ISA investment general strategy

KrytenIceCubeHead

Now that you can freely transfer ISA funds from cash to S&S and back again, is there a reason to stick with cash? Consider, you have your ISA pot invested in S&S, and if you follow the market and see a decline, pull out the lot and throw it into a Cash ISA. Then when things look better, reinvest. I realise that cash ISAs have the benefit of paying a guaranteed if low return. Barring a catastropic fall share/bond crash though, wouldn't S&S be a more profitable route?

Preparing to be shot down in flames here, go for it. A little learning and all that.

dunstonh

and if you follow the market and see a decline, pull out the lot and throw it into a Cash ISA.

That is not how you invest. That is how you lose money.

Then when things look better, reinvest.

And miss the recovery.

Barring a catastropic fall share/bond crash though, wouldn't S&S be a more profitable route?

Depends on the timescale you are looking at with the money.

TrustyOven

Isn't that market timing, which is one thing people shouldn't do?

Isn't the thing to do during market declines to buy more shares/units?

masonic

I can't really see the value of transferring to cash ISA unless you are giving up on investing. There are cash / money market funds that are now allowed to be held within S&S ISAs along with short dated bonds, so plenty of essentially no risk options should you need to use them temporarily for some reason. As others have pointed out, diving into them when markets wobble is probably not the best reason.

KrytenIceCubeHead

A friend of mine (seriously, not a made up one) has been looking goggle eyed at my S&S ISA performance, tracked courtesy of Excel. 13.26% increase over the last financial year, that being low as I invested between April and July. He's sticking with cash ISAs, being frit to get involved in the S&S scene. We both have similar plans - retire early (62 being my target) and have enough in cash to survive if the brown stuff hits the whirly thing, i.e. redundancy. What advice would you give him or me?

jimjames

KrytenIceCubeHead wrote: »

A friend of mine (seriously, not a made up one) has been looking goggle eyed at my S&S ISA performance, tracked courtesy of Excel. 13.26% increase over the last financial year, that being low as I invested between April and July. He's sticking with cash ISAs, being frit to get involved in the S&S scene. We both have similar plans - retire early (62 being my target) and have enough in cash to survive if the brown stuff hits the whirly thing, i.e. redundancy. What advice would you give him or me?

Advice to you - Don't pull your money out when the markets drop as you suggested you would be doing.

Advice to him - investigate S&S ISAs and investment in general. Keeping all your money in cash isn't a good idea for periods of 25-30 years which is what retirement could well be. The media are always highlighting how the markets have fallen on a specific day. No mention that over the last 15 years the UK market has increased 60% or so and other markets far more. No mention that there are huge numbers of options for investing at different risk levels and no mention that you don't invest everything - keep some as cash for immediate spending or emergency needs.

bowlhead99

KrytenIceCubeHead wrote: »

We both have similar plans - retire early (62 being my target) and have enough in cash to survive if the brown stuff hits the whirly thing, i.e. redundancy. What advice would you give him or me?

Your friend should consider investing in a broad portfolio of investment funds for the long term rather than focussing solely on cash - subject of course to making sure he has enough cash to get through emergencies and periods of being out of work etc without needing to cash in an investment portfolio at a loss. In the long run, shares are likely to outperform inflation while cash does not.

The advice to you is the same, perhaps highlighting even more specifically the need to have sufficient cash reserves to withstand emergencies and unemployment (given your job loss in recent memory). And with the reminder that a return of 13.26% in under a year is way more than you should expect over the long term; presumably that same mix of assets could have lost 30%+ in a year when the conditions in the world's stock markets driving the performance of your ETFs etc were less favourable.

KrytenIceCubeHead

Thanks for the feedback everyone. I do intend to use the new tax year to diversify my portfolio (some into the Far East, some bonds) whilst holding the core of it intact. My mate has 20 years to retirement, whereas I'm on 10 or so (assuming my target retirement age of 62 comes about). It's a bit of irresistable force vs immovable object right now though getting him to commit to more risk, if I'd been 20 years younger knowing what I know I'd have jumped at the chance to invest more in S&S.

bowlhead99

Starting investing in 2005 or 1995 or 1985 and keeping investing year in year out until now would have done very well. We hope it will continue to be true. It doesn't have to be, if you only have a 10 year investment horizon. For him with the 20 year timescale it is more likely to be true. And actually if you are both intending living to 100 then you have a 40 and 50 year timescale respectively.

Still 'getting him to commit to more risk' is a dangerous game. You can push someone and push someone hard towards investing over a period of months or years. Showing off what gains you have and how you they are stupid and missing out. Eventually they will crack, and put their 10 years' worth of cash ISAs into shares at exactly the worst moment in two decades. They will promptly lose half their money on paper. After a year they have still lost nearly half their money. They will either sell all their holdings and crystallise their loss, and hate you forever, or they will keep their holdings so that after five years they have only lost a quarter of their life savings, and still hate you forever.

The world needs educators to help people understand the opportunities out there. I try to be one too. Some people are receptive and others not. That is fine, everyone has their own things that they are comfortable with. If they choose to avoid investments for a lifetime, it is they that miss out in the long long run, not me, and they will have to work harder for the nice house and nice car and nice retirement.

What the world does not need is an irresistible force who has only been investing for one year and is trying to get people to commit to more risk than they are comfortable with. That way lies pain and irreparably damaged relationships.

KrytenIceCubeHead

I appreciate your comments bowlhead, as usual very measured and knowledgeable. Yes, I've only had a year in investing. No, that doesn't make me by any stretch an expert. I recognise that relationships can be damaged by ill-founded but sincere advice, however that isn't something you find a lot on the internet. I'll keep stuum with my mate, he's got his plan and good luck to him.

racing_blue

There is plenty of evidence that a portfolio of bonds and equities, periodically rebalanced, historically approaches the performance of a pure equity portfolio with less risk and less volatility

In my view cash ISAs can nicely take the place of bonds in a private investor's portfolio, at a time when bond yields are very low.

Cash ISAs may outperform short dated bonds, and won't fall in price when interest rates rise- unlike bond funds, perhaps?