Vanguard LifeStrategy 60% questions

ValiantSaint

Hello everyone. I have been toying with the idea of this fund being my "all in" solution for ploughing my little nest egg (of 4k) into, due to the complete lack of decent offers of good rates of interest on anything over about 2k.

I have a few questions, which I'm hoping you great bunch on here will answer for me.

Do you have to add money to the fund every month?

How do you go about setting everything up?

Are there monthly fees?

Are you taxed on what you make from the fund?

Can you withdraw if you need too?

What are the risks?

What's a decent term for the money to be invested for?

And is the 60% fund too risky for an "all-in" investment?

Many thanks in advance

Archi_Bald

If £4K is your entire cash reserve, the very last thing you should do is to put it into any investments. You need to have an emergency cash fund of at least 6 months living expenses. You also should only invest if you can leave the investment untouched for at least 5-7 years.

Interest paying current accounts are ideal for this. £4K can be split between a TSB Plus (£1.8K) and a Nationwide FlexDirect (£2.2K). Both are paying 5% AER - a very decent interest rate given inflation bobs around 0%. Swap £1K between the two by SO each month to meet the minimum monthly deposits. Review after approx 11 months, before the 5% in the FlexDirect expires.

Whilst your money happily earns good interest over the next 12 months, you can read up about investments and answer all those questions you currently have, and also answers to questions you don't even know you should have.

ValiantSaint

Archi_Bald wrote: »

If £4K is your entire cash reserve, the very last thing you should do is to put it into any investments. You need to have an emergency cash fund of at least 6 months living expenses. You also should only invest if you can leave the investment untouched for at least 5-7 years.

Interest paying current accounts are ideal for this. £4K can be split between a TSB Plus (£1.8K) and a Nationwide FlexDirect (£2.2K). Both are paying 5% AER - a very decent interest rate given inflation bobs around 0%. Swap £1K between the two by SO each month to meet the minimum monthly deposits. Review after approx 11 months, before the 5% in the FlexDirect expires.

Whilst your money happily earns good interest over the next 12 months, you can read up about investments and answer all those questions you currently have, and also answers to questions you don't even know you should have.

Thanks for the quick reply. The 4k isn't my whole cash reserve. It's just what I would like to put into a long-term investment.

InvestInPoker

Hey, I will spare you the questions about your money/life situation (although they are appropriate to make you think) and try and answer what you asked.

ValiantSaint wrote: »

Do you have to add money to the fund every month?

No but you can do if you want. You can do lump sums, regular small sums, whatever you fancy.

How do you go about setting everything up?

Choose a platform to invest through (like fidelity, hargreaves lansdown, charles stanley direct etc). Open an account there and purchase the investment in whatever way is most suitable for you.

Are there monthly fees?

There is a fee for holding the vanguard fund (they are cheap though compared to other funds). There will also be a fee to your platform. You wont notice the vanguard fee as in effect you will just get slightly less returns than you "should". The platform fee varies from provider to provider both in terms of how its calculated and how it can be paid.

Are you taxed on what you make from the fund?

This just my understanding and might not be correct.

Dividends from your fund are auto taxed at source 10% no matter if you are inside or outside an ISA. These are effectively taken out before you are credited so no worries for you. If you are inside an ISA there will be nothing more to pay tax wise ever, nor will there be any capital gains liability no matter how you profit when you sell in the future.

Outside an ISA you might have to pay more tax on dividends if you are a higher rate tax payer. You will also trigger a capital gains event when you sell the fund.

Can you withdraw if you need too?

Yes

What are the risks?

That there is a downturn in the worlds financial markets and the value of your investment plummets. There is also the smaller risk of your platform going bust and you having to go through a lot of stress to recover your holding, or you being defrauded in some way by them.

What's a decent term for the money to be invested for?

At an absolute minimum (and I mean MINIMUM) 5 years but you really want 15 years+.

And is the 60% fund too risky for an "all-in" investment?

To me it is on the cautious side and not particularly risky, especially once you get over the 10 year mark. I cannot advise you on your own risk tolerance however.

ValiantSaint

Thanks for the amazing reply, InvestInPoker. What sort of yearly return would I be looking at on the 4k, if I was to go for the 60% fund?

And which company would be better to use?

Eco_Miser

InvestInPoker wrote: »

This just my understanding and might not be correct.

It isn't. There's no tax deducted on dividends, as explained here:
http://www.theaic.co.uk/sites/default/files/AICTaxationofDividendsConsumerguide.pdf

Next year, even Basic Rate taxpayers with over £5000 dividends outside ISAs/Pensions will have to pay dividend tax.

InvestInPoker wrote: »

Dividends from your fund are auto taxed at source 10% no matter if you are inside or outside an ISA. These are effectively taken out before you are credited so no worries for you. If you are inside an ISA there will be nothing more to pay tax wise ever, nor will there be any capital gains liability no matter how you profit when you sell in the future.

Well, until some future government abolishes ISAs.

bigfreddiel

ValiantSaint wrote: »

Thanks for the amazing reply, InvestInPoker. What sort of yearly return would I be looking at on the 4k, if I was to go for the 60% fund?

And which company would be better to use?

Try reading the documentation on the fund in question, that will show you the historic yield.

Cheers fj

Sam_J12

Eco_Miser wrote: »

It isn't. There's no tax deducted on dividends, as explained here:
http://www.theaic.co.uk/sites/default/files/AICTaxationofDividendsConsumerguide.pdf

Really interesting! Thanks for that. I was also under the misapprehension that dividends were taxed at 10% regardless of whether they were in an ISA. Do you know if shares within a mutual fund or ETF are taxed at the 10% rate?

Linton

Sam_J12 wrote: »

Really interesting! Thanks for that. I was also under the misapprehension that dividends were taxed at 10% regardless of whether they were in an ISA. Do you know if shares within a mutual fund or ETF are taxed at the 10% rate?

You havent got it! Dividends currently arent taxed at all except for higher rate tax payers. There is a presumption in the tax system that they are taxed at 10%, but that is a matter of accounting, not reality. So shares within a fund/ETF just contribute dividends just like they do to individual shareholders. Funds/ETFs dont pay income tax so there is no tax implications or refund.

If the fund/ETF itself pays out dividends then these are treated like dividends paid from individual shares.

To complete the picture, interest of course is taxed more or less as income. So if a fund/ETF pays out something that is regarded by the taxman as interest rather than a dividend (eg from bond funds/ETFs) then the normal tax rules apply in the same way as bank interest.

Sam_J12

Great, thanks Linton. So where does the 10% tax figure come into it all then? And is it the case that money in pension funds is subject to this tax?

Linton

Sam_J12 wrote: »

Great, thanks Linton. So where does the 10% tax figure come into it all then? And is it the case that money in pension funds is subject to this tax?

There isnt a tax!!!

What happens at the moment is that purely for income tax pupose you are deemed to have already paid a 10% income tax although actually you were never charged it in the first place. Why this happens I dont know, presumably from some long forgotten tax changes many years ago. And it will soon disappear. From April next year dividends above £5K will be really subject to income tax at a rate dependent on your tax band.

Anyway, within a pension or ISA there is no tax on dividends, neither now nor after April.