Big mistake with ISA. How do I sort out this mess?

colsten

jamesd wrote: »

Since you paid HL and they have the money they probably have opened the account so you're going to have to use their cancellation route, then transfer.

As it appears that £15,240 were paid into both, the M&G and the HL ISA, there is no point in transferring anything (and potentially having to pay transfer charges). The ISA limit for this year has been busted.

The OP shouldn't be doing anything without HMRC advice

Damage

The reason why I might need to transfer is that (as far as I understand it) I want to leave M&G regardless of what happens (due to this website problem), and also my HL ISA was the second of the two that I arranged, which appears to be the most likely victim due to it technically being arranged whilst (unbeknown to me) that the M&G ISA was in existence.

That would leave me with an ISA where I don't want it, and no ISA where I do want it.

Mistermeaner

Cancel hl if that's easiest then you can transfer m+g to a new hl if you wish.

Explain to hmrc what happened and what you've now done re cancelling, they'll be fine.

Personally i would use this opportunity to do a bit more research about the best platform; hl are slick but also of people think expensive, d e pending of course on what you want.

Have a look at monevator for comparisons.

Fyi me and alot of others use charles stanley direct (not the only ones but I use them and service etc is good) when it comes to fund choice I again and alot of others make use of cheap 'passive' global tracker funds like vanguard life strategy or legal and general multi to achieve a cheap, minimal effort but globallydiverse share portfolio.

Worth a look maybe; not all will agree as some the debates on here will show but have a look at some of the "new to investing" and "what should I do with £xxx " threads

Good luck

Damage

Thank you. I will look into those.

I'm currently trying to make sense of all the different classes of investment, and have got as far as investment trusts versus unit trusts (and their various names). I have recently found ETFs and am now trying to make sense of them by comparing them with unit trusts. I've also seen mutual funds, but daren't look at those at the moment as my sheet of note paper is getting out of control as it is. Once I've got my head around all of those I need to find out why I ought to pick one class over another, or if I pick all of them then in what ratio I need to do it.

I've got Tim Hale's book 'Smarter Investing: Simpler Decisions for Better Results', so I'm going to read that before I start asking too many questions on here.

Mistermeaner

Ask away. Have a good look at oeic 's as well - i could be wrong but these are most common investment tool are generally low cost and there is loads of them to choose from.

jamesd

colsten wrote: »

As it appears that £15,240 were paid into both, the M&G and the HL ISA, there is no point in transferring anything (and potentially having to pay transfer charges). The ISA limit for this year has been busted.

The OP shouldn't be doing anything without HMRC advice

HMRC guidance should be taken but the key fact is that HL has a cancellation period. That can be used to correct the error and keep everything that has happened within the rules. So what should be done is cancel HL then transfer.

Damage wrote: »

my HL ISA was the second of the two that I arranged, which appears to be the most likely victim due to it technically being arranged whilst (unbeknown to me) that the M&G ISA was in existence.

It's not just most likely. It is certain because the rules are explicit that the first one is the one that is OK. There's a big section in the Guidance Notes that I linked to earlier that covers what will happen.

ggb1979 wrote: »

Ask away. Have a good look at oeic 's as well - i could be wrong but these are most common investment tool are generally low cost and there is loads of them to choose from.

Funds these days usually just means OEICs because that particular legal form of fund has largely replace the other forms. Pronounced as oikes, like the sound a pig makes.

Damage

Thanks JamesD and GGB1979; all points noted.

That's handy regarding OEICs because it simplifies my notes. I was a little confused over the differences (if any) between them, unit trusts, and investment funds.

I have four categories currently on my list: investment trusts, unit trusts (OEICs), ETFs, and mutual funds. Should I be investing in all four categories, or do most people stick to a particular category for some specific reason?

Am I correct in thinking that any (or all) of the the above categories should form one main part of my portfolio, and the other main part should be dedicated to equities? Also, does the ratio of the equities part to the fund part of a portfolio largely determine the style or attitude of the portfolio with regard to its risk level (larger equities proportion equalling higher risk; larger funds proportion equalling lower risk)?

Archi_Bald

Damage wrote: »

I have four categories currently on my list: investment trusts, unit trusts (OEICs), ETFs, and mutual funds.

You can scratch mutual funds - it's just the american term for OEICs. http://lexicon.ft.com/Term?term=mutual-fund

You said you are reading "Smarter Investing" - that will tell you loads about selecting what's right for you. You can cut short hours of reading by going straight to http://monevator.com/asset-allocation-construct/ which gives you more practical hints and tips than the book (IMO, anyway).

Damage

Okay, thanks, I've crossed those off the list now!

Thanks also for the link. I'll have a look in a moment.

EDIT: That Monevator article is really good. It's precisely the kind of thing I was looking for.

jamesd

The Monevator article is good but has some serious mistakes in it. Among them are:

"This diversified global portfolio represents the aggregate buy and sell decisions of every investor operating in the world’s major stock markets.

In other words, it’s the best approximation we have of where Planet Earth’s finest investment minds are allocating their capital."

Unfortunately that claim is wrong. The issue is investor behaviour. Most investors invest primarily in their own country. Lots of wealth in the US so that means that lots of that money is going to be invested in the US just because that's where the investors happen to live. Same thing for the UK, most UK investors have way overweight allocations to the UK.

So when you buy a global tracker you're not buying the places where the finest investment minds are allocating their capital, you're to a large extent just buying the places where the capital happens to be owned. It doesn't matter how fine the investment minds are if their customers are just buying US funds because they live in the US. The least bad thing the investment minds can do is try not to do too badly within their US brief.

You shouldn't invest primarily in the UK (yet, there are foreign exchange reason to do so to reduce risk later in life) but that doesn't mean that you should be following the existing money either.

"The point of bonds is to dilute the riskiness of equities. So we want the least volatile bonds around"

The problem with that is it confuses risk and volatility. It is in general true that bonds have lower volatility than equities. Which means lower short term ups and downs. So if you want to cut long term growth to cut short term ups and downs they are useful.

But there's a catch. Risk. Bonds are very risky at the moment, with a real prospect of a 30% drop in say a 15 year term gilt if interest rates increase to 4%. This is because we're decades into a bond bull market and interest rates are now very low for bonds. Bond prices drop on the markets when the interest rates go up because that is how they deliver the buyer the current interest rate. This is not good news if you're the seller taking the 30% capital loss on a gilt that is only going to pay you 1% or less a year in interest.

The way you reduce this risk is to use short term bonds or avoid bonds. I'm mostly doing the latter. Substitutes for bonds include:

1. Commercial property funds that own actual buildings, not shares in building companies.
2. Income-producing VCTs
3. P2P
4. BTL

Only the first of those can be directly held in most pensions, though there are some that also allow P2P, unfortunately currently all with high minimum charges for the SIPPs that do.

The general description of risk has lots of issues. Mostly related to confusing volatility with risk again, particularly long term risk of failure to meet objectives. Recent studies have come to a straightforward conclusion: the lowest chance of failure in retirement drawdown comes from using 100% equities. The reason for this is straightforward: equities provide more growth and by sacrificing growth you're sacrificing your long term safety margin. Same issue while accumulating, the higher equity risk (really volatility, not actual risk of loss unless you're a forced seller) you take the greater your eventual pension pot size and the larger your safety margin will be for any particular level of pension investing.

The catch with that is that you need to be able to stomach the ups and downs along the way. which in the UK means being wiling to tolerate two or three 20% drops a decade and one or two 40% drops along side the general upward rollercoaster trend. if you can't stomach that you must reduce the equity component to reduce the drop magnitude to the level that will let you hold during the drop without selling near the bottom.