shares, you get more income, and you buy more shares, etc

Retirees generally like to own Income (as opposed to Accumulation) funds, so you've got your investment paying money straight into your bank account

Ideally, everyone would start investing in their early-20s ... Because then you can reinvest dividends for years and years, and get this compound interest effect (earning interest on interest on interest) then switch to just receiving income when you want to retire, and it will provide a nice steady income .. And if you needed a large amount of cash, you could then sell shares and receive capital

Sometimes an actively managed fund can achieve this better ... If you'd invested in Neil Woodford's Invesco Perpetual fund 20 years ago, you'd have gained significantly more capital growth than in a tracker (which is simply at the whim of the markets)

Thanks Ryan - Some excellent information there regarding compound interest and capital growth.

I am prepared to take the risk on the LS 80 Accumulation tracker. I intend to put a lump sum of around £1000 and drip feed between £100/200 a month and plan to leave this for between 10/12 years. It's my first step and I want a "no hassle" passive fund to start with but intend to expand once I have grasped the finer details.

The Woodford fund always appears as a safe bet however it's operating costs are obviously higher.

Many Thanks to everyone for taking the time and effort to reply - It is very much appreciated

jamesd

Amarone wrote: »

Hi PenguinJim , It's an ACC.

Inc(ome) funds pay out the income to you, Acc(umulation) funds reinvest it in the fund as higher unit price as it is received from the underlying investments. The reinvestment is why accumulation units normally have higher unit prices than income units. This one would pay around 31 May each year if you had the income version.