ISA S&S, Index Funds, strategy

pardal51

hi all,

I am doing some research and lots of reading at the moment, but would appreciate to hear some experiences, etc from other MSE's members. We are both 43/42yrs old without kids.

Basically we are 100% offset on our mortgage at the moment (own money) and have £7.3K debt in a 0% credit card (expires in Nov/15). We can either pay this debt without touching the offset or apply to transfer and keep rolling the debt. We also have an extra £10K which we want to invest and that is my question:

Should we go for ISA S&S or index funds? or both? 1K each on premium bonds hoping to win the big jackpot and invest the rest?

We ideally want to keep saving at least £1K/month and drip-feed into ISA S&S or index funds.

What do you guys think could be a good starting strategy?

Any comments are much appreciate.

bigadaj

A stocks and shares isa and an index fund aren't alternatives. The stocks and shares isa can be held within actively managed or passively managed funds, or indeed individual bonds or shares if yo are so inclined.

For many, probably most, people, then there is a logical progression in terms of finances. First is an emergency fund, which you're offset mortgage could arguably include assuming you can access that easily. Notwithstanding that many people will have a few thousand to low tens of thousands in high interest current accounts.

Pensions need to web considered, ensure enough is being contributed to gain maximum employers contribution, and ideally reduce the amount of salary exposed to higher rate tax to zero depending on your circumstances.

Pensions and isas can and often do contain the same or similar investments, whether you go active or passive is personal choice, monevator is a good website to read though is passive biased, as is the frequent reference to read Tim hales book smarter investing.

Premium bonds are rarely recommended though they do hold attractions for higher rate taxpayers who have exhausted other means.

Archi_Bald

pardal51 wrote: »

Should we go for ISA S&S or index funds? or both?

it's not an 'either or', unless you opt for a pre-packaged ISA that invests your money in a very opaque manner and that is unnecessarily expensive.

An ISA is really just a tax wrapper that ensure that all the contents are free of any tax. The contents can be individual shares, but more sensibly should be funds that spread your risk across a variety of assets, and don't cost the earth to hold. Whether you choose managed or passive funds, the important thing is that you have a diversified and balanced portfolio. Monevator is a great source for information on portfolio construction.

If you are employed, you should make sure that you maximise the benefits of any contribution from your employers.

You can have both, pensions and ISA investments alongside each other, and you can have the same investments in both.

If you are not entirely confident that you can DIY it all, pay a good IFA for professional advice.

I would echo the earlier comment that you should have a healthy cash fund before you start investing. Some of that cash fund could sit in Premium Bonds if that floats your boat - but be aware the odds of winning big are worse than the Lottery.

dunstonh

Should we go for ISA S&S or index funds?

Effectively you are asking whether you should go for a car or petrol. Or tea or teacup.

The S&S ISA is a tax wrapper. A container for investments. Index Tracker funds are a type of investment you can hold within a tax wrapper.

We ideally want to keep saving at least £1K/month and drip-feed into ISA S&S or index funds.

Not really enough to have a portfolio a single sector funds at this stage. e.g. if you allocate 3.8% to Japan then you Japanese index tracker would have just £38 going into it. It would make more sense to go with multi-asset funds until you build up enough to make the use of single sector funds more effective. It will also give you time to learn about investing (if you choose to do so) as its unlikely you have the knowledge to build a portfolio correctly using single sector funds at this stage.

What do you guys think could be a good starting strategy?

Before you look for solutions, you need to understand what you need. Is this for an objective? holidays, future children, retirement etc?

1K each on premium bonds hoping to win the big jackpot and invest the rest?

And do you believe you are going to win the millions on the lottery when you buy a ticket?

Playing_with_Fire_2

Check out Monevator.

Read the articles about low cost trackers, low cost online brokers, and why you should fire your financial adviser.

Ditto the comment above about considering what you need the money for and when you plan to use it. If you get nervous about doing this by yourself and building a spreadsheet, speak to an IFA on an HOURLY basis and do not agree to or sign anything in the meeting (there are some great financial advisers and there are also some that will make vast amounts of money by taking 1+% of your money each and every year).

If there are two of you, you can open a S&S ISA each, and put that £7.3k + £10k into that and still have plenty of space for £1k per month.

Index funds are a good choice for many people who are looking for growth, happy to accept some risk, and who don't want excessive fees taking away their money.

Also look at the Vanguard lifestyle funds (or other fund of funds). That would allow you to buy £1000 of the fund per month and get a balanced exposure to a range of markets and bonds, without worrying about buying £38 of Japanese funds every month.

pardal51

dunstonh wrote: »

The S&S ISA is a tax wrapper. A container for investments. Index Tracker funds are a type of investment you can hold within a tax wrapper.

thanks for this brief explanation.

Pension plan in my company is ridiculous. The contribute next to nothing. So I might increase my contributions as much as I can afford then I believe I might look into a combination of ISA S&S and SIPP (maybe allocate some funds that "I am sure" I will not need to have access to until retirement in SIPP).

dunstonh wrote: »

Not really enough to have a portfolio a single sector funds at this stage. e.g. if you allocate 3.8% to Japan then you Japanese index tracker would have just £38 going into it. It would make more sense to go with multi-asset funds until you build up enough to make the use of single sector funds more effective. It will also give you time to learn about investing (if you choose to do so) as its unlikely you have the knowledge to build a portfolio correctly using single sector funds at this stage.

it does make sense.

dunstonh wrote: »

Before you look for solutions, you need to understand what you need. Is this for an objective? holidays, future children, retirement etc?

it is basically for retirement.

dunstonh wrote: »

And do you believe you are going to win the millions on the lottery when you buy a ticket?

Need to believe in statistics, however slim they are

Al.

Playing_with_Fire wrote: »

Check out Monevator.

Read the articles about low cost trackers, low cost online brokers, and why you should fire your financial adviser.

Ditto the comment above about considering what you need the money for and when you plan to use it. If you get nervous about doing this by yourself and building a spreadsheet, speak to an IFA on an HOURLY basis and do not agree to or sign anything in the meeting (there are some great financial advisers and there are also some that will make vast amounts of money by taking 1+% of your money each and every year).

If there are two of you, you can open a S&S ISA each, and put that £7.3k + £10k into that and still have plenty of space for £1k per month.

Index funds are a good choice for many people who are looking for growth, happy to accept some risk, and who don't want excessive fees taking away their money.

Also look at the Vanguard lifestyle funds (or other fund of funds). That would allow you to buy £1000 of the fund per month and get a balanced exposure to a range of markets and bonds, without worrying about buying £38 of Japanese funds every month.

You'd be a brave IFA to take on a one off engagement these days. An hour chatting is preceded by an hour getting to know the client's circumstances maybe.. what's that? £300 for a couple of hours?

OP is one of many in an advice gap, alas.

TrustyOven

pardal51 wrote: »

have £7.3K debt in a 0% credit card (expires in Nov/15). We can either pay this debt without touching the offset or apply to transfer and keep rolling the debt. We also have an extra £10K which we want to invest and that is my question:

I'd first concentrate on reducing this debt, before investing.

Or, every month, you could drip feed some money into investments, and at the same time pay down some of the debt.

Some of the personal finance bloggers from the US advocate a system where you pay 10% or 5% of your monthly salary to credit card debt, although this is because people from the USA are obsessed with credit cards, so they run up a balance all the time it seems.

But you could take the similar view. 10% of monthly salary goes to paying down credit card debt, and another 10% of your monthly salary goes to investments. Every month.

You might find US Senator Elizabeth Warren's 50/30/20 rule useful for ideas: http://budgeting.about.com/od/financial_rules/a/The-50-30-20-Rule-Of-Thumb.htm

So your credit card and investing fits into the 20% allocation.

Similar idea from Ramit Sethi: http://fourhourworkweek.com/2009/03/26/the-psychology-of-automation-building-a-bulletproof-personal-finance-system/

(note: this is filled with US termonology... 401k is their equivalent of defined contribution pension with employer, Roth IRA is similar to S&S ISA)

I think my main point is that you don't want to be carrying around that debt... so get rid of it. Either before or while you are investing.

bigadaj

Al. wrote: »

You'd be a brave IFA to take on a one off engagement these days. An hour chatting is preceded by an hour getting to know the client's circumstances maybe.. what's that? £300 for a couple of hours?

OP is one of many in an advice gap, alas.

True, what's the minimum you would consider worthwhile, £1000-£1500 annually?