Tracker funds and ISAs

Playing_with_Fire_2

£15,240 in 2015. You can bed and ISA pretty much any fund or stock, it doesn't have to be a managed fund, your IFA may be suggesting that they do the transfer (i.e. manage the investments for you), this may be unnecessary if you are happy making decisions and doing transactions for yourself. Check out the dividend and Capital Growth Tax allowances starting in April 2016 (and later on Capital Gains Harvesting). Unless you are seriously minted you won't pay any way near two thirds tax on investments in a taxable account.

You have some poor information here. Check what the financial advisor has told you. If you have made a mistake, typo or misunderstood, no worries, everyone does this sometimes. If this is actually what the advisor has told you, then you should consider looking for a better one. You may find that the costs that you are being quoted for the managed fund include a fee for your advisor (fees for a fund are normally a %, so the amount you invest wouldn't make much difference - apart from £10 or so transaction fee).

Vanguard funds are generally good versions of what they are (index trackers, funds of funds, bond funds).

The issue is that if you invest in an index that is too volatile or inadequately diversified, it doesn't matter how good the fund is at accurately tracking the index cheaply. So you're not being foolish for looking at Vanguard, but you might be looking at the wrong Vanguard product (for you, right now).

ChesterDog

Sam_J12 wrote: »

Please stop spouting this nonsense. You know nothing about the OPs personal finances and what other investments and assets he has.

If a single tracker (S&P 500) fund is good enough for John Bogle and Warren Buffet to recommend I imagine it would be fine for OP.

Sam, you have to bear in mind that Buffet's oft-quoted advice is aimed at heirs who are to inherit untold wealth. It is far more orientated towards simple wealth-preservation for US citizens than would be a suitable notion for a typical investor, especially a UK novice.

It is true, as you say, that we do not know the full circumstances of the OP, but it's safe to assume they are not the same as one of Warren Buffet's heirs. Your average investor - I would say - ought to be looking for good, global diversification.

TheTracker

dunstonh wrote: »

That is pretty awful quality investing. Especially on that amount. Do you really think one sector is going to be the best one every year going forward?

Trackers need not be single sector. What is wrong with VWRL for the complete equity component of a portfolio?

colsten

johnr621 wrote: »

I did always understand that we could put £15400 in this year (each) then do the same for the next couple (and a bit) years, but it is the question of what to do with the money between now and next (and the next) April that troubles me. I wanted to get it all in the fund now and have it working for us straight away, though we would be paying tax on two thirds of any interest earned. There was a suggestion from an IFA that that could be done with a managed fund. Is that what the term "bed & ISA" refers to?

Seems there is a significant amount of confusion. You don't earn interest from funds. The "tax on two thirds" sounds like a total red herring and may have to do with a pension, which isn't the investment you were talking about.

It should be all very simple for the £100K you want to invest:

• You open an account for each of you with an online broker (see monevator.com for comparison of brokers). Each broker offers unwrapped (non-ISA) and ISA accounts
  
• You deposit 2 x £15,240 into each of your ISAs and buy £15,240 worth of your fund each
  
  
• You deposit £34,760 into each of your unwrapped investment accounts and buy approx £34,000 worth of your fund each (leave some money behind to pay for the broker charges)
  
  
• Come April 6, you can "Bed and ISA" £15,240 from your unwrapped accounts to your ISAs. Same again with the remainder of your unwrapped investment come April 6 2017. Please do google "Bed & ISA"!
  
  
• Tax on your unwrapped account will only become due if, at the time of selling, you have made a profit higher than your annual CGT allowance. Each of you has a CGT allowance of £11,100 this tax year, and it will probably be around the same in subsequent tax years. As you only sell max £15,240 each year, it is extremely unlikely that you'd have to pay any tax as you won't make 80%-odd profit from any fund within a year or even 5 years.

dunstonh

TheTracker wrote: »

Trackers need not be single sector. What is wrong with VWRL for the complete equity component of a portfolio?

Global equity takes care of the global equity holdings. What about property and fixed interest?

The OP said "a tracker" and the wording indicates a new investor. It is highly unlikely a new investor would put 100% of their investment into a speculative investment fund. On a 1-10 risk scale (cash =1 ) then a global equity fund would 9 or 10 out of 10. The OP may have the tolerance and capacity for loss to handle that but most new investors would not.

It is better to point out the issues now and not after they suffer a 45% loss and are posting again to say they are taking their money out and never investing again.

johnr621

Thanks again all.
Colsten; you're right - my reference to "interest" was somewhere between typo and brain-not-engaged. For 'interest' read 'gains'. Your step by step instructions were particularly helpful.
I feel a little bit better equipped to make decisions now. As some have guessed, I'm totally new to investing. Never had the disposable to put any money aside before. Too busy paying the mortgage and bills!

dunstonh

As some have guessed, I'm totally new to investing. Never had the disposable to put any money aside before. Too busy paying the mortgage and bills!

Over any given 12 month period, how much of a loss could you stomach before pulling out? e.g. if you had £100k, how much could it drop to before you get worried or would affect your finances?

newlease

Various comments have done a good job outlining how to roll these into ISA over the next years. This definitely doesn't need the assistance of an IFA. The bed and ISA is the cherry on the cake.

dunstonh's comments are relevant. A good tracker following S&P or World developed index as main is good but is always best supplemented with emerging, property, bond with ratio depending on your personal circumstances. A good developed market tracker (I prefer S&P to FTSE) is necessary but not enough. Since Vanguard/Boggle is mentioned, google "bogglehead three-fund portfolio"

Superscrooge

johnr621 wrote: »

As some have guessed, I'm totally new to investing. Never had the disposable to put any money aside before. Too busy paying the mortgage and bills!

https://www.monevator.com is a good website for newbies to improve their investing knowledge

TheTracker

newlease wrote: »

dunstonh's comments are relevant. A good tracker following S&P or World developed index as main is good but is always best supplemented with emerging, property, bond with ratio depending on your personal circumstances. A good developed market tracker (I prefer S&P to FTSE) is necessary but not enough. Since Vanguard/Boggle is mentioned, google "bogglehead three-fund portfolio"

The world tracker I quoted includes EM at their market capped representation. Many fund managers including Vanguard offer total world trackers AND developed world trackers.

Those who do take a total world market approach similarly pay little credit to property tilts. The tracker already directly and indirectly holds property related equity. Property is only about 3% of total world equity so any reverse correlation would have little effect when cap weighted. A good summary is contained in Lars Kroijer's book Investong Demystified.

The BH 3 fund portfolio is total domestic equity, total international equity, total world bonds. Many, particularly non-US simplify this as total world equity (VWRL) and total world bond.

I have an intellectual dispute with dunstonh assigning risk levels to equity:bond ratios when the equity portion is extremely diversified with total market trackers. I simply don't believe an x:y portfolio that is total market on both sides is nearly as risky as the standard x:y portfolio of hodgepodge funds that the average Joe, IFA advised or not, holds. You can see this on the 2015 return thread where many pundits have double digits returns whereas a pure passive play is single digits, volatility naturally must be higher on average. By way of example, I'd say a 100% total world tracker is less risky than an 80% FTSE100 tracker with 20% global bond tracker. But that debates been had, no need to rehash.

But agreed that putting 100% in equities is a silly idea for a most investors and a new investor particularly. On this forum as on many it isn't always clear where a request for guidance to invest in equities sits against the other fixed-interest based holdings the requester also holds.