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

jamesd

If you don't use a global tracker bceause you realise it's not actually the best minds, what should you do instead? Following what some of the best minds around really suggest would be one good alternative. One of those is investing according to the cyclically adjusted price/earnings ratio. The reason to do this is that past stock market returns turn out to be very strongly correlated with P/E. The higher the P/E at the time of purchase, the worse the performance in the following years.

One of the higher P/Es for a major market at the moment is the US which doesn't bode well for buying now. The very lowest are places like Russia and Greece. But quite low are Portugal and Italy, with Europe also quite low overall and the UK middle of the road.

Damage

That's such a great help, thank you.

Considering my goals, it seems that I ought to be considering a very large proportion (if not all) of my portfolio to be in equities.

I am interested in growth, and the period I'm thinking of is 10 - 15 years (perhaps longer). I won't be needing the money, and I'm happy to tie it up for a long time. I'm not worried about large fluctuations or crashes along the way, if the long-term trend is upwards, and of course at the far end I'm appreciably ahead of where I started.

I suppose that it doesn't matter what happens in between the start and finish point, as long as the period of time between the two is long enough for an appreciable upward trend to occur, and (presumably) if one adjusts the risk level towards the end to avoid getting caught in a downward slope of a negative fluctuation.

I haven't got a pension fund, so I don't know if that affects anything. Perhaps this portfolio I'm planning is effectively my pension.

Thanks again for your helpful posts.

Damage

Incidentally, I'm in my mid-forties and I've got £100,000 to put into this. I could scrape together a bit more (maybe another 10%), but I'm hoping to keep that aside for other things.

Eco_Miser

Damage wrote: »

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 equaling lower risk)?

There seems to be some confusion there: funds are collective investments, and what they invest in may be equities -- or bonds, or property or commodities, or a mixture.

My point being that it's not a choice between funds and equities, you can have an equity fund, or a bond fund or a multi-asset fund, and they're likely a better choice than buying equities direct.

AndyT678

Damage wrote: »

I am interested in growth, and the period I'm thinking of is 10 - 15 years (perhaps longer). I won't be needing the money, and I'm happy to tie it up for a long time.

Damage wrote: »

I haven't got a pension fund,

Damage wrote: »

Incidentally, I'm in my mid-forties

One obvious alternative is to put your money into a pension plan. You would get tax relief on the amount contributed and you can buy all the same stuff in a SIPP as in an ISA. It won't be accessible for a while but that fits i with your stated timescales anyway.

Archi_Bald

AndyT678 wrote: »

One obvious alternative to to put your money into a pension plan.

It doesn't have to be 'either' 'or' - OP could have both, an S&S ISA and a SIPP (with the same investments, if desired).

Damage

Thank you all.

Eco Miser, yes I was a bit confused. I have been reading up on this almost non-stop since I first posted, so keep learning new things (I've just started reading Tim Hale's book yesterday). I understand what you are saying regarding funds, but what category of a portfolio should they placed in for the purpose of estimating an overall risk profile for the portfolio? Is it the lower risk part because they aren't actually direct equitites, or is it the higher risk part because those funds are (or can be) reducible to equities anyway?

AndyT678, I did wonder about an SIPP, so I will read up on those in due course. The only time I ever hear about pension plans is when people are complaining bitterly about them being worth a fraction of what they expected, and calling the system and the people involved in managing it all the names under the sun. I presume the 'SI' bit of 'SIPP' bit means that I would have more control over what happens so that I can lose all my money myself, and not have to pay a professional to do it for me.

Archi Bald, thank you, I will look into those options. I'll hopefully answer a lot of my own questions by the time I have finished this book I'm reading.

AndyT678

Damage wrote: »

AndyT678, I did wonder about an SIPP, so I will read up on those in due course. The only time I ever hear about pension plans is when people are complaining bitterly about them being worth a fraction of what they expected, and calling the system and the people involved in managing it all the names under the sun. I presume the 'SI' bit of 'SIPP' bit means that I would have more control over what happens so that I can lose all my money myself, and not have to pay a professional to do it for me.

SI means self invested so you control everything and you can choose the same funds, stocks etc that you can get in an ISA. The difference is that if you buy a fund for £10,000 in an ISA then you have £10,000 worth of units in that fund. If you do it in a SIPP then you get your income tax back and you have £12,500 worth of the fund if you've paid basic rate tax . (or £10,000 in the fund and £2,500 to invest elsewhere).

jamesd

Funds roughly parallel the risk of what the fund invests in, compared to the same investments being directly held with sufficient diversification.

Performance isn't realated to the tax wrapper but to the investments within it. If you read someone saying they have a bad pension they could as well be saying they have a bad ISA or bad unwrapped investment, since the same investments can generally be held in any of them, though somewhat more restricted in the ISA vs pension and both vs unwrapped.

Given your age and assets I also suggest that you look at some of my VCT posts. Two attractions fo those are shorter tie-in and ability to repeatedly get the tax relief, it's not just one shot and it's not taxed when you take the money out either.

Damage

Thank you both

AndyT678, that's interesting to know, thanks. I'll definitely look into that.

JamesD, all noted, thank you. I will read up on VCT as well.