Stocks & Shares ISA: Switching Multiple Funds to One Fund; Switching to Cash.

bowlhead99

Damage wrote: »

My target to get out of it without a loss (i.e. break even) isn't nonsense in that I would remain out of investing for the moment, if I succeeded in getting out without a loss. It would simply return me to my starting point, with £15,240 to invest, so it isn't an arbitrary decision. My original post could perhaps have been clearer in that I would separate the getting-my-money-back part from the re-investing part. If I were to dive straight back in to another fund then my goal to break even beforehand would indeed be nonsense due to the effective continuity of the investment - assuming that my re-investment choice performed broadly the same over my investment period.

Sorry, to be blunt but it IS a nonsense.

Forget about having £15240 to invest.

YOU DO NOT HAVE 15240 TO INVEST. You had 15240, the market changed, and now you don't have 15240. You now have a set of assets worth 14900, or 14500, or 10,000, or whatever that collection of assets is worth today or whenever you choose to sell it.

If you would like to keep these assets, which you don't want, until they have gone up 2.2% and turned into 15240, then of course you are welcome to do that. But, respectfully, you are dumb as a box of rocks if you hold investments that you do not want and do not think are suitable for your needs, until they go up an arbitrary 2.2%.

If you do not think you should be making investments until you have decided what it is that you would really like to invest in, and made some serious and final decisions on portfolio construction, then simply sell out now, and get your £14900 in cash (or 14800 or 14500 or 15000 or whatever you can get right now).

Then sit in cash for a few days or weeks or months until you know what you want. Then once you are ready, buy those funds that you want with your £14900 of cash (or 14800 or 14500 or 15000 or whatever you have). There is nothing wrong with sitting on the sidelines until you know what you want to do, if you are actively researching and reading to find out what it is that you want to do.

You say that you "would separate the getting-my-money-back part from the re-investing part". OK sure, separate it out into two options.

One: "growing my money using unsuitable investments which I do not want, until I get back up from £14900 to £15240"

Two: "investing 'about fifteen grand' in suitable investments for my future"

Put yourself in the shoes of a third party looking in at the window on your situation. They would tell you that Option One sounds stupid, and Option Two sounds perfectly sensible.

Damage

Thank you. I do appreciate all the time you have spent typing things out for me, and I don't mind you being blunt or rude, as my lack of knowledge probably appears idiotic to someone more experienced in investing.

It makes sense to me that if I achieve £15,240, then I can acknowledge its existence as equivalent to the £15,240 I started with.

Considering that I don't really know what I want or need, I may as well keep what I've got, as your (and others') comments about those ISA funds have been reassuring. Perhaps they are what I need, but I haven't learnt that yet.

arbster

Damage wrote: »

It makes sense to me that if I achieve £15,240, then I can acknowledge its existence as equivalent to the £15,240 I started with.

The only reason you should try to do this is if you know that your investments will go back up to £15,240 in due course, and not simply go down. And, frankly, if you know this for a fact then you should pile everything you have into those funds in order to make the most of the sure thing!

Joking aside, I stand by my original suggestion that staying in, finishing the book, and re-evaluating your asset allocation with the benefit of greater knowledge, is probably a best approach. Of course, I'm about a month ahead of you on this journey, and it's been fascinating to listen to people on this forum, and to read Hale's book, but we've both still got a lot to learn!

Damage

I suppose it could be argued that rather than not wanting these funds, I actually do want them, as they are required to achieve the equivalent to my £15,240 starting point. If that happened, and they reach £15,240 then they further prove themselves to be suitable, and I'd be stupid to get rid of them for either an unknown quantity (alternative fund) or cash, which wouldn't perform as well over the long term.

I do feel rather silly at the moment as I've obviously said something stupid (judging by Bowlhead99's response), but I just can't see it!

Yes, I am still persevering with my book. Next financial year I could invest in the ISA fund that (I now think) I wanted this time round (index tracker), and keep the current one as an actively-managed alternative, to either prove itself as a good choice, or not, which would help with future decisions.

greenglide

Next financial year I could invest in the ISA fund that (I now think) I wanted this time round (index tracker), and keep the current one as an actively-managed alternative, to either prove itself as a good choice, or not, which would help with future decisions.

During this period when your chosen funds fell (but not significantly) I would imagine that the index tracker funds you lust after would have fallen as well.

The difference between active v passive is all about the charges. Index funds are not magically "better" than actively managed!

Damage

I wouldn't quite call it lust! It would be interesting to have the two types for comparison though.

arbster

greenglide wrote: »

The difference between active v passive is all about the charges. Index funds are not magically "better" than actively managed!

It's not all about the fees, because there's also a body of evidence that active managers don't always manage to time their investments well, which gives active funds a chance to under-perform the market too. Of course, some do get it right. The trick is picking them.

coyrls

Damage wrote: »

I wouldn't quite call it lust! It would be interesting to have the two types for comparison though.

You can make an historical comparison of any funds now at any number of Websites (e.g. http://www.trustnet.com/Tools/Charting.aspx?typeCode=NUKX,NB:AFIA,NB:AFIB,NB:AFIC or http://tools.morningstar.co.uk/uk/fundcompare/default.aspx).

You need to be a bit more specific about what your original choice was going to be, "M&G 'Sterling Class A Income Shares'" is not a specific fund, M&G have many funds, many of which have "Class A Income Shares".

bowlhead99

Damage wrote: »

I suppose it could be argued that rather than not wanting these funds, I actually do want them, as they are required to achieve the equivalent to my £15,240 starting point.

But those funds are not really required are they?

You want to take £14900 and turn it into exactly £15240 using the same assets which temporarily lost you money on paper, for no good reason other than the warm and fluffy feeling that you "didn't lose any money in the markets by making bad decisions".

That concept, of "not being a loser" is a psychological crutch that will make you feel better about your life and help you feel happy. Examined in the cold light of day, it has perhaps led you down an illogical path. Your book, if it is any good, will warn you against making decisions driven by emotions rather than logic.

There are many ways to turn £14900 into £15240.

a) You could put it in a Santander current account and wait a year.

b) You could invest it in five haphazardly chosen funds which you only came across by accident and do not really want to hold for the long term because you don't think they're really suitable for you.

c) You could invest it in one or more funds which you think are suitable for you, after researching the whole subject of investments more thoroughly.

Presented with those three options, what person in their right mind would say that option (b) is the best way forward? You are leaning towards the option of using option (b) to make your next £340 of investment profit and then call timeout and go and invest in a properly thought out portfolio for the long term. That doesn't make any sense. You are not required to hold these funds until you make £340. There is no lawman or executioner standing over your shoulder, saying, "use option (b), or else!".

The reason you are going down the option (b) route is that when the funds are eventually worth £15240 again - could be in five days, weeks, months or years - you will get that nice psychological crutch that makes you think you're a great investor because you never lost any money in the investment markets. A nice feelgood factor, but thinking you are a good investor is probably a negative thing if you're honest with yourself.

So,

1) holding these specific five funds is not at all required, because the £340 can be made in thousands of different ways.

There is no particular reason to think that these five funds will achieve 2.3% growth any faster than other options, such as whatever funds you eventually decide to hold for the long term once you have finished reading up about investments.

2) In the grand scheme of things, a target of £15240 is not a target you need to have anyway.

Your goal is to turn this ISA which is currently worth £14900 into a portfolio worth £20k, £30k, £50k, £60k over the next ten to twenty years. To get there you will have to pass through £15000 and £15240 and £16240 and £17240 and then £20k and £25k and so on and so on. The way you turn £14900 into £50k in two decades is by making sound investment choices and earning investment returns which average out to about 6.25% compound return per year (some years much bigger gains, some years big losses). In doing so you will pass through £15000 and £15240 and £16240 etc etc etc.

The idea that you should first invest £14900 until you get to £15240 (2.28% return), and only then change it up to use a completely different set of investments from £15240 to £50,000 (228% return)... is a nonsense. If your second and final set of investments are good enough to deliver 228%, there is no reason to use a different set for the first percent of your investing journey. If you went to an IFA and said "I have assets worth £14.9k and I need them to be worth £50k in about two decades' time", he would not suggest you change portfolio after you've made your first £300.

If that happened, and they reach £15,240 then they further prove themselves to be suitable

They don't prove themselves to be suitable just because they went up 2%, any more than they proved themselves unsuitable by falling 2% in the first place.

Markets move. The main Chinese stock index was down 3% today, just one day. Japan was also down 1% overnight. FTSE100 is down 6% over the two months since April 15th. So, a collection of funds being able to grow 2% or recover losses of 2% in a relatively short space of time, says nothing about its suitability for your investment goals over the next two months, two years, or two decades.

Suitability depends on your understanding of what you are investing in, and your tolerance for (and capacity to absorb) risk and volatility, and what your long term targets actually are - other than the obvious and useless goal of "make as much money as possible for the lowest risk possible please".

You have a mix of investment types in your current ISA. The Lindsell Train fund is in global equities, in a pretty concentrated set of companies (tens rather than hundreds) in some of the developed markets. It will inevitably be quite volatile. By contrast the Newton Real Return fund tries to achieve much lower but more stable returns with multiple asset classes. Overall, your ISA provider says you have a 'medium risk' portfolio.

These individual funds are a subset of the funds for which the ISA provider has negotiated some small management fee discounts on the basis that they will push a certain level of business to those fund managers. The small discounts on HL's "Wealth 150+" marketing list of funds, which they use to construct their off-the-shelf "Master Portfolios", help people be less concerned about the high platform fees charged by that ISA provider. The ISA provider has a vested interest in pushing people into those funds to maintain their preferential pricing and keep down cost of ownership.

To newbies who really don't know where to start, it is a useful service, but all the 'research' and 'free guidance' and ready-made portfolios and so on, are in the interest of increasing the total amount of money invested through HL and not necessarily in the investors' best interests. But I suppose they are hardly going to suggest you go down the road and pay a platform fee of 0.25% instead of 0.45%. They base their business model on high fees for high levels of service and hope people don't leave after they stop being newbies.

This is not to say that your funds are bad, and I do hold some of them myself. However, for example, I bought Artemis Strategic Assets because I agreed with the manager's stance on shorting government bonds, and generally being less exposed to equities in the current market environment - and not because an ISA provider pimped it out at a discount.

I do feel rather silly at the moment as I've obviously said something stupid (judging by Bowlhead99's response), but I just can't see it!

Does any of the above help? Either way, I'm going to go back to my holiday, so can't spend any more time on it. Sorry if I made you feel stupid - we all start somewhere and you'll learn a lot from the forums. Remember there are no stupid questions. Only stupid people ...

Next financial year I could invest in the ISA fund that (I now think) I wanted this time round (index tracker), and keep the current one as an actively-managed alternative, to either prove itself as a good choice, or not, which would help with future decisions.

Again, put yourself in the shoes of an outsider who has just rocked up here to see what you have to say about your investing plan.

You think you know what funds you really want... but instead you are going to hold funds that you don't really want... and then in 9 months time, buy a side-order of the funds you do really want, keeping the funds that you don't really want, in case they help with future decisions?

That sounds like a BS investment strategy, because:

1) If you are pretty sure you know what funds you really want, why not get those now and then if you want to give active investing a chance as a lower priority, then invest with your second tranche of money in the less-favourite solution (if at all)

2) You can find out if the active portfolio would have been a good choice, by simply setting up a virtual portfolio on a website or scrap of paper and checking the prices from time to time to carry out the notional rebalances you would have been doing if it was a real portfolio. You don't need to hold £15000 of funds that you don't really want, "just to see how it goes" if you are sold on a different strategy and could just go and buy that strategy instead (maybe after a period of sitting in cash, or maybe next week).

As a side note, you have been mentioning on other threads that you are concerned for the levels of the markets in US, China, effect of potential Grexit etc. Nobody knows when the next correction or crash will happen, or how much markets will have risen before it happens, just that it will at some point. If you think your fears have merit, and that major equity markets and debt markets are positioning themselves to take a tumble - why invest in indexes of equities and bonds? You would be doomed to follow them down.

Whereas, doing what you are currently doing with multi-asset funds and absolute return funds and no exposure to China or emerging markets and limited exposure to US equities, would seem perfectly reasonable.

However, of course if you are less concerned about crashes then go and buy indexes. I won't be drawn into the passive vs active debate this time as there have been a few recently

Whatever you end up doing, good luck.

Damage

coyrls wrote: »

You can make an historical comparison of any funds now at any number of Websites (e.g. http://www.trustnet.com/Tools/Charting.aspx?typeCode=NUKX,NB:AFIA,NB:AFIB,NB:AFIC or http://tools.morningstar.co.uk/uk/fundcompare/default.aspx).

You need to be a bit more specific about what your original choice was going to be, "M&G 'Sterling Class A Income Shares'" is not a specific fund, M&G have many funds, many of which have "Class A Income Shares".

Thanks, I'll have a look. I'll have to have another look at the M&G paperwork. I just read that on the most recent statement and it referred to the ISA fund as that.