Investing in Funds

funkey_monkey

Hi again.

I heavily use VLS and L&G MI funds for small investors. They are perfect for your £10k- £99k size investments.

Is the concensus that I'm just over the cusp for what a fund like VLS and L&G MI would be suitable as a one stop shop?

Generally speaking if you are savvy about the tax bits and pieces like utilising annual isa allowances, dividend /CGT calcs and pension wrappers and all that good stuff, then the reason to consult the IFA would be (as mentioned by the IFA up thread) the act of achieving a return that suits what you are looking for.

I'm aware of using up my ISA allowance as the first port of call every April. However, as to whether I put money into a LISA, pension etc then I'm not fully confident.

Add to this that I have just became a contractor - so have become my own company director then would there be any additional tax benefits/pitfalls that I am not aware of that would need consideration?

There is also a pension to setup as well - as a new company director does this make things any different? I've looked at setting up a Vantage SIPP on HL and it seems straightforward. However, I need to find out how much to put into it and also what way to take the money out of my company. My accountant wants me to go to an advisor for this as he says it is out of his remit. I assume that a Pension Advisor would not want to tell me to invest my money into a HL Vantage SIPP and instead would want to manage my SIPP for an annual fee?

There has been too much procastination and I now need to get things moving.


Thanks.

grey_gym_sock

funkey_monkey wrote: »

Is the concensus that I'm just over the cusp for what a fund like VLS and L&G MI would be suitable as a one stop shop?

no, i don't think so. with over £100k, you have enough that you could reasonably use a more complicated portfolio of separate funds, but that doesn't mean that you have to.

if you're confident picking a multi-asset fund, but wouldn't be confident putting together a portfolio of separate funds without an advisor to help, then there's a case for going for a multi-asset fund so that you don't have to pay for advice.

I'm aware of using up my ISA allowance as the first port of call every April. However, as to whether I put money into a LISA, pension etc then I'm not fully confident.

a LISA has generally has less tax advantage than a pension. the 25% bonus (£1000 added to £4000 contribution) is the same as 20% tax relief on a pension contribution. you will generally saving a lot more than 20% tax (in CT + IC + NI) by making employer contributions from your own company (see below).

however, taking money out of a LISA (after age 60) is tax-free, unlike taking money from a pension (where only 25% is tax-free). so the LISA is generally better for people who would only get 20% relief on pension contributions (i.e. basic-rate or non-taxpayers, who don't have access to a salary sacrifice pension scheme, or the offer of matching employer contributions, and don't work through their own company).

LISA does have the advantage that you can get money out early, subject to a penalty. you might or might not want to put a bit in, to give you that flexibility. but pensions should probably be a higher priority.

Add to this that I have just became a contractor - so have become my own company director then would there be any additional tax benefits/pitfalls that I am not aware of that would need consideration?

There is also a pension to setup as well - as a new company director does this make things any different? I've looked at setting up a Vantage SIPP on HL and it seems straightforward. However, I need to find out how much to put into it and also what way to take the money out of my company. My accountant wants me to go to an advisor for this as he says it is out of his remit. I assume that a Pension Advisor would not want to tell me to invest my money into a HL Vantage SIPP and instead would want to manage my SIPP for an annual fee?

the best way to make pension contributions is usually as employer contributions made by your company, since that is a business expense, which reduces the company's profits and hence the corporation tax bill (as well as being exempt from income tax and NI). your accountant should be able to confirm that.

the rest of it (i.e. selecting a pension, how you invest it) will be outside your accountant's area of professional expertise, but it's up to you whether you want to use a pension advisor or to DIY.

funkey_monkey

grey_gym_sock wrote: »

if you're confident picking a multi-asset fund, but wouldn't be confident putting together a portfolio of separate funds without an advisor to help, then there's a case for going for a multi-asset fund so that you don't have to pay for advice.

TBH - I don't really see much difference in picking a mulit-asset fund versus picking a number of separate funds to make a portfolio. I would still need to understand the constituent parts of the multi asset fund. I only know of VLS as they are the darling of Monevator.
If I'm clueless about picking individual funds then I'm as bad with mult-asset funds. To me, the same principles of investment research apply to both.

a LISA has generally has less tax advantage than a pension. the 25% bonus (£1000 added to £4000 contribution) is the same as 20% tax relief on a pension contribution. you will generally saving a lot more than 20% tax (in CT + IC + NI) by making employer contributions from your own company (see below).

Yes, this is what I'e been reading in the MSM - BBC have had a couple of articles online about the viability of the LISA given its restrictions.

...the LISA is generally better for people who would only get 20% relief on pension contributions (i.e. basic-rate or non-taxpayers, who don't have access to a salary sacrifice pension scheme, or the offer of matching employer contributions, and don't work through their own company).

LISA does have the advantage that you can get money out early, subject to a penalty. you might or might not want to put a bit in, to give you that flexibility. but pensions should probably be a higher priority.

My understanding was that the penalties made it borderline viable for most people.

the best way to make pension contributions is usually as employer contributions made by your company, since that is a business expense, which reduces the company's profits and hence the corporation tax bill (as well as being exempt from income tax and NI). your accountant should be able to confirm that.

Yes, this is what I'm understanding too. Is there any guide as to how much of my money should be going into the Pension?

the rest of it (i.e. selecting a pension, how you invest it) will be outside your accountant's area of professional expertise, but it's up to you whether you want to use a pension advisor or to DIY.

If I could figure out how much to invest into the pension the I think I could go it alone. If you knew how much you wanted to invest in a pension on a regular basis, what would be the need for a Pension Advisor? How much would they roughly require to setup a scheme?
Am I correct in assuming that you could have portfolio within an ISA wrapper and that you could have an identical portfolio within a SIPP wrapper? Therefore we are back to the same fear as I have with my £140k?
I've also got a final salary pension which I assume is best left where it is. I can no longer contribute into it.

seacaitch

dunstonh wrote: »

IFAs bring structure, research and due diligence. It may not beat the market but then it may do.

For many investors, "beating the market" is largely a red herring - their own actions (behavioural biases and ill-discipline) will ensure that even if they held an all market tracker with zero costs they'd still underperform the market, often dramatically. Therefore, just getting anywhere approaching a market return can be considered a good achievement.

As I pointed out on another thread, people whose investment experience only began after March 2009 will at some point be served up some tremendous self-discovery opportunities courtesy of market euphoria and despair. People will chase up and pile into soaring markets and then they'll panic and flee from despairing markets. No one thinks they will but many do.

This is something where IFAs, despite the cost overhead, can be highly beneficial. Investors' worst enemies are themselves. Rigour and discipline is what stops people making big mistakes. For many people getting their own amygdala out of the loop thereby avoiding falling prey to expensive emotional responses to markets can be a key step to avoiding these mistakes.

I'm not an IFA and have no connection with any but believe they have an important role to play.

ArmyDilllo

I would seek professional advice, young funksta.

Usually a financial adviser will have a first meeting with you to assess your financial situation and future requirements.
This first hour will be free and will usually throw up some useful ideas.
I found it all quite boring at your age I'm afraid and I'm not going to build it up but, if you can go through two or three with different advisers, you will pick up a much better understanding than you have at the moment.
You can still opt to self -manage if you wish.

Beware though, after the first meeting charges can apply and can be significant.
On the other hand, my Father used to pay someone to manage his finances for a few years and then took it over himself and has done very well from it, also teaching me and my Brother.

Diversify.
Don't only opt for an investment fund.

I have invested in pensions (work and personal), an endowment (maturing next September), one 'with-profits' investment fund, and ISA's consisting of direct and passively managed investment funds and company shares.
I also have a six month emergency fund in cash, just in case.

I am 57 in February but, although I have always saved, I have only been investing seriously since 2000.
I record the performance of all my investments and can tell you that my average performance has been 17% every year during that period.
I am proud of this because I only invest in what I consider to be 'safe' vehicles, which many might expect to have realised a rate of just 5-7% (when I went into this I would have been satisfied with 7%).

The younger you are the more risk you can afford to take because you have longer to recover from market falls and investments are safer over longer periods.
But the markets are high at the moment and many investors have been anticipating a correction.

While you're starting out, I urge you to start getting The Telegraph on Saturday and Sunday.
They have a 'pull-out' section called "Money" and "Your Money".
I make use of this religiously.
It also gives specific readers advice based upon their situations.
You may find some of that especially useful in your circumstance.

This is all very well, but the right professional adviser could help you with this and make you more tax-efficient, which can make you more money now and in future years.
Paying a fee now might be very cost-effective for you.

grey_gym_sock

funkey_monkey wrote: »

Is there any guide as to how much of my money should be going into the Pension?

a very rough rule of thumb is to contribute, as a percentage of your earnings, half your age when you start paying into a pension. e.g. if you start at age 30, contribute 15% of your salary from that point onwards.

if your earnings are variable, then there's a case for putting in a much higher percentage of extra earnings that may not be repeated.

to get full tax relief, contributions are generally limited to an annual allowance of £40k per tax year, although in some circumstances you can carry forward unused annual allowance from earlier years.

If you knew how much you wanted to invest in a pension on a regular basis, what would be the need for a Pension Advisor? How much would they roughly require to setup a scheme?

i don't know about advisor charges.

Am I correct in assuming that you could have portfolio within an ISA wrapper and that you could have an identical portfolio within a SIPP wrapper?

yes, in a SIPP you can hold exactly the same investments as in an ISA.

however, SIPPs are not the only option for pensions. there are also personal pensions from insurance companies, in which you can only buy an in-house range of funds. typically these have a single charge covering both the pension wrapper and the funds. it sounds more restrictive, but it may give you all you need, more cheaply than a SIPP. it is possible to go this route DIY, but this option is more often used by advisors; and some of these pensions are only available via advisors.

funkey_monkey

Thanks for the replies - only getting back to this after the Christmas excesses.

Yes, I do think that an IFA at this stage at least could be financially worthwhile for me in the long run. Especially as I've got to consider the pension and the funds.

What you need to look for in an IFA? I've narrowed it down to 3, but I'm struggling to decide between them. The charges are comparable - I've calculated out their costs projected over 15 years and there is only £400 between two of them and £4,000 between them and the third option - who offered to setup the pension inclusively whereas the others were looking between £500 - £1000 for this service. The third guy said setting up a new pension was straightforward.

I've been stuck on this stage for a while now. How do I progress from here? I've already been to some FA's (as opposed to IFA's) before realising my mistake and I don't want to waste more time getting confused or appear like a timewaster.

Depends. If the instruction from the client is to only use passives, then you would be lower. If it was to only use managed it would be higher or with no instruction, we use both. Tend to come in around 1.2x% (inc adviser, fund and platform).

Are you saying 1.2% for a mixed portfolio. <1.2% for passive and 1.5%>= for active?


Does anyone know what the success rate is for an IFA from the initial meetings? I don't want to waste peoples time, but at the same time I just don't want to go with someone due to pressure or fear of annoying them.

dunstonh

Are you saying 1.2% for a mixed portfolio. <1.2% for passive and 1.5%>= for active?

1.2% for a mixed active/passive portfolio. Passive only would be cheaper.

Does anyone know what the success rate is for an IFA from the initial meetings?

I estimate that most go with the first one they contact. The key thing is that any IFA should be able to describe their investment process and have supporting material for it. If the adviser cannot explain/provide that then dont take it any further.

Thrugelmir

Gwencert wrote: »

How are dividend stocks as an option to invest. They are a very good and steady source of income for long run.

Dividend stocks do not pay a guaranteed income. Having a high concentration of investment in the wrong ones could be extremely costly.

Pincher

Gwencert wrote: »

How are dividend stocks as an option to invest. They are a very good and steady source of income for long run.

Now that you get £5,000 dividend tax allowance, it's a hilarious way of getting tax free income.

Like lots of people here, the Regular Savers and current accounts have used up the £1,000 Personal Savings Allowance.

You can get 1.5% interest (Santander 123) and pay 20% tax, or get 3%+ in dividend and pay NO TAX. I do both: because I'm a chicken, or am I just sensible and wise?